As filed with the Securities and Exchange Commission on
September 26, 2008
Registration
No. 333-153091
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
AMENDMENT NO. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF
1933
McJUNKIN RED MAN HOLDING
CORPORATION
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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1311
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20-5956993
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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8023 East 63rd Place
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835 Hillcrest Drive
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Tulsa, Oklahoma 74133
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Charleston, West Virginia 25311
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(918) 250-8541
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(304) 348-5211
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(Address, Including Zip Code,
and Telephone Number,Including Area Code, of Registrants
Principal Executive Offices)
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Andrew Lane
8023 East 63rd Place
Tulsa, Oklahoma 74133
(918) 250-8541
(Name, Address, Including Zip
Code, and Telephone Number,
Including Area Code, of Agent for Service)
With a copy to:
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Stuart H. Gelfond
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Richard A. Drucker
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Michael A. Levitt
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Davis Polk & Wardwell
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Fried, Frank, Harris, Shriver & Jacobson LLP
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450 Lexington Avenue
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One New York Plaza
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New York, New York 10017
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New York, New York 10004
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(212) 450-4000
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(212) 859-8000
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box.
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If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.
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If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
þ
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Smaller reporting
company
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(Do not check if smaller reporting company)
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Title of Each Class of
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Aggregate Offering
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Amount of
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Securities to be Registered
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Price (1)(2)
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Registration Fee
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Common Stock, $0.01 par value
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$750,000,000
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$29,475 (3)
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(1)
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Includes offering price of shares of common stock which the
underwriters have the option to purchase.
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(2)
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Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(o) of the Securities Act of 1933,
as amended.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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Subject to Completion. Dated
September 26, 2008.
Shares
McJunkin Red Man Holding
Corporation
Common Stock
This is an initial public offering of shares of common stock of
McJunkin Red Man Holding Corporation. The selling stockholder
identified in this prospectus is offering all of the shares to
be sold in the offering. We will not receive any of the proceeds
from the sale of the shares. PVF Holdings LLC intends to
distribute the net proceeds of this offering, after giving
effect to the underwriting discount, to its members, which
include certain members of our board of directors and senior
management team and various of their affiliates, and affiliates
of Goldman Sachs & Co., which is one of the
book-running managers for this offering.
Prior to this offering, there has been no public market for the
common stock. It is currently estimated that the initial public
offering price per share will be between
$ and
$ . We intend to apply to have our
common stock listed on the New York Stock Exchange under the
symbol MRC.
See Risk Factors beginning on
page 18 to read about factors you should consider
before buying shares of the common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to the selling stockholder
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$
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$
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To the extent that the underwriters sell more
than shares
of common stock, the underwriters have the option to purchase up
to an
additional shares
from the selling stockholder at the initial public offering
price less the underwriting discount.
The underwriters expect to deliver the shares against payment in
New York, New York
on ,
2008.
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Goldman,
Sachs & Co.
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Lehman Brothers
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JPMorgan
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Deutsche Bank Securities
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Robert
W. Baird & Co.
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Credit Suisse
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Stephens Inc.
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Prospectus
dated ,
2008.
[Page left intentionally blank]
TABLE OF
CONTENTS
Prospectus
Through and
including ,
2008 (the 25th day after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus or any free writing prospectus prepared by or on
behalf of us. You must not rely on any unauthorized information
or representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
PROSPECTUS
SUMMARY
This summary highlights selected information contained
elsewhere in this prospectus. You should carefully read the
entire prospectus, including the Risk Factors and
the consolidated financial statements and related notes included
elsewhere in this prospectus, before making an investment
decision. In this prospectus, all references to the
Company, McJunkin Red Man, we,
us, and our refer to McJunkin Red Man
Holding Corporation and its consolidated subsidiaries, unless
the context otherwise requires or where otherwise indicated, and
references to the Red Man Transaction are to the
October 2007 business combination of McJunkin Corporation
(McJunkin) and Red Man Pipe & Supply Co.
(Red Man). We use non-GAAP measures in this
prospectus, including Adjusted EBITDA. For a reconciliation of
this measure to Net income, see footnote 3 under
Summary Consolidated Financial
Information.
Our
Business
We are the largest North American distributor of pipe, valves
and fittings (PVF) and related products and services
to the energy industry based on sales and the leading PVF
distributor serving this industry across each of the upstream
(exploration, production, and extraction of underground oil and
gas), midstream (gathering and transmission of oil and gas, gas
utilities, and the storage and distribution of oil and gas) and
downstream (crude oil refining and petrochemical processing)
markets. We have an unmatched presence of over 250 branches that
are located in the most active oil and gas regions in North
America. We offer an extensive array of PVF and oilfield
supplies encompassing over 100,000 products, we are diversified
by geography and end market and we seek to provide best-in-class
service to our customers by satisfying the most complex,
multi-site needs of some of the largest companies in the energy
and industrials sectors as their primary supplier. As a result,
we have an average relationship of over 20 years with our
top ten customers and our pro forma sales in 2007 were over
twice as large as our nearest competitor in the energy industry.
We believe the critical role we play in our customers
supply chain, our unmatched scale and extensive product
offering, our broad North American geographic presence, our
customer-linked scalable information systems and our efficient
distribution capabilities serve to solidify our long-standing
customer relationships and drive our growth.
We have benefited in recent years from several growth trends
within the energy industry including high levels of expansion
and maintenance capital expenditures by our customers. This
growth in spending has been driven by several factors, including
underinvestment in North American energy infrastructure,
production and capacity constraints and anticipated strength in
the oil, natural gas, refined products and petrochemical
markets. While current prices for oil and natural gas are high
relative to historical levels, we believe that investment in the
energy sector by our customers would continue at prices well
below current levels. In addition, our products are often used
in extreme operating environments leading to the need for a
regular replacement cycle. As a result, over 50% of our
historical and pro forma sales in 2007 were attributable to
multi-year maintenance, repair and operations (MRO)
contracts where we have demonstrated an over 99% average annual
retention rate since 2000. The combination of these ongoing
factors has helped increase demand for our products and
services, resulting in record levels of customer orders to be
shipped as of September 2008. For the twelve months ended
December 31, 2007 on a pro forma basis, we generated sales
of $3,952.7 million, Adjusted EBITDA of $370.4 million
and net income of $150.8 million. In addition, for the
eleven months ended December 31, 2007, without giving pro
forma effect to the Red Man Transaction, we generated sales of
$2,124.9 million, EBITDA of $171 million and net
income of $56.9 million, and for the twelve months ended
October 31, 2007, before giving effect to the Red Man
Transaction, Red Man generated sales of $1,982.0 million,
EBITDA of $170 million and net income of $82.2 million.
We have established a position as the largest North American PVF
distributor to the energy industry based on sales. We distribute
products throughout North America and the Gulf of Mexico,
including in PVF intensive, rapidly expanding oil and natural
gas production areas such as the
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Bakken, Barnett, Fayetteville, Haynesville and Marcellus
shales. Growth in these oil and natural gas production areas is
driven by improved production technology, favorable market
trends and robust capital expenditure budgets. Furthermore, our
Canadian subsidiary Midfield Supply ULC and its subsidiaries
(Midfield), one of the three largest Canadian PVF
distributors based on sales, provides PVF products to oil and
gas companies operating primarily in Western Canada, including
the Western Canadian Sedimentary Basin, Alberta Oil Sands and
heavy oil markets. These regions are still in the early stages
of infrastructure investment with numerous companies seeking to
facilitate the long-term harvesting of difficult to extract and
process crude oil.
McJunkin Red Man
Locations
Across our extensive North American platform we offer a broad
complement of products and services to the upstream, midstream
and downstream sectors of the energy industry, as well as other
industrial (including general manufacturing, pulp and paper,
food and beverage) and other energy (power generation, liquefied
natural gas, coal, alternative energy) end markets. During the
twelve months ended December 31, 2007 on a pro forma basis,
approximately 46% of our sales were attributable to upstream
activities, approximately 22% were attributable to midstream
activities and approximately 32% were attributable to downstream
and other processing activities which include the refining,
chemical and other industrial and energy end markets. In
addition, before giving pro forma effect to the Red Man
Transaction, during the twelve months ended December 31,
2007, approximately 36% of our sales were attributable to
upstream activities, approximately 18% were attributable to
midstream activities and approximately 46% were attributable to
downstream and other processing activities.
We offer more than 100,000 products including an extensive array
of PVF, oilfield supply, automation, instrumentation and other
general and specialty products to our customers across our
various end markets. Due to the demanding operating conditions
in the energy industry and high costs associated with equipment
failure, customers prefer highly reliable products and vendors
with established qualifications and experience. As our PVF
products typically represent a fraction of the total cost of the
project, our customers place a premium on service given the high
cost to them of maintenance or new project delays. Our products
are typically used in high-volume, high-stress, abrasive
applications such as the gathering and transmission of oil and
natural gas, in high-pressure,
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extreme temperature and high-corrosion applications such as in
heating and desulphurization in the processing and refining
industries and in steam generation units in the power industry.
With over 250 locations servicing the energy and industrial
sectors, we are an important link between our more than 10,000
customers and our more than 10,000 suppliers. We add value to
our customers and suppliers in a number of ways:
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Broad Product Offering and High Customer Service
Levels:
The breadth and depth of our product
offering enables us to provide a high level of service to our
energy and industrial customers. Given our North American
inventory coverage and branch network, we are able to fulfill
orders more quickly, including orders for less common and
specialty items, and provide our customers with a greater array
of value added services, including multiple daily deliveries,
volume purchasing, product testing and supplier assessments,
inventory management and warehousing, technical support,
just-in-time
delivery, order consolidation, product tagging and tracking, and
system interfaces customized to customer and supplier
specifications, than if we operated on a smaller scale
and/or
only
at a local or regional level. Thus our clients, particularly
those operating throughout North America, can quickly and
efficiently source the most suitable products with the least
amount of downtime and at the lowest total transaction cost.
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Approved Manufacturer List (AML)
Services:
Our customers rely on us to provide
a high level of quality control for their PVF products. We do
this by regularly auditing many of our suppliers for quality
assurance through our Supplier Registration Process. We use our
resulting Approved Supplier List (the MRM ASL) to
supply products across many of the markets we support,
particularly for downstream and midstream customers. This
process has enabled us to achieve a preferred vendor status with
many key end users in the industry that utilize our AML services
to help devise and maintain their own approved manufacturer
listings. In this manner, we seek to ensure that our customers
timely receive reliable and high quality products without
incurring additional administrative and procurement expenses.
Our suppliers in turn look to us as a key partner, which has
been important in establishing us as an important link in the
supply chain and a leader in the industry.
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Customized and Integrated Service
Offering:
We offer our customers integrated
supply services including product procurement, product quality
assurance, physical warehousing, and inventory management and
analysis using our proprietary customized information technology
platform. This is part of an overall strategy to promote a
one stop shop for PVF purchases across the
upstream-midstream-downstream spectrum and throughout North
America through integrated supply agreements and MRO contracts
that enable our customers to focus on their core operations and
increase the efficiency of their business.
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Our
Industry
We primarily serve the North American oil and gas industry,
generating over 90% of our sales from supplying PVF products and
various services to customers throughout the energy industry.
Given the diverse requirements and various factors that drive
the growth of the upstream, midstream and downstream energy
markets, our sales to each sector may vary from time to time,
though the overall strength of the global energy market is
typically a good indicator of our performance. The
underinvestment in North American energy infrastructure,
together with production and capacity constraints and
anticipated strength in the oil, natural gas, refined products
and petrochemical markets, have spurred high levels of expansion
and maintenance capital expenditures in our energy end markets
by our customers. Furthermore, as participants in the energy
industry continue to focus on raising operating efficiency, they
have been increasingly looking to outsource their procurement
and related administrative functions to distributors like us.
Beyond the oil and gas industry, we also supply products and
services to other energy sectors such as coal, power generation,
liquefied natural gas and alternative energy facilities. We also
provide
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products such as automation and instrumentation products and
corrosion resistant piping products to more general industrial
end markets such as pulp and paper, metals processing,
fabrication, pharmaceutical, food and beverage and manufacturing
companies.
Our Competitive
Strengths
We consider the following to be our key competitive strengths:
Market Leader with Complete North American Coverage and
Significant Scale.
We are the leading North
American distributor of PVF and related products to the energy
industry based on sales, with at least twice the sales of our
nearest competitor in the energy industry in 2007. Our North
American network of over 250 locations in 38 U.S. states
and in Canada gives us a significant market presence and
provides us with substantial economies of scale that we believe
make us a more effective competitor. The benefits of our size
and extensive North American presence include: (1) the
ability to act as a single-source supplier to large,
multi-location customers operating across all segments of the
energy industry; (2) the ability to commit significant
financial resources to further develop our operating
infrastructure, including our information systems, and provide a
strong platform for future expansion; (3) volume purchasing
benefits from our suppliers; (4) an ability to leverage our
extensive North American inventory coverage to provide greater
overall breadth and depth of product offerings; (5) the
ability to attract and retain effective managers and
salespeople; and (6) a business model exhibiting a high
degree of operating leverage. Our presence and scale have also
enabled us to establish an efficient supply chain and logistics
platform, allowing us to better serve our customers and further
differentiate us from our competitors.
High Level of Integration and MRO Contracts with a Blue
Chip Customer Base.
We have a diversified
customer base with over 10,000 active customers and serve as the
sole or primary supplier in all end markets or in specified end
markets or geographies for many of our customers. Our top ten
customers, with whom we have had relationships for more than
20 years on average, accounted for less than 30% of 2007
pro forma sales and no single customer accounted for more than
5% of 2007 pro forma sales. Before giving pro forma effect to
the Red Man Transaction, our top ten customers accounted for
approximately 30% of our 2007 sales and our largest customer
accounted for approximately 6% of our 2007 sales. We enjoy fully
integrated relationships, including interconnected technology
systems and daily communication, with many of our customers and
we provide an extensive range of integrated and outsourced
supply services, allowing us to market a total transaction
cost concept as opposed to individual product prices. We
provide such services as multiple daily deliveries, zone stores
management, valve tagging, truck stocking and significant system
support for tracking and replenishing inventory, which we
believe results in deeply integrated customer relationships. We
sell products to many of our customers through multi-year MRO
contracts which are typically renegotiated every three to five
years. Although there are typically no guaranteed minimum
purchase amounts under these contracts, these MRO customers,
representing over 50% of both our 2007 historical and pro forma
sales, provide a relatively stable revenue stream and help
mitigate against industry downturns. We believe we have been
able to retain customers by ensuring a high level of service and
integration, as evidenced by our annual average MRO contract
retention rate of over 99% since 2000. Furthermore, we have
recently signed new MRO contracts displacing competitors that
provide opportunities for us to gain new customers and broaden
existing customer relationships.
Business and Geographic Diversification in High-Growth
Areas.
We are well diversified across the
upstream, midstream and downstream operations of the energy
industry, as well as through our participation in selected
industrial end markets. During the twelve months ended
December 31, 2007 on a pro forma basis, we generated
approximately 46% of our sales in the upstream sector, 22% in
the midstream sector, and 32% in the downstream, industrial and
other energy end markets. Before giving pro forma effect to the
Red Man Transaction, during the twelve months ended
December 31, 2007, approximately 36% of our sales were
attributable to upstream
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activities, approximately 18% were attributable to midstream
activities and approximately 46% were attributable to downstream
and other processing activities. This diversification affords us
some measure of protection in the event of a downturn in any one
end market while providing us the ability to offer one
stop shopping for most of our integrated energy customers.
In addition, our more than 250 branches are located near major
hydrocarbon and refining regions throughout North America,
including rapidly expanding oil and natural gas exploration and
production (E&P) areas in North America, such
as the Bakken, Barnett, Fayetteville, Haynesville and Marcellus
shales. Our geographic diversity enhances our ability to respond
to customers quickly, gives us a strong presence in these high
growth E&P areas and reduces our exposure to a downturn in
any one region.
Strategic Supplier Relationships.
We
have extensive relationships with our suppliers and have key
supplier relationships dating back in certain instances over
60 years. We purchased approximately $1 billion of
products from our top ten suppliers for the twelve months ended
December 31, 2007 on a pro forma basis, representing
approximately 32% of our purchases. Before giving pro forma
effect to the Red Man Transaction, during the twelve months
ended December 31, 2007 we purchased approximately
$431 million of products from our top ten suppliers,
representing approximately 30.7% of our purchases. We believe
our customers view us as an industry leader for the formal
processes we use to evaluate vendor performance and product
quality. We employ individuals, certified by the International
Registry of Certificated Auditors, who specialize in conducting
manufacturer assessments both domestically and internationally.
Our Supplier Registration Process (SRP), which
allows us to maintain the MRM ASL, serves as a significant
strategic advantage to us in developing, maintaining and
institutionalizing key supplier relationships. For our
suppliers, being included on the MRM ASL represents an
opportunity for them to increase their product sales to our
customers. The SRP also adds value to our customers, as they
collaborate with us regarding specific manufacturer performance,
our past experiences with products and the results of our
on-site
supplier assessments. Having a timely, uninterrupted supply of
those mission critical products from approved vendors is an
essential part of our customers day-to-day operations and
we work to fulfill that need through our SRP.
A Leading IT Platform Focused on Customer
Service.
Our business is supported by our
integrated, scalable and customer-linked customized information
systems. These systems and our more than 3,400 employees
are linked by a wide area network. We are currently implementing
an initiative, expected to be completed in 2009, that will
combine our business operations onto one enterprise server-based
system. This will enable real-time access to our business
resources, including customer order processing, purchasing and
material requests, distribution requirements planning,
warehousing and receiving, inventory control and accounting and
financial functions. Significant elements of our systems include
firm-wide pricing controls resulting in disciplined pricing
strategies, advanced scanning and customized bar-coding
capabilities, allowing for efficient warehousing activities at
customer as well as our own locations, and significant levels of
customer-specific integrations. We believe that the customized
integration of our customers systems into our own
information systems has increased customer retention by reducing
their expenses, thus creating switching costs when comparing us
to alternative sources of supply. Typically, smaller regional
and local competitors do not have IT capabilities that are as
advanced as ours.
Highly Efficient, Flexible Operating Platform Drives
Significant Free Cash Flow Generation.
We
place a particular emphasis on practicing financial discipline
as evidenced by our strong focus on return on assets, minimal
capital expenditures and high free cash flow generation. Our
disciplined cost control, coupled with our active asset
management strategies, result in a business model exhibiting a
high degree of operating leverage. As is typical with the
flexibility associated with a distribution operating model, our
variable cost base includes substantially all of our cost of
goods sold and a significant portion of our operating costs.
Furthermore, our maintenance capital expenditures were less than
0.2% of our pro forma sales for the year ended December 31,
2007. This cost structure allows us to adjust to changing
industry dynamics and, as a result, during
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periods of decreased sales activity, we typically generate
significant free cash flow as our costs are reduced and working
capital contracts.
Experienced and Motivated Management
Team.
Our senior management team has an
average of over 25 years of experience in the oilfield and
industrial supply business, the majority of which has been with
McJunkin Red Man or its predecessors. After giving effect to
this offering, senior management will
own % of our company indirectly
through their equity interests in PVF Holdings LLC. We also seek
to incentivize and align management with shareholder interests
through equity-linked compensation plans. Furthermore, executive
compensation is based on profitability and
return-on-investment
targets which we believe drives accountability and further
aligns the organization with our shareholders.
Our Business
Strategy
Our goal is to become the largest global distributor of PVF and
related products to the energy and industrials sectors. We
intend to grow our business by leveraging our existing position
as the largest North American distributor of PVF products and
services to the energy industry based on sales. Our strategy is
focused on pursuing growth by increasing organic market share
and growing our business with current customers, expanding into
new geographies and end markets, further penetrating the
Canadian Oil Sands and downstream sector, pursuing selective
strategic acquisitions and investments, increasing recurring
revenues through integrated supply, MRO and project contracts,
and continuing to increase our operational efficiency.
Increase Organic Market Share and Grow Business with
Current Customers.
We are committed to
expanding upon existing deep relationships with our current
customer base while at the same time striving to secure new
customers. To accomplish this, we are focused on providing a
one stop PVF procurement solution throughout North
America and across the upstream, midstream and downstream
sectors of the energy industry, cross-selling by leveraging our
expanded product offering resulting from the business
combination between McJunkin Corporation (McJunkin)
and Red Man Pipe & Supply Co. (Red Man) in
October 2007, and increasing our penetration of existing
customers new multiyear projects.
The migration of existing customer relationships to sole or
primary sourcing arrangements is a core strategic focus. We seek
to position ourselves as the sole or primary provider of a broad
complement of PVF products and services for a particular
customer, often by end market and/or geography, or in certain
instances across all of a customers North American
upstream, midstream and downstream operations. Several of our
largest customers have recently switched to sole or primary
sourcing contracts with us. Additionally, we believe that
significant opportunities exist to expand upon heritage McJunkin
and Red Man existing deep customer and supplier relationships
and thereby increase our market share. While we believe that the
heritage McJunkin and Red Man organizations each maintained
robust product offerings, there also remain opportunities to
cross-sell certain products into the other heritage
organizations customer base and branch network. As part of
these efforts, we are working to further strengthen our service
offerings by augmenting our product portfolio, management
expertise and sales force.
We also aim to increase our penetration of our existing
customers new projects. For example, while we often
provide nearly 100% of the PVF products for certain customers
under MRO contracts, increased penetration of those
customers new downstream and midstream projects remains a
strategic priority. Initiatives are in place to deepen
relationships with engineering and construction firms and to
extend our product offering into certain niches. We recently
integrated core project groups in several locations to focus
solely on capturing new multi-year project opportunities and we
are encouraged by these initial efforts.
Expand into New Geographies and End
Markets.
We intend to selectively establish
new branches in order to facilitate our expansion into new
geographies, and enter end markets where
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extreme operating environments generate high PVF product
replacement rates. We continue to evaluate establishing branches
and service and supply centers, entering into joint ventures,
and making acquisitions in select domestic and international
regions. While we believe that we are one of three PVF
distributors with branches throughout North America, there is
opportunity to expand via new branch openings in certain
geographic areas.
While our near term strategy is to continue to expand within
North America, we believe that attractive opportunities exist to
expand internationally. Though we currently maintain only one
branch outside North America, we continue to actively evaluate
opportunities to extend our offering to key international
markets, particularly in West Africa, the Middle East, Europe
and South America. The E&P opportunity and current
installed base of energy infrastructure internationally is
significantly larger than in North America and as a result we
believe represents an attractive long term opportunity both for
ourselves and our largest customers. While our near term focus
internationally will be centered on growing our business with
our already largely global customer base, the increased focus,
particularly by
foreign-owned
integrated oil companies, on efficiency, cost savings, process
improvements and core competencies has also generated potential
growth opportunities to add new customers that we will continue
to monitor closely.
We also believe opportunities exist for expansion into new and
under penetrated end markets where PVF products are used in
specialized, highly corrosive applications. These end markets
include pulp and paper, food and beverage and other general
industrial markets, in addition to other energy end markets such
as power generation, liquefied natural gas, coal, nuclear and
ethanol. We believe our extensive North American branch
platform, comprehensive PVF product offering, and reputation for
high customer service and technical expertise positions us to
participate in the growth in these end markets.
We believe there also remains an opportunity to continue to
expand into certain niche and specialty products that complement
our current extensive product offering. These products include
automated valves, instrumentation, stainless, chrome and high
nickel alloy PVF, large diameter carbon steel pipe and certain
specialty items, including steam products.
Further Penetrate the Canadian Oil Sands, Particularly the
Downstream Sector.
The Canadian Oil Sands
region and its attendant downstream markets represent very
attractive growth areas for our company. Improvements in mining
and in-situ technology are driving significant investment in the
area and, according to the Alberta Energy and Utilities Board,
the Canadian Oil Sands contain an ultimately recoverable crude
bitumen resource of 315 billion barrels, with established
reserves of almost 173 billion barrels at December 2007.
Canada has the second largest recoverable crude oil reserves in
the world, behind Saudi Arabia. Capital and maintenance
investments in the Canadian Oil Sands are expected to experience
dramatic growth due to rising global energy demand and
advancements in recovery and upgrading technologies. According
to the Alberta Ministry of Energy, an estimated CDN$67 billion
(US$66.2 billion) was invested in Canadian Oil Sands projects
from 2000 to 2007. These large facilities require significant
ongoing PVF maintenance well in excess of traditional energy
infrastructure, given the extremely harsh operating environments
and highly corrosive conditions. According to the Alberta
Ministry of Energy, almost CDN$170 billion (US$168 billion) in
Canadian Oil Sands-related projects were underway or proposed as
of June 2008, which we estimate could generate significant PVF
expenditures.
While Midfield has historically focused on the upstream and
midstream sectors in Canada, we believe that a significant
opportunity exists to penetrate the Canadian Oil Sands
downstream market which includes the upgrader and refinery
markets. We are the leading provider of PVF products to the
downstream market in the U.S. and believe this sector expertise
and existing customer relationships can be utilized by our
upstream and midstream Canadian operations to grow our
downstream sector presence in this region. We also believe there
is a significant opportunity to penetrate the Canadian Oil Sands
extraction market involving in-situ recovery methods, including
SAGD (steam assisted gravity drainage) and CSS (cyclic steam
stimulation) techniques used to extract the bitumen. We have
7
formed a full team overseen by senior management, have made
recent inventory and facility investments in Canada, including a
new 60,000 square foot distribution center facility located near
Edmonton, and have opened additional locations in Western Canada
to address this opportunity. Finally, we also believe that an
attractive opportunity exists to more fully penetrate the MRO
market in Canada, including refineries, petrochemical
facilities, utilities and pulp and paper and other general
industrial markets.
Pursue Selective Strategic Acquisitions and
Investments.
Acquisitions have been a core
focus and acquisition integration a core competency for us. We
continue to seek opportunities to strengthen our franchise
through selective acquisitions and strategic investments. In
particular, we will consider investments that enhance our
presence in the energy infrastructure market and enable us to
leverage our existing operations, either through acquiring new
branches or by acquiring companies offering complementary
products or end market breadth. Our industry remains highly
fragmented and we believe a significant number of small and
larger acquisition opportunities remain that offer favorable
synergy potential and attractive growth characteristics.
Acquisitions have been a core focus for both the heritage
McJunkin and Red Man organizations which we plan to continue. In
addition to the business combination between McJunkin and Red
Man, since 2000 we have integrated 19 acquisitions which
collectively represented over $900 million in sales in the
year of acquisition. Important recent acquisitions include
Midfield, one of the three largest oilfield supply companies in
Canada with 68 branches, and Midway-Tristate Corporation
(Midway), a leading oilfield distributor primarily
serving the Rockies and Appalachia regions. Historically, our
operating scale and integration capabilities have enabled us to
realize important synergies, while minimizing execution risk,
which we intend to focus on with future acquisitions.
Increase Recurring Revenues through Integrated Supply, MRO
and Project Contracts.
We have entered into
and continue to pursue integrated supply, MRO and project
contracts with certain of our customers. These arrangements
generally designate us as the sole or primary source provider of
the upstream, midstream,
and/or
downstream requirements of our customers. In certain instances
we are the sole or primary source provider for our customers
across all the energy sectors and/or North American geographies
within which the customer operates.
Our customers have, over time, increasingly moved toward
centralized PVF procurement management at the corporate level
rather than at individual local units. While these developments
are partly due to significant consolidation among our customer
base, sole or primary sourcing arrangements allow customers to
focus on their core operations and provide economic benefits by
generating immediate savings for the customer through
administrative cost and working capital reductions, while
providing for increased volumes, more stable revenue streams and
longer term visibility for us. We believe we are well positioned
to obtain these arrangements due to our (1) geographically
diverse and strategically located branch network,
(2) experience, technical expertise and reputation for
premier customer service operating across all segments of the
energy industry, (3) breadth of available product lines and
value added services, and (4) existing deep relationships
with customers and suppliers.
We also have exclusive and non-exclusive MRO contracts and new
project contracts in place. Our customers are increasing their
maintenance and capital spending, which is being driven by aging
infrastructure, their increased utilization of existing
facilities and the decreasing quality of energy feedstocks. Our
customers benefit from MRO agreements through lower inventory
investment and the reduction of transaction costs associated
with the elimination of the bid submission process, and our
company benefits from the recurring revenue stream that occurs
with an MRO contract in place. We believe there are additional
opportunities to utilize MRO arrangements for servicing the
requirements of our customers and we are actively pursuing such
agreements.
Continued Focus on Operational
Efficiency.
We strive for continued
operational excellence. Our branch managers, regional management
and corporate leadership team continually examine branch
profitability, working capital management, and return on managed
assets and utilize this
8
information to optimize national, regional and local strategies,
reduce operating costs and maximize cash flow generation. As
part of this effort, management incentives are centered on
meeting EBITDA and return on assets targets.
In order to improve efficiencies and profitability, we work to
leverage operational best practices, optimize our vendor
relationships, purchasing, and inventory levels, and source
inventory internationally when appropriate. As part of this
strategy, we have integrated our heritage purchasing functions
and believe we have developed strong relationships with vendors
that value both our national footprint and volume purchasing
capabilities. Because of this, we are often considered the
preferred distribution channel. As we continue to consolidate
our vendor relationships, we plan to devote additional resources
to assist our customers in identifying products that improve
their processes, day-to-day operations and overall operating
efficiencies. We believe that offering these value added
services maximizes our value to our customers and helps
differentiate us from competitors.
Risk
Factors
While our business has grown in recent years, we face various
risks. For example, decreased capital expenditures in the energy
industry could lead to decreased demand for our products and
services and could therefore have a material adverse effect on
our business, results of operations and financial condition. We
face other risks including, among others, fluctuations in steel
prices, economic downturns, our lack of long-term contracts with
many of our customers and suppliers and the absence of minimum
purchase obligations under the long-term customer contracts that
we do have, and risks associated with the integration of our
predecessor companies, McJunkin and Red Man. Additionally, we
have significant indebtedness. As of June 26, 2008, we had
total debt outstanding of $1,284.7 million and we had
borrowing availability of $542.5 million under our credit
facilities. Our significant indebtedness could limit our ability
to obtain additional financing, our ability to use operating
cash flow in other areas of our business, and our ability to
compete with other companies that are less leveraged, and could
have other negative consequences. See Risk Factors
for a more detailed discussion of these risks and other risks
associated with our business.
Recent
Developments
On July 31, 2008, we acquired the remaining approximate 49%
minority voting interest in our Canadian subsidiary, Midfield
Supply ULC, one of the three largest oilfield supply companies
in Canada with 68 branches, for total payments of
approximately $135.67 million.
On September 5, 2008, we entered into an agreement to
acquire LaBarge Pipe & Steel Company (LaBarge).
LaBarge is engaged in the sale and distribution of carbon steel
pipes (predominantly large diameter pipe) for use primarily in
the North American energy infrastructure market and had net
sales revenue of $200.6 million in 2007. We agreed to pay $160
million for LaBarge on a debt-free,
cash-free
basis, subject to a working capital adjustment and customary
indemnification provisions, plus up to an additional $45 million
if LaBarge meets certain EBITDA targets in 2008 and 2009. The
transaction is expected to close early in the fourth quarter of
2008 and is subject to the satisfaction or waiver of several
customary closing conditions, including regulatory approval.
9
Organizational
Structure
The following chart illustrates our organizational structure
upon the completion of this offering:
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*
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|
PVF Holdings LLC is offering all of the shares to be sold in
this offering. PVF Holdings LLC intends to distribute the net
proceeds of this offering, after giving effect to the
underwriting discount, to its members, which include certain of
our directors and executive officers. See the table on
page 139 for information regarding the amount of offering
proceeds to be distributed to each of our directors and
executive officers.
|
10
The
Offering
|
|
|
Issuer
|
|
McJunkin Red Man Holding Corporation.
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Common stock offered by the selling stockholder
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|
shares.
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Option to purchase additional shares of common stock from the
selling stockholder
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shares.
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Common stock outstanding immediately after the offering
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shares.
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Use of proceeds
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The proceeds from the sale of shares of our common stock in the
offering are solely for the account of PVF Holdings LLC, the
selling stockholder. We will not receive any proceeds from the
sale of our common stock by the selling stockholder. See
Use of Proceeds. PVF Holdings LLC intends to
distribute the net proceeds of this offering, after giving
effect to the underwriting discount, to its members, which
include certain members of our board of directors and senior
management team and various of their affiliates. See
Principal and Selling Stockholders and
Underwriting. Additionally, affiliates of Goldman,
Sachs & Co. own a majority interest in PVF Holdings
LLC. Accordingly, such affiliates will receive a significant
portion of the proceeds from this offering. See
Underwriting.
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Proposed New York Stock Exchange symbol
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MRC.
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Risk Factors
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See Risk Factors beginning on page 18 of
this prospectus for a discussion of factors that you should
carefully consider before deciding to invest in shares of our
common
|
stock.
The number of shares of common stock to be outstanding after the
offering:
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gives effect to
a
for split of our common stock to
be effected prior to the pricing of this offering;
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excludes shares
of common stock issuable upon the exercise of stock options
granted to certain of our employees and directors pursuant to
the McJ Holding Corporation 2007 Stock Option Plan; and
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excludes shares
of non-vested restricted stock awarded to certain of our
employees pursuant to the McJ Holding Corporation 2007
Restricted Stock Plan.
|
McJunkin Red Man Holding Corporation (formerly known as McJ
Holding Corporation) was incorporated in Delaware on
November 20, 2006. Our principal executive offices are
located at 8023 East 63rd Place, Tulsa, Oklahoma 74133 and
835 Hillcrest Drive, Charleston, West Virginia 25311. Our
telephone number is
(918) 250-8541.
Our website address is www.mcjunkinredman.com. Information
contained on our website is not a part of this prospectus.
The data included in this prospectus regarding the industrial
and oilfield pipe, valves and fittings distribution industry,
including trends in the market and our position and the position
of our competitors within this industry, are based on our
estimates, which have been derived from managements
knowledge and experience in the areas in which our business
operates, and
11
information obtained from customers, suppliers, trade and
business organizations, internal research, publicly available
information, industry publications and surveys and other
contacts in the areas in which our business operates. We have
also cited information compiled by industry publications,
governmental agencies and publicly available sources.
Depending on market conditions at the time of pricing of this
offering and other considerations, the selling stockholder may
sell fewer or more shares than the number set forth on the cover
page of this prospectus.
In this prospectus, unless otherwise indicated, Canadian dollar
amounts are converted into U.S. dollar amounts at the
exchange rate in effect on June 26, 2008, the last day of
our second quarter.
12
Summary
Consolidated Financial Information
On January 31, 2007, McJunkin Red Man Holding Corporation,
an affiliate of The Goldman Sachs Group, Inc., acquired a
majority of the equity of the entity now known as McJunkin Red
Man Corporation (then known as McJunkin Corporation) (the
GS Acquisition). In this prospectus, the term
Predecessor refers to McJunkin Corporation and its
subsidiaries prior to January 31, 2007 and the term
Successor refers to the entity now known as McJunkin
Red Man Holding Corporation and its subsidiaries on and after
January 31, 2007. As a result of the change in McJunkin
Corporations basis of accounting in connection with the GS
Acquisition, Predecessors financial statement data for the
one month ended January 30, 2007 and earlier periods is not
comparable to Successors financial data for the eleven
months ended December 31, 2007 and subsequent periods.
McJunkin Corporation completed a business combination
transaction with Red Man Pipe & Supply Co. (the
Red Man Transaction) on October 31, 2007. At
that time McJunkin Corporation was renamed McJunkin Red Man
Corporation. Operating results for the eleven-month period ended
December 31, 2007 include the results of McJunkin Red Man
Holding Corporation for the full period and the results of Red
Man Pipe & Supply Co. (Red Man) for the
two months after the business combination on October 31,
2007. Accordingly, our results for the 11 months ended
December 31, 2007 are not comparable to McJunkins
results for the years ended December 31, 2006 and 2005.
The summary consolidated financial information presented below
under the captions Statement of Operations Data and Other
Financial Data for the one month ended January 30, 2007
(Predecessor) and the eleven months ended December 31,
2007, and the summary consolidated financial information
presented below under the caption Balance Sheet Data as of
December 31, 2007, have been derived from the consolidated
financial statements of McJunkin Red Man Holding Corporation
included elsewhere in this prospectus that have been audited by
Ernst & Young LLP, independent registered public
accounting firm. The summary consolidated financial information
presented below as of and for the years ended December 31,
2005 and 2006 has been derived from the consolidated financial
statements of our predecessor, McJunkin Corporation, included
elsewhere in this prospectus that have been audited by Schneider
Downs & Co., Inc., independent registered public
accounting firm.
The summary unaudited interim consolidated financial information
presented below under the captions Statement of Operations Data
and Other Financial Data for the six months ended June 26,
2008 and the five months ended June 28, 2007, and the
summary unaudited consolidated financial information presented
below under the caption Balance Sheet Data as of June 26,
2008, have been derived from our unaudited interim consolidated
financial statements, which are included elsewhere in this
prospectus and have been prepared on the same basis as our
audited consolidated financial statements. In the opinion of
management, the interim data reflect all adjustments, consisting
of normal and recurring adjustments, necessary for a fair
presentation of results for these periods. Operating results for
the six months ended June 26, 2008 include the results of
McJunkin Corporation and Red Man for the full period. Operating
results for the five-month period ending June 28, 2007 do
not reflect the operating results of Red Man, as the Red Man
Transaction did not occur until October 31, 2007.
Accordingly, the results for the six months ended June 26,
2008 are not comparable to the results for the five months ended
June 28, 2007. In addition, operating results for the
six-month period ended June 26, 2008 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 2008.
The summary unaudited pro forma consolidated statements of
operations data for the six months ended June 28, 2007 and
the year ended December 31, 2007 give pro forma effect to
(1) the GS Acquisition and the Red Man Transaction, as if
each such transaction had occurred on January 1, 2007, and
(2) our entering into our $575 million term loan
facility and our $700 million revolving credit facility, as
if we had entered into these facilities on January 1, 2007.
The pro forma statement of operations data for the six months
ended June 28, 2007 includes McJunkin Corporations
results for the one month ended January 30, 2007 (before
the GS
13
Acquisition), McJunkin Red Man Holding Corporations
results for the five months ended June 28, 2007 (before the
Red Man Transaction), and Red Mans results for the six
months ended April 30, 2007. The pro forma statement of
operations data for the year ended December 31, 2007
includes McJunkin Corporations results for the one month
ended January 30, 2007, McJunkin Red Man Holding
Corporations results for the eleven months ended
December 31, 2007 (reflecting the results of McJunkin
Corporation for the full eleven months but excluding the results
of Red Man for the two months ended December 31, 2007), and
Red Mans results for the twelve months ended
October 31, 2007.
All information in this prospectus assumes that in conjunction
with the initial public offering, we will effect
a
for stock
split.
The historical data presented below has been derived from
financial statements that have been prepared using United States
generally accepted accounting principles, or GAAP. This data
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
related notes included elsewhere in this prospectus.
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Predecessor
|
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Successor
|
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Pro Forma
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|
Successor
|
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One Month
|
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Five Months
|
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|
Six Months
|
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|
Six Months
|
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Ended
|
|
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Ended
|
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|
Ended
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Ended
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January 30,
|
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June 28,
|
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June 28,
|
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|
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June 26,
|
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|
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2007
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|
|
|
2007
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
|
|
|
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(Unaudited)
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|
|
(Unaudited)
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|
(Unaudited)
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(In millions, except per share and share data)
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Statement of Operations Data:
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|
|
|
|
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|
|
|
|
|
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Sales
|
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$
|
142.5
|
|
|
|
$
|
784.9
|
|
|
|
$
|
1,862.1
|
|
|
|
$
|
2,196.0
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cost of sales (exclusive of depreciation and amortization shown
separately below)
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|
|
114.6
|
|
|
|
|
635.9
|
|
|
|
|
1,529.9
|
|
|
|
|
1,803.8
|
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Selling, general and administrative expenses
|
|
|
14.6
|
|
|
|
|
80.7
|
|
|
|
|
169.2
|
|
|
|
|
200.1
|
|
Depreciation and amortization
|
|
|
0.3
|
|
|
|
|
1.7
|
|
|
|
|
5.4
|
|
|
|
|
5.2
|
|
Amortization of intangibles(1)
|
|
|
|
|
|
|
|
4.6
|
|
|
|
|
12.3
|
|
|
|
|
15.6
|
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Profit sharing
|
|
|
1.3
|
|
|
|
|
5.6
|
|
|
|
|
11.3
|
|
|
|
|
13.5
|
|
Stock-based compensation
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|
|
|
|
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|
|
1.3
|
|
|
|
|
2.3
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3.3
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|
|
|
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|
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|
|
|
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|
|
|
|
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Total costs and expenses
|
|
|
130.8
|
|
|
|
|
729.8
|
|
|
|
|
1,730.4
|
|
|
|
|
2,041.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
11.7
|
|
|
|
|
55.1
|
|
|
|
|
131.7
|
|
|
|
|
154.5
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
|
(24.3
|
)
|
|
|
|
(30.4
|
)
|
|
|
|
(35.0
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)
|
Minority interests
|
|
|
(0.4
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)
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
(0.1
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)
|
Other, net
|
|
|
|
|
|
|
|
(0.9
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)
|
|
|
|
(0.7
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)
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total other income (expense)
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|
|
(0.5
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)
|
|
|
|
(25.2
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)
|
|
|
|
(31.2
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)
|
|
|
|
(35.4
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11.2
|
|
|
|
|
29.9
|
|
|
|
|
100.5
|
|
|
|
|
119.1
|
|
Income tax expense
|
|
|
4.6
|
|
|
|
|
12.3
|
|
|
|
|
37.7
|
|
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(2)
|
|
$
|
6.6
|
|
|
|
$
|
17.6
|
|
|
|
$
|
62.8
|
|
|
|
$
|
75.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net cash provided by (used in) operating activities
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|
$
|
6.6
|
|
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
$
|
70.5
|
|
Net cash provided by (used in) investing activities
|
|
|
(0.2
|
)
|
|
|
|
(933.3
|
)
|
|
|
|
|
|
|
|
|
(16.4
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(8.3
|
)
|
|
|
|
945.9
|
|
|
|
|
|
|
|
|
|
(55.2
|
)
|
Adjusted EBITDA(3)
|
|
|
26.0
|
|
|
|
|
151.3
|
|
|
|
|
163.4
|
|
|
|
|
249.9
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Pro Forma
|
|
|
|
Year
|
|
|
Year
|
|
|
One Month
|
|
|
|
Eleven Months
|
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 30,
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In millions, except per share and share data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,445.8
|
|
|
$
|
1,713.7
|
|
|
$
|
142.5
|
|
|
|
$
|
2,124.9
|
|
|
|
$
|
3,952.7
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
1,177.1
|
|
|
|
1,394.3
|
|
|
|
114.6
|
|
|
|
|
1,734.6
|
|
|
|
|
3,229.2
|
|
Selling, general and administrative expenses
|
|
|
155.7
|
|
|
|
173.9
|
|
|
|
14.6
|
|
|
|
|
201.9
|
|
|
|
|
365.7
|
|
Depreciation and amortization
|
|
|
3.7
|
|
|
|
3.9
|
|
|
|
0.3
|
|
|
|
|
5.4
|
|
|
|
|
10.8
|
|
Amortization of intangibles
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
10.5
|
(1)
|
|
|
|
24.6
|
(1)
|
Profit sharing
|
|
|
13.1
|
|
|
|
15.1
|
|
|
|
1.3
|
|
|
|
|
13.2
|
|
|
|
|
13.5
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,349.9
|
|
|
|
1,587.5
|
|
|
|
130.8
|
|
|
|
|
1,968.6
|
|
|
|
|
3,646.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
95.9
|
|
|
|
126.2
|
|
|
|
11.7
|
|
|
|
|
156.3
|
|
|
|
|
306.0
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2.7
|
)
|
|
|
(2.8
|
)
|
|
|
(0.1
|
)
|
|
|
|
(61.7
|
)
|
|
|
|
(60.8
|
)
|
Minority interests
|
|
|
(2.8
|
)
|
|
|
(4.1
|
)
|
|
|
(0.4
|
)
|
|
|
|
(0.1
|
)
|
|
|
|
0.0
|
|
Other, net
|
|
|
(1.3
|
)
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(6.8
|
)
|
|
|
(8.3
|
)
|
|
|
(0.5
|
)
|
|
|
|
(62.9
|
)
|
|
|
|
(64.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
89.1
|
|
|
|
117.9
|
|
|
|
11.2
|
|
|
|
|
93.4
|
|
|
|
|
241.3
|
|
Income tax expense
|
|
|
36.6
|
|
|
|
48.3
|
|
|
|
4.6
|
|
|
|
|
36.5
|
|
|
|
|
90.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(2)
|
|
$
|
52.5
|
|
|
$
|
69.6
|
|
|
$
|
6.6
|
|
|
|
$
|
56.9
|
|
|
|
$
|
150.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
30.4
|
|
|
$
|
18.4
|
|
|
$
|
6.6
|
|
|
|
$
|
110.2
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(6.7
|
)
|
|
|
(3.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
(1,788.9
|
)
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(21.1
|
)
|
|
|
(17.2
|
)
|
|
|
(8.3
|
)
|
|
|
|
1,687.2
|
|
|
|
|
|
|
Adjusted EBITDA(3)
|
|
|
115.6
|
|
|
|
139.1
|
|
|
|
26.0
|
|
|
|
|
344.9
|
|
|
|
|
370.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
As Adjusted(4)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
June 26,
|
|
|
June 26,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
(In millions)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5.9
|
|
|
$
|
3.7
|
|
|
|
$
|
10.1
|
|
|
$
|
8.8
|
|
|
$
|
8.8
|
|
Working capital
|
|
|
129.0
|
|
|
|
212.3
|
|
|
|
|
663.5
|
|
|
|
686.1
|
|
|
|
686.1
|
|
Total assets
|
|
|
434.0
|
|
|
|
481.0
|
|
|
|
|
2,925.0
|
|
|
|
3,294.3
|
|
|
|
3,294.3
|
|
Total debt, including current portion
|
|
|
3.1
|
|
|
|
13.0
|
|
|
|
|
868.4
|
|
|
|
1,284.7
|
|
|
|
1,390.1
|
|
Minority interest in subsidiaries
|
|
|
11.5
|
|
|
|
15.6
|
|
|
|
|
100.7
|
|
|
|
95.2
|
|
|
|
|
|
Stockholders equity
|
|
|
168.8
|
|
|
|
242.6
|
|
|
|
|
1,210.0
|
|
|
|
824.4
|
|
|
|
819.0
|
|
|
|
|
(1)
|
|
Represents amortization of
intangibles included as a result of the GS Acquisition, our
acquisition of Midway-Tristate Corporation, and the Red Man
Transaction, plus associated transaction fees.
|
15
|
|
|
(2)
|
|
The following are certain charges
and costs incurred in each of the relevant periods that are
meaningful to understanding our net income and in evaluating our
performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
Successor
|
|
Pro Forma
|
|
Successor
|
|
Pro Forma
|
|
Successor
|
|
|
|
|
|
|
One
|
|
Eleven
|
|
|
|
Five
|
|
Six
|
|
Six
|
|
|
Year
|
|
Year
|
|
Month
|
|
Months
|
|
Year
|
|
Months
|
|
Months
|
|
Months
|
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
December 31,
|
|
December 31,
|
|
January 30,
|
|
December 31,
|
|
December 31,
|
|
June 28,
|
|
June 28,
|
|
June 26,
|
|
|
2005
|
|
2006
|
|
2007
|
|
2007
|
|
2007
|
|
2007
|
|
2007
|
|
2008
|
|
|
(in millions)
|
|
LIFO expense
|
|
$
|
20.2
|
|
|
$
|
12.2
|
|
|
|
|
|
|
$
|
10.3
|
|
|
$
|
10.3
|
|
|
$
|
3.0
|
|
|
$
|
3.0
|
|
|
$
|
55.6
|
|
Amortization of intangibles
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
10.5
|
|
|
|
24.6
|
|
|
|
4.6
|
|
|
|
12.3
|
|
|
|
15.6
|
|
Amortization of financing fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
|
3.8
|
|
|
|
1.6
|
|
|
|
1.9
|
|
|
|
2.3
|
|
|
|
|
(3)
|
|
Adjusted EBITDA is used in our
senior secured term loan facility, senior secured revolving
credit facility, and junior term loan facility in the ratio of
consolidated total debt to consolidated adjusted EBITDA, and is
also used in our senior secured term loan facility and junior
term loan facility in the ratio of consolidated adjusted EBITDA
to consolidated interest expense. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Revolving Credit Facility and Term Loan
Facility Covenants. Adjusted EBITDA is defined
in our credit facilities as net income plus depreciation and
amortization, amortization of intangibles, interest expense,
income tax expense, stock-based compensation, LIFO expense,
certain non-recurring and transaction-related expenses
(including transaction costs associated with the GS Acquisition,
our acquisition of Midway-Tristate Corporation, and the Red Man
Transaction), minority interest, charges in connection with an
employee profit sharing plan for certain employees of our
subsidiary Midfield Supply ULC, and certain other adjustments,
including franchise taxes and pro forma adjustments relating to
acquisitions. We present Adjusted EBITDA because it is a
material component of material covenants in our senior secured
term loan facility and junior term loan facility. In addition,
we believe it is a useful indicator of our operating
performance. We believe this for the following reasons:
|
|
|
|
|
|
Our management uses Adjusted EBITDA for planning purposes,
including the preparation of our annual operating budget and
financial projections, as well as for determining a significant
portion of the compensation of our executive officers;
|
|
|
|
Adjusted EBITDA is widely used by investors to measure a
companys operating performance without regard to items,
such as interest expense, income tax expense, and depreciation
and amortization, that can vary substantially from company to
company depending upon their financing and accounting methods,
the book value of their assets, their capital structures and the
method by which their assets were acquired; and
|
|
|
|
securities analysts use Adjusted EBITDA as a supplemental
measure to evaluate the overall operating performance of
companies.
|
|
|
|
|
|
Particularly, we believe that
Adjusted EBITDA is a useful indicator of our operating
performance because:
|
|
|
|
|
|
Our lenders believed Adjusted EBITDA was the appropriate
performance measure for the key operational covenants in our
senior secured term loan facility and junior term loan facility
(see Description of Our Indebtedness);
|
|
|
|
Adjusted EBITDA measures our companys operating
performance without regard to LIFO expense, which is high due to
recent inflation and therefore reflects an overstatement of the
cost of goods sold over recent periods, and we believe that this
adjustment assists in comparing us to our peers, because many of
our peers do not use the LIFO method of inventory
valuation; and
|
|
|
|
Adjusted EBITDA measures our companys operating
performance without regard to non-recurring and
transaction-related expenses incurred in connection with
business combination transactions such as the Red Man
Transaction.
|
|
|
|
|
|
Adjusted EBITDA, however, does not
represent and should not be considered as an alternative to net
income, cash flow from operations, or any other measure of
financial performance calculated and presented in accordance
with GAAP. Our Adjusted EBITDA may not be comparable to similar
measures reported by other companies because other companies may
not calculate Adjusted EBITDA in the same manner as we do.
Although we use Adjusted EBITDA as a measure to assess the
operating performance of our business, Adjusted EBITDA has
significant limitations as an analytical tool because it
excludes certain material costs. For example, it does not
include interest expense, which has been a necessary element of
our costs. Because we use capital assets, depreciation expense
is a necessary element of our costs and our ability to generate
revenue. In addition, the omission of the amortization expense
associated with our intangible assets further limits the
usefulness of this measure. Adjusted EBITDA also does not
include the payment of certain taxes, which is also a necessary
element of our operations. Furthermore, Adjusted EBITDA does not
account for LIFO expense, and therefore to the extent that
recently purchased inventory accounts for a relatively large
portion of our sales, Adjusted EBITDA may overstate our
operating performance. Because Adjusted EBITDA does not account
for certain expenses, its utility as a measure of our operating
performance has material limitations. Because of these
limitations management does not view Adjusted EBITDA in
isolation or as a primary performance measure and also uses
other measures, such as net income and sales, to measure
operating performance.
|
16
|
|
|
|
|
The following table presents a
reconciliation of Adjusted EBITDA to Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
Successor
|
|
Pro Forma
|
|
Successor
|
|
Pro Forma
|
|
Successor
|
|
|
|
|
|
|
One
|
|
Eleven
|
|
|
|
Five
|
|
Six
|
|
Six
|
|
|
Year
|
|
Year
|
|
Month
|
|
Months
|
|
Year
|
|
Months
|
|
Months
|
|
Months
|
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
December 31,
|
|
December 31,
|
|
January 30,
|
|
December 31,
|
|
December 31,
|
|
June 28,
|
|
June 28,
|
|
June 26,
|
|
|
2005
|
|
2006
|
|
2007
|
|
2007
|
|
2007
|
|
2007
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
(In millions)
|
|
Net income
|
|
$
|
52.5
|
|
|
$
|
69.6
|
|
|
$
|
6.6
|
|
|
$
|
56.9
|
|
|
$
|
150.8
|
|
|
$
|
17.6
|
|
|
$
|
62.8
|
|
|
$
|
75.9
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2.7
|
|
|
|
2.8
|
|
|
|
0.1
|
|
|
|
61.7
|
|
|
|
60.8
|
|
|
|
24.3
|
|
|
|
30.4
|
|
|
|
35.0
|
|
Income tax expense
|
|
|
36.6
|
|
|
|
48.3
|
|
|
|
4.6
|
|
|
|
36.5
|
|
|
|
90.5
|
|
|
|
12.3
|
|
|
|
37.7
|
|
|
|
43.2
|
|
Amortization of intangibles
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
10.5
|
|
|
|
24.6
|
|
|
|
4.6
|
|
|
|
12.3
|
|
|
|
15.6
|
|
Depreciation and amortization
|
|
|
3.7
|
|
|
|
3.9
|
|
|
|
0.3
|
|
|
|
5.4
|
|
|
|
10.8
|
|
|
|
1.7
|
|
|
|
5.4
|
|
|
|
5.2
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
2.9
|
|
|
|
1.3
|
|
|
|
2.3
|
|
|
|
3.3
|
|
Red Man pre-merger contribution
|
|
|
|
|
|
|
|
|
|
|
13.1
|
|
|
|
142.2
|
|
|
|
|
|
|
|
74.5
|
|
|
|
|
|
|
|
|
|
Midway pre-acquisition contribution
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
2.8
|
|
|
|
3.8
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
20.2
|
|
|
|
12.2
|
|
|
|
|
|
|
|
10.3
|
|
|
|
10.3
|
|
|
|
3.0
|
|
|
|
3.0
|
|
|
|
55.6
|
|
Non-recurring and transaction-related expenses(a)
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
12.7
|
|
|
|
12.7
|
|
|
|
9.1
|
|
|
|
9.1
|
|
|
|
11.9
|
|
Minority interest / Midfield employee profit sharing plan
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.9
|
|
|
|
1.3
|
|
|
|
|
|
|
|
0.4
|
|
|
|
3.1
|
|
Transaction cost savings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(b)
|
|
|
(0.4
|
)
|
|
|
1.6
|
|
|
|
(0.1
|
)
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
115.6
|
|
|
$
|
139.1
|
|
|
$
|
26.0
|
|
|
$
|
344.9
|
|
|
$
|
370.4
|
|
|
$
|
151.3
|
|
|
$
|
163.4
|
|
|
$
|
249.9
|
|
|
|
|
(a)
|
|
Includes transaction costs associated with the GS Acquisition,
our acquisition of Midway-Tristate Corporation, and the Red Man
Transaction.
|
|
|
|
(b)
|
|
Includes franchise tax expense, certain consulting fees, gains
and losses on the sale of assets and other nonrecurring items.
|
In addition, we have also presented in this prospectus our
EBITDA for the eleven months ended December 31, 2007 and
Red Mans EBITDA for the twelve months ended
December 31, 2007. The most comparable GAAP measure to
EBITDA is Net income. We calculate our EBITDA for the eleven
months ended December 31, 2007 ($171 million) by
adding our Net income for this period ($56.9 million) with
our interest expense ($61.7 million), income tax expense
($36.5 million), amortization of intangibles
($10.5 million), and depreciation and amortization
($5.4 million) for the same period. We calculate Red
Mans EBITDA for the twelve months ended October 31,
2007 ($170 million) by adding Red Mans Net income for
this period ($82.2 million) with Red Mans interest
expense ($20.6 million), income tax expense
($57.6 million), and depreciation and amortization
($9.7 million) for the same period.
We present EBITDA because we believe it is a useful indicator of
our operating performance, as described above with respect to
Adjusted EBITDA. EBITDA, however, does not represent and should
not be considered an alternative to measures of financial
performance calculated and presented in accordance with GAAP, as
described above with respect to Adjusted EBITDA.
|
|
|
|
|
(4)Adjusted to give effect
(1) to an estimated $5.4 million of expenses incurred
in connection with this offering and (2) for our purchase
on July 31, 2008 of the approximate 49% minority voting
interest in Midfield Supply ULC, one of our subsidiaries. Our
total debt, including current portion, would increase by
$5.4 million due to
offering-related
expenses based on our estimate of such expenses. In connection
with our purchase of the minority voting interest in Midfield,
our total debt, including current portion, increased from
$1,284.7 million to $1,384.7 million because we
incurred an additional $100 million of debt in order to
fund the purchase. Our minority interest in subsidiaries was
eliminated upon consummation of the purchase because we had no
minority interest in subsidiaries other than the purchased
interest. Our stockholders equity has decreased from
$824.4 million to $819.0 million, or by
$5.4 million, on account of the $5.4 million of
offering-related expenses.
|
17
RISK
FACTORS
You should carefully consider each of the following risks and
all of the information set forth in this prospectus before
deciding to invest in our common stock. If any of the following
risks and uncertainties develops into actual events, our
business, results of operations and financial condition could be
materially and adversely affected. In that case, the price of
our common stock could decline and you could lose some or all of
your investment.
Risks Related to
Our Business
Decreased
capital expenditures in the energy industry, which can result
from decreased oil and natural gas prices among other things,
can materially and adversely affect our business, results of
operations and financial condition.
A large portion of our revenue depends upon the level of capital
expenditures in the oil and gas industry, including capital
expenditures in connection with exploration, drilling,
production, gathering, transportation, refining and processing
operations. Demand for our products and services is particularly
sensitive to the level of exploration, development and
production activity of, and the corresponding capital
expenditures by, oil and natural gas companies. A material
decline in oil or natural gas prices could depress levels of
exploration, development and production activity, and therefore
could lead to a decrease in our customers capital
expenditures. If our customers capital expenditures
decline, our business will suffer.
Prices for oil and natural gas are subject to large fluctuations
in response to relatively minor changes in the supply of and
demand for oil and natural gas, market uncertainty, and a
variety of other factors that are beyond our control. Oil and
natural gas prices are currently at levels higher than
historical long term averages, and worldwide oil and gas
drilling and exploration activity is also at very high levels. A
decline in oil and natural gas prices could result in decreased
capital expenditures in the oil and gas industry, and could
therefore have a material adverse effect on our business,
results of operations and financial condition.
Many factors affect the supply of and demand for energy and
therefore influence oil and gas prices, including:
|
|
|
|
|
the level of domestic and worldwide oil and gas production and
inventories;
|
|
|
|
the level of drilling activity and the availability of
attractive oil and gas field prospects, which may be affected by
governmental actions, such as regulatory actions or legislation,
or other restrictions on drilling, including those related to
environmental concerns;
|
|
|
|
the discovery rate of new oil and gas reserves and the expected
cost of developing new reserves;
|
|
|
|
the actual cost of finding and producing oil and gas;
|
|
|
|
depletion rates;
|
|
|
|
domestic and worldwide refinery overcapacity or undercapacity
and utilization rates;
|
|
|
|
the availability of transportation infrastructure and refining
capacity;
|
|
|
|
increases in the cost of the products that we provide to the oil
and gas industry, which may result from increases in the cost of
raw materials such as steel;
|
|
|
|
shifts in end-customer preferences toward fuel efficiency and
the use of natural gas;
|
|
|
|
the economic
and/or
political attractiveness of alternative fuels, such as coal,
hydrocarbon, wind, solar energy and biomass-based fuels;
|
18
|
|
|
|
|
increases in oil and gas prices
and/or
historically high oil and gas prices, which could lower demand
for oil and gas products;
|
|
|
|
worldwide economic activity including growth in countries that
are not members of the Organisation for Economic Co-operation
and Development (non-OECD countries), including
China and India;
|
|
|
|
interest rates and the cost of capital;
|
|
|
|
national government policies, including government policies
which could nationalize or expropriate oil and gas exploration,
production, refining or transportation assets;
|
|
|
|
the ability of the Organization of Petroleum Exporting Countries
(OPEC) to set and maintain production levels and prices for oil;
|
|
|
|
the impact of armed hostilities, or the threat or perception of
armed hostilities;
|
|
|
|
pricing and other actions taken by competitors that impact the
market;
|
|
|
|
environmental regulation;
|
|
|
|
technological advances;
|
|
|
|
global weather conditions and natural disasters;
|
|
|
|
an increase in the value of the U.S. dollar relative to
foreign currencies; and
|
|
|
|
tax policies.
|
Oil and gas prices have been and are expected to remain
volatile. This volatility has historically caused oil and gas
companies to change their strategies and expenditure levels from
year to year. We have experienced in the past, and we will
likely experience in the future, significant fluctuations in
operating results based on these changes. In particular, such
volatility in the oil and gas markets could materially adversely
affect our business, results of operations and financial
condition.
Our business,
results of operations and financial condition may be materially
and adversely affected by general economic
conditions.
Many aspects of our business, including demand for our products
and the pricing and availability of supplies, are affected by
U.S. and global general economic conditions. General
economic conditions and predictions regarding future economic
conditions also affect our forecasts, and a decrease in demand
for our products or other adverse effects resulting from an
economic downturn may cause us to fail to achieve our
anticipated financial results. General economic factors beyond
our control that affect our business and end markets include
interest rates, recession, inflation, deflation, consumer credit
availability, consumer debt levels, performance of housing
markets, energy costs, tax rates and policy, unemployment rates,
commencement or escalation of war or hostilities, the threat or
possibility of war, terrorism or other global or national
unrest, political or financial instability, and other matters
that influence spending by our customers. Increasing volatility
in financial markets may cause these factors to change with a
greater degree of frequency or increase in magnitude. An
economic downturn could adversely affect our business, results
of operations and financial condition and could also lead to a
decrease in the market price of our common stock.
We may be
unable to compete successfully with other companies in our
industry.
We sell our products and services in very competitive markets.
In some cases, we compete with large oilfield services providers
with substantial resources and smaller regional players that may
increasingly be willing to provide similar products and services
at lower prices. Our revenues and earnings could be adversely
affected by competitive actions such as price reductions,
improved delivery and other actions by competitors. Our
business, results of operations and financial condition could be
materially and adversely affected to the extent that our
competitors are successful in
19
reducing our customers purchases of our products and
services. Competition could also cause us to lower our prices
which could reduce our margins and profitability.
Demand for our
products could decrease if manufacturers of our products were to
sell a substantial amount of goods directly to end users in the
markets we serve.
We do not manufacture any of the products that we distribute.
Historically, users of PVF and related products in the United
States, in contrast to users of PVF and related products outside
the United States, have purchased such products through
distributors and not directly from manufacturers. If customers
were to purchase the products that we sell directly from
manufacturers, or if manufacturers sought to increase their
efforts to sell directly to end users, our business, results of
operations and financial condition could be materially and
adversely affected. These or other developments that remove us
from, or limit our role in, the distribution chain, may harm our
competitive position in the marketplace and reduce our sales and
earnings.
We may
experience unexpected supply shortages.
We distribute products from a wide variety of manufacturers and
suppliers. Nevertheless, in the future we may have difficulty
obtaining the products we need from suppliers and manufacturers
as a result of unexpected demand or production difficulties.
Also, products may not be available to us in quantities
sufficient to meet our customer demand. Our inability to obtain
sufficient products from suppliers and manufacturers, in
sufficient quantities, could have a material adverse effect on
our business, results of operations and financial condition.
We may
experience cost increases by suppliers, which we may be unable
to pass on to our customers.
In the future, we may face supply cost increases due to, among
other things, unexpected increases in demand for supplies,
decreases in production of supplies or increases in the cost of
raw materials or transportation. Our inability to pass supply
price increases on to our customers could have a material
adverse effect on our business, results of operations and
financial condition. For example, we may be unable to pass
increased supply costs on to our customers because significant
amounts of our sales are derived from stocking program
arrangements, contracts and maintenance, repair and operations
(MRO) arrangements which provide our customers time
limited price protection, which may obligate us to sell products
at a set price for a specific period. In addition, if supply
costs increase, our customers may elect to purchase smaller
amounts of products or may purchase products from other
distributors. While we may be able to work with our customers to
reduce the effects of unforeseen price increases because of our
relationships with them, we may not be able to reduce the
effects of such cost increases. In addition, to the extent that
competition leads to reduced purchases of our products or
services or reduction of our prices, and such reductions occur
concurrently with increases in the prices for selected
commodities which we use in our operations, including steel,
nickel and molybdenum, the adverse effects described above would
likely be exacerbated and could result in a prolonged downturn
in profitability.
We do not have
contracts with most of our suppliers. The loss of a significant
supplier would require us to rely more heavily on our other
existing suppliers or to develop relationships with new
suppliers, and such a loss may have a material adverse effect on
our business, results of operations and financial
condition.
Given the nature of our business, and consistent with industry
practice, we do not have contracts with most of our suppliers.
Purchases are generally made through purchase orders. Therefore,
most of our suppliers have the ability to terminate their
relationships with us at any time. Approximately 32% of our
total purchases during 2007 on a pro forma basis were from our
ten largest suppliers. Before giving pro forma effect to the Red
Man Transaction, approximately 30.7% of our total purchases
during 2007 were from our ten largest suppliers. Although we
believe there are numerous
20
manufacturers with the capacity to supply our products, the loss
of one or more of our major suppliers could have a material
adverse effect on our business, results of operations and
financial condition. Such a loss would require us to rely more
heavily on our other existing suppliers or develop relationships
with new suppliers, which may cause us to pay higher prices for
products due to, among other things, a loss of volume discount
benefits currently obtained from our major suppliers.
Price
reductions by suppliers of products sold by us could cause the
value of our inventory to decline. Also, such price reductions
could cause our customers to demand lower sales prices for these
products, possibly decreasing our margins and profitability on
sales to the extent that our inventory of such products was
purchased at the higher prices prior to supplier price
reductions and we are required to sell such products to our
customers at the lower market prices.
The value of our inventory could decline as a result of price
reductions by manufacturers of products sold by us. We believe
the risk of a material reduction in the value of our inventory
is mitigated due to the fact that we do not carry a significant
amount of speculative inventory, our significant supply
commitments are generally for relatively short-term periods, and
we have been selling the same types of products to our customers
for many years (and therefore do not expect that our inventory
will become obsolete). However, there is no assurance that a
substantial decline in product prices would not result in a
write-down of our inventory value. Such a write-down could have
a material adverse effect on our financial condition.
Also, decreases in the market prices of products sold by us
could cause customers to demand lower sale prices from us. These
price reductions could reduce our margins and profitability on
sales with respect to such lower-priced products to the extent
that we purchase such products at the higher prices prior to
supplier price reductions and we are required to sell such
products to our customers at the lower market prices. Reductions
in our margins and profitability on sales could have a material
adverse effect on our business, results of operations, and
financial condition.
A substantial
decrease in the price of steel could significantly lower our
gross profit.
We distribute many products manufactured from steel and, as a
result, our business is significantly affected by the price and
supply of steel. When steel prices are lower, the prices that we
charge customers for products may decline, which affects our
gross profit. The steel industry as a whole is cyclical and at
times pricing and availability of steel can be volatile due to
numerous factors beyond our control, including general domestic
and international economic conditions, labor costs, sales
levels, competition, consolidation of steel producers,
fluctuations in the costs of raw materials necessary to produce
steel, import duties and tariffs and currency exchange rates.
This volatility can significantly affect the availability and
cost of steel for our suppliers. When steel prices decline,
customer demands for lower prices and our competitors
responses to those demands could result in lower sale prices
and, consequently, lower gross profit.
If steel
prices rise, we may be unable to pass along the cost increases
to our customers.
We maintain inventories of steel products to accommodate the
lead time requirements of our customers. Accordingly, we
purchase steel products in an effort to maintain our inventory
at levels that we believe to be appropriate to satisfy the
anticipated needs of our customers based upon historic buying
practices, contracts with customers and market conditions. Our
commitments to purchase steel products are generally at
prevailing market prices in effect at the time we place our
orders. If steel prices increase between the time we order steel
products and the time of delivery of such products to us, our
suppliers may impose surcharges that require us to pay for
increases in steel prices during such period. Demand for our
products, the actions of our competitors, and other factors will
influence whether we will be able to pass such steel cost
increases and surcharges on to our customers, and we may be
unsuccessful in doing so.
21
We do not have
long-term contracts with many of our customers and while we
generated more than 50% of our pro forma sales in 2007 from
multi-year maintenance, repair and operations (MRO)
contracts, our contracts, including our MRO contracts, generally
do not commit our customers to any minimum purchase volume. The
loss of a significant customer may have a material adverse
effect on our business, results of operations and financial
condition.
Given the nature of our business, and consistent with industry
practice, we do not have
long-term
contracts with many of our customers and our contracts,
including our maintenance, repair and operations contracts,
generally do not commit our customers to any minimum purchase
volume. Therefore, a significant number of our customers may
terminate their relationships with us or reduce their purchasing
volume at any time, and even our MRO customers are not required
to purchase products from us. Furthermore, the long-term
customer contracts that we do have are generally terminable
without cause on short notice. Our 10 largest customers
represented approximately 29% of our total pro forma sales for
the fiscal year ended December 31, 2007. Before giving pro
forma effect to the Red Man Transaction, our ten largest
customers represented approximately 30% of our total sales for
the fiscal year ended December 31, 2007. The products that
we may sell to any particular customer depend in large part on
the size of that customers capital expenditure budget in a
particular year and on the results of competitive bids for major
projects. Consequently, a customer that accounts for a
significant portion of our sales in one fiscal year may
represent an immaterial portion of our sales in subsequent
fiscal years. The loss of a significant customer, or a
substantial decrease in a significant customers orders,
may have a material adverse effect on our business, results of
operations and financial condition.
Changes in our
customer and product mix could cause our gross margin percentage
to fluctuate.
From time to time, we may experience changes in our customer mix
and in our product mix. Changes in our customer mix may result
from geographic expansion, daily selling activities within
current geographic markets, and targeted selling activities to
new customer segments. Changes in our product mix may result
from marketing activities to existing customers and needs
communicated to us from existing and prospective customers. If
customers begin to require more lower-margin products from us
and fewer higher-margin products, our business, results of
operations and financial condition may suffer.
We face risks
associated with our business combination with Red Man
Pipe & Supply Co. in October 2007, and this business
combination may not yield all of its intended
benefits.
We are currently continuing the process of integrating the
McJunkin and Red Man businesses, which were previously operated
independently and sometimes competed with one another. If we
cannot successfully integrate these two businesses, there may be
a material adverse effect on our combined business, results of
operations and financial condition. The difficulty of combining
the companies presents challenges to our management, including:
|
|
|
|
|
operating a significantly larger combined company with
operations in more geographic areas and with more business lines;
|
|
|
|
integrating personnel with diverse backgrounds and
organizational cultures;
|
|
|
|
coordinating sales and marketing functions;
|
|
|
|
retaining key employees, customers or suppliers;
|
|
|
|
integrating the information systems;
|
|
|
|
preserving the collaboration, distribution, marketing, promotion
and other important relationships; and
|
|
|
|
consolidating other corporate and administrative functions.
|
22
If the risks associated with the Red Man Transaction materialize
and we are unable to sufficiently address them, there is a
possibility that the results of operations of our combined
company could be less successful than the separate results of
operations of McJunkin and Red Man, taken together, if the Red
Man Transaction had never occurred.
We may be
unable to successfully execute or effectively integrate
acquisitions.
One of our key operating strategies is to selectively pursue
acquisitions, including large scale acquisitions, in order to
continue to grow and increase profitability. However,
acquisitions, particularly of a significant scale, involve
numerous risks and uncertainties, including intense competition
for suitable acquisition targets; the potential unavailability
of financial resources necessary to consummate acquisitions in
the future; increased leverage due to additional debt financing
that may be required to complete an acquisition; dilution of our
stockholders net current book value per share if we issue
additional equity securities to finance an acquisition;
difficulties in identifying suitable acquisition targets or in
completing any transactions identified on sufficiently favorable
terms; and the need to obtain regulatory or other governmental
approvals that may be necessary to complete acquisitions. In
addition, any future acquisitions may entail significant
transaction costs and risks associated with entry into new
markets.
In addition, even when acquisitions are completed, integration
of acquired entities can involve significant difficulties, such
as:
|
|
|
|
|
failure to achieve cost savings or other financial or operating
objectives with respect to an acquisition;
|
|
|
|
strain on the operational and managerial controls and procedures
of our business, and the need to modify systems or to add
management resources;
|
|
|
|
difficulties in the integration and retention of customers or
personnel and the integration and effective deployment of
operations or technologies;
|
|
|
|
amortization of acquired assets, which would reduce future
reported earnings;
|
|
|
|
possible adverse short-term effects on our cash flows or
operating results;
|
|
|
|
diversion of managements attention from the ongoing
operations of our business;
|
|
|
|
failure to obtain and retain key personnel of an acquired
business; and
|
|
|
|
assumption of known or unknown material liabilities or
regulatory non-compliance issues.
|
Failure to manage these acquisition growth risks could have a
material adverse effect on our business, results of operations
and financial condition.
Our
significant indebtedness may affect our ability to operate our
business, and may have a material adverse effect on our
business, results of operations and financial
condition.
We have now and will likely continue to have a significant
amount of indebtedness. As of June 26, 2008, we had total
debt outstanding of $1,284.7 million and we had borrowing
availability of $542.5 million under our credit facilities.
We and our subsidiaries may incur significant additional
indebtedness in the future. If new indebtedness is added to our
current indebtedness, the risks described below could increase.
Our significant level of indebtedness could have important
consequences, such as:
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limiting our ability to obtain additional financing to fund our
working capital, acquisitions, expenditures, debt service
requirements or other general corporate purposes;
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limiting our ability to use operating cash flow in other areas
of our business because we must dedicate a substantial portion
of these funds to service debt;
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limiting our ability to compete with other companies who are not
as highly leveraged;
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subjecting us to restrictive financial and operating covenants
in the agreements governing our and our subsidiaries
long-term indebtedness;
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exposing us to potential events of default (if not cured or
waived) under financial and operating covenants contained in our
or our subsidiaries debt instruments that could have a
material adverse effect on our business, results of operations
and financial condition;
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increasing our vulnerability to a downturn in general economic
conditions or in pricing of our products; and
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limiting our ability to react to changing market conditions in
our industry and in our customers industries.
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In addition, borrowings under our credit facilities bear
interest at variable rates. If market interest rates increase,
such variable-rate debt will create higher debt service
requirements, which could adversely affect our cash flow. Our
pro forma interest expense for the twelve months ended
December 31, 2007 was $60.8 million. Without giving
pro forma effect to the Red Man Transaction, our interest
expense for the eleven months ended December 31, 2007 was
$61.7 million.
Our ability to make scheduled debt payments, to refinance our
obligations with respect to our indebtedness and to fund capital
and non-capital expenditures necessary to maintain the condition
of our operating assets, properties and systems software, as
well as to provide capacity for the growth of our business,
depends on our financial and operating performance, which, in
turn, is subject to prevailing economic conditions and
financial, business, competitive, legal and other factors. Our
business may not generate sufficient cash flow from operations,
and future borrowings may not be available to us under our
credit facilities in an amount sufficient to enable us to pay
our indebtedness or to fund our other liquidity needs. We may
seek to sell assets to fund our liquidity needs but may not be
able to do so. We may also need to refinance all or a portion of
our indebtedness on or before maturity. We may not be able to
refinance any of our indebtedness on commercially reasonable
terms or at all.
In addition, we are and will be subject to covenants contained
in agreements governing our present and future indebtedness.
These covenants include and will likely include restrictions on
certain payments and investments, the redemption and repurchase
of capital stock, the issuance of stock of subsidiaries, the
granting of liens, the incurrence of additional indebtedness,
dividend restrictions affecting us and our subsidiaries, asset
sales, transactions with affiliates and mergers and
acquisitions. They also include financial maintenance covenants
which contain financial ratios we must satisfy each quarter. Any
failure to comply with these covenants could result in a default
under our credit facilities. Upon a default, unless waived, the
lenders under our secured credit facilities would have all
remedies available to a secured lender, and could elect to
terminate their commitments, cease making further loans,
institute foreclosure proceedings against our or our
subsidiaries assets, and force us and our subsidiaries
into bankruptcy or liquidation.
In addition, any defaults under our credit facilities or our
other debt could trigger cross defaults under other or future
credit agreements and may permit acceleration of our other
indebtedness. If our indebtedness is accelerated, we cannot be
certain that we will have sufficient funds available to pay the
accelerated indebtedness or that we will have the ability to
refinance the accelerated indebtedness on terms favorable to us
or at all. For a description of our credit facilities, please
see Description of Our Indebtedness.
We are a
holding company and depend upon our subsidiaries for our cash
flow.
We are a holding company. Our subsidiaries conduct all of our
operations and own substantially all of our assets.
Consequently, our cash flow and our ability to meet our
obligations or to pay dividends or make other distributions in
the future will depend upon the cash flow of our subsidiaries
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and the payment of funds by our subsidiaries to us in the form
of dividends, tax sharing payments or otherwise. In addition,
McJunkin Red Man Corporation, our direct subsidiary and the
primary obligor under our $1,275 million senior secured
credit facilities, is also dependent to a significant extent on
the cash flow of its subsidiaries in order to meet its debt
service obligations.
The ability of our subsidiaries to make any payments to us will
depend on their earnings, the terms of their current and future
indebtedness, tax considerations and legal and contractual
restrictions on the ability to make distributions. In
particular, our subsidiaries credit facilities currently
impose significant limitations on the ability of our
subsidiaries to make distributions to us and consequently our
ability to pay dividends to our stockholders. Subject to
limitations in our credit facilities, our subsidiaries may also
enter into additional agreements that contain covenants
prohibiting them from distributing or advancing funds or
transferring assets to us under certain circumstances, including
to pay dividends.
Our subsidiaries are separate and distinct legal entities. Any
right that we have to receive any assets of or distributions
from any of our subsidiaries upon the bankruptcy, dissolution,
liquidation or reorganization of any such subsidiary, or to
realize proceeds from the sale of their assets, will be junior
to the claims of that subsidiarys creditors, including
trade creditors and holders of debt issued by that subsidiary.
Changes in our
credit profile may affect our relationship with our suppliers,
which could have a material adverse effect on our
liquidity.
Changes in our credit profile may affect the way our suppliers
view our ability to make payments and may induce them to shorten
the payment terms of their invoices, particularly given our high
level of outstanding indebtedness. Given the large dollar
amounts and volume of our purchases from suppliers, a change in
payment terms may have a material adverse effect on our
liquidity and our ability to make payments to our suppliers, and
consequently may have a material adverse effect on our business,
results of operations and financial condition.
Our business,
results of operations and financial condition could be
materially and adversely affected if restrictions on imports of
line pipe, oil country tubular goods, or certain of the other
products that we sell are lifted.
U.S. law currently imposes tariffs and duties on imports
from certain foreign countries of line pipe and oil country
tubular goods, and, to a lesser extent, on imports of certain
other products that we sell. If these restrictions are lifted,
if the tariffs are reduced or if the level of such imported
products otherwise increases, and these imported products are
accepted by our customer base, our business, results of
operations and financial condition could be materially and
adversely affected to the extent that we would then have
higher-cost products in our inventory or if prices and margins
are driven down by increased supplies of such products. If
prices of these products were to decrease significantly, we
might not be able to profitably sell these products and the
value of our inventory would decline. In addition, significant
price decreases could result in a significantly longer holding
period for some of our inventory, which could also have a
material adverse effect on our business, results of operations
and financial condition.
We are subject
to strict environmental, health and safety laws and regulations
that may lead to significant liabilities.
We are subject to a variety of federal, state, local, foreign
and provincial environmental, health and safety laws and
regulations, including those governing the discharge of
pollutants into the air or water, the management, storage and
disposal of hazardous substances and wastes, the responsibility
to investigate and cleanup contamination and occupational health
and safety. Fines and penalties may be imposed for
non-compliance with applicable environmental, health and safety
requirements and the failure to have or to comply with the terms
and conditions of required permits. Historically, the costs to
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comply with environmental and health and safety requirements
have not been material. However, the failure by us to comply
with applicable environmental, health and safety requirements
could result in fines, penalties, enforcement actions, third
party claims for property damage and personal injury,
requirements to clean up property or to pay for the costs of
cleanup, or regulatory or judicial orders requiring corrective
measures, including the installation of pollution control
equipment or remedial actions.
Under certain laws and regulations, such as the federal
Superfund law, the obligation to investigate and remediate
contamination at a facility may be imposed on current and former
owners or operators or on persons who may have sent waste to
that facility for disposal. Liability under these laws and
regulations may be without regard to fault or to the legality of
the activities giving rise to the contamination. Although we are
not aware of any active litigation against us under the federal
Superfund law or its state equivalents, contamination has been
identified at several of our current and former facilities, and
we have incurred and will continue to incur costs to investigate
and remediate these conditions.
Moreover, we may incur liabilities in connection with
environmental conditions currently unknown to us relating to our
existing, prior, or future sites or operations or those of
predecessor companies whose liabilities we may have assumed or
acquired. We believe that indemnities contained in certain of
our acquisition agreements may cover certain environmental
conditions existing at the time of the acquisition, subject to
certain terms, limitations and conditions. However, if these
indemnification provisions terminate or if the indemnifying
parties do not fulfill their indemnification obligations, we may
be subject to liability with respect to the environmental
matters that may be covered by such indemnification obligations.
In addition, environmental, health and safety laws and
regulations applicable to our business and the business of our
customers, including laws regulating the energy industry, and
the interpretation or enforcement of these laws and regulations,
are constantly evolving and it is impossible to predict
accurately the effect that changes in these laws and
regulations, or their interpretation or enforcement, may have
upon our business, financial condition or results of operations.
In particular, legislation and regulations limiting emissions of
greenhouse gases, including carbon dioxide associated with the
burning of fossil fuels, are at various stages of consideration
and implementation, and if fully implemented, could negatively
impact the market for our products and, consequently, our
business. Should environmental laws and regulations, or their
interpretation or enforcement, become more stringent, our costs
could increase, which may have a material adverse effect on our
business, financial condition and results of operations.
We may not
have adequate insurance for potential liabilities, including
liabilities arising from litigation.
In the ordinary course of business, we have and in the future
may become the subject of various claims, lawsuits and
administrative proceedings seeking damages or other remedies
concerning our commercial operations, products, employees and
other matters, including potential claims by individuals
alleging exposure to hazardous materials as a result of our
products or operations. Some of these claims may relate to the
activities of businesses that we have acquired, even though
these activities may have occurred prior to our acquisition of
such businesses. Our products are sold primarily for use in the
energy industry, which is subject to inherent risks that could
result in death, personal injury, property damage, pollution or
loss of production. In addition, defects in our products could
result in death, personal injury, property damage, pollution or
damage to equipment and facilities. Actual or claimed defects in
the products we distribute may give rise to claims against us
for losses and expose us to claims for damages.
We maintain insurance to cover certain of our potential losses,
and we are subject to various self-retentions, deductibles and
caps under our insurance. It is possible, however, that
judgments could be rendered against us in cases in which we
would be uninsured and beyond the amounts that
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we currently have reserved or anticipate incurring for such
matters. Even a partially uninsured claim, if successful and of
significant size, could have a material adverse effect on our
business, results of operations and financial condition.
Furthermore, we may not be able to continue to obtain insurance
on commercially reasonable terms in the future, and we may incur
losses from interruption of our business that exceed our
insurance coverage. Finally, even in cases where we maintain
insurance coverage, our insurers may raise various objections
and exceptions to coverage which could make uncertain the timing
and amount of any possible insurance recovery.
Due to our
position as a distributor, we are subject to personal injury,
product liability and environmental claims involving allegedly
defective products.
Certain of our products are used in potentially hazardous
applications that can result in personal injury, product
liability and environmental claims. A catastrophic occurrence at
a location where our products are used may result in us being
named as a defendant in lawsuits asserting potentially large
claims, even though we did not manufacture the products, and
applicable law may render us liable for damages without regard
to negligence or fault. Particularly, certain environmental laws
provide for joint and several and strict liability for
remediation of spills and releases of hazardous substances.
Certain of these risks are reduced by the fact that we are a
distributor of products produced by third-party manufacturers,
and thus in certain circumstances we may have third-party
warranty or other claims against the manufacturer of products
alleged to have been defective. However, there is no assurance
that such claims could fully protect us or that the manufacturer
would be able financially to provide such protection. There is
no assurance that our insurance coverage will be adequate to
cover the underlying claims and our insurance does not provide
coverage for all liabilities (including liability for certain
events involving pollution).
We are a
defendant in asbestos-related lawsuits, and exposure to these
and any future lawsuits could have a material adverse effect on
our business, results of operations and financial
condition.
We are a defendant in lawsuits involving approximately 835
plaintiffs as of September 24, 2008 alleging, among other
things, personal injury, including mesothelioma and other
cancers, arising from exposure to asbestos-containing materials
included in products distributed by us in the past. The
complaints in these lawsuits typically name many other
defendants. In the majority of these lawsuits, little or no
information is known regarding the nature of the
plaintiffs alleged injuries or their connection with the
products we distributed. Based on our experience with asbestos
litigation to date, as well as the existence of certain
insurance coverage, we do not believe that the outcome of these
cases will have a material impact on us. However, the potential
liability associated with asbestos lawsuits is subject to many
uncertainties, including negative developments in the cases
pending against us, the current or future insolvency of
co-defendants, adverse changes in relevant laws or the
interpretation thereof, and the extent to which insurance will
be available to pay for defense costs, judgments or settlements.
Further, we expect that additional claims will be filed against
us in the future, but we are unable to predict the number,
timing and magnitude of such future claims with any certainty.
Therefore, we cannot assure you that pending or future asbestos
litigation will not ultimately have a material adverse effect on
our business, results of operations and financial condition. See
Risk Factors We may not have adequate
insurance for potential liabilities, including liabilities
arising from litigation, Managements
Discussion and Analysis of Financial Condition and Results of
Operations Contractual Obligations, Commitments and
Contingencies Legal Proceedings and
Business Overview of Our Business
Legal Proceedings for more information.
If we lose any
of our key personnel, we may be unable to effectively manage our
business or continue our growth.
Our future performance depends to a significant degree upon the
continued contributions of our management team and our ability
to attract, hire, train and retain qualified managerial, sales
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marketing personnel. Particularly, we rely on our sales and
marketing teams to create innovative ways to generate demand for
our products. The loss or unavailability to us of any member of
our management team or a key sales or marketing employee could
have a material adverse effect on our business, results of
operations and financial condition to the extent we are unable
to timely find adequate replacements. We face competition for
these professionals from our competitors, our customers and
other companies operating in our industry. We may be
unsuccessful in attracting, hiring, training and retaining
qualified personnel, and our business, results of operations and
financial condition could be materially and adversely effected
under such circumstances.
Interruptions
in the proper functioning of our information systems or failure
to timely and properly complete our current information systems
integration project could disrupt operations and cause increases
in costs and/or decreases in revenues.
The proper functioning of our information systems is critical to
the successful operation of our business. We depend on our
information technology systems to process orders, track credit
risk, manage inventory and monitor accounts receivable
collections. Our information systems also allow us to
efficiently purchase products from our vendors and ship products
to our customers on a timely basis, maintain
cost-effective
operations and provide superior service to our customers.
Although our information systems are protected through physical
and software safeguards and remote processing capabilities
exist, information systems are still vulnerable to natural
disasters, power losses, telecommunication failures and other
problems. If critical information systems fail or are otherwise
unavailable, our ability to procure products to sell, process
and ship customer orders, identify business opportunities,
maintain proper levels of inventories, collect accounts
receivable and pay accounts payable and expenses could be
adversely affected. Our ability to integrate our systems with
our customers systems would also be significantly
affected. We maintain information systems controls designed to
protect against, among other things, unauthorized program
changes and unauthorized access to data on our information
systems. If our information systems controls do not function
properly, we face increased risks of unexpected errors and
unreliable financial data.
In addition, we are currently integrating the information
systems of our predecessor companies McJunkin Corporation and
Red Man Pipe & Supply Co. and our Canadian subsidiary,
Midfield Supply ULC. Our failure to timely and properly complete
this project and train our staff in the use of the integrated
system could cause similar negative effects.
The loss of
third-party
transportation providers upon whom we depend, or conditions
negatively affecting the transportation industry, could increase
our costs or cause a disruption in our operations.
We depend upon
third-party
transportation providers for delivery of products to our
customers. Strikes, slowdowns, transportation disruptions or
other conditions in the transportation industry, including, but
not limited to, shortages of truck drivers, disruptions in rail
service, increases in fuel prices and adverse weather
conditions, could increase our costs and disrupt our operations
and our ability to service our customers on a timely basis. We
cannot predict whether or to what extent recent increases or
anticipated increases in fuel prices may impact our costs or
cause a disruption in our operations going forward.
We may need
additional capital in the future and it may not be available on
acceptable terms.
We may require more capital in the future to:
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fund our operations;
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finance investments in equipment and infrastructure needed to
maintain and expand our distribution capabilities;
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enhance and expand the range of products we offer; and
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respond to potential strategic opportunities, such as
investments, acquisitions and international expansion.
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We cannot assure you that additional financing will be available
on terms favorable to us, or at all. The terms of available
financing may place limits on our financial and operating
flexibility. If adequate funds are not available on acceptable
terms, we may be forced to reduce our operations or delay, limit
or abandon expansion opportunities. Moreover, even if we are
able to continue our operations, the failure to obtain
additional financing could reduce our competitiveness.
Hurricanes or
other adverse weather events could negatively affect our local
economies or disrupt our operations, which could have an adverse
effect on our business or results of operations.
Certain areas in which we operate in the United States,
including areas in the southeastern United States, are
susceptible to hurricanes and other adverse weather conditions.
Such weather events can disrupt our operations, result in damage
to our properties and negatively affect the local economies in
which we operate. Additionally, we may experience communication
disruptions with our customers, vendors and employees. In late
August 2005 and September 2005, Hurricanes Katrina and Rita
struck the Gulf Coast of Louisiana, Mississippi, Alabama and
Texas and caused extensive and catastrophic physical damage to
those market areas. Hurricanes can cause physical damage to our
branches and require us to close branches in order to secure our
employees. Additionally, our sales order backlog and shipments
can experience a temporary decline immediately following
hurricanes.
We cannot predict whether or to what extent damage caused by
future hurricanes and tropical storms will affect our operations
or the economies in regions where we operate. Such adverse
weather events could result in disruption of our purchasing
and/or distribution capabilities, interruption of our business
that exceeds our insurance coverage, our inability to collect
from customers and increased operating costs. Our business or
results of operations may be adversely affected by these and
other negative effects of hurricanes or other adverse weather
events.
The failure of
Red Man Distributors LLC to continue to be certified as a
minority business enterprise could result in the loss of
customers or volume which may have a material adverse effect on
our business, results of operations and financial
condition.
Our wholly owned subsidiary, McJunkin Red Man Corporation owns
49% of the outstanding equity interests in Red Man Distributors
LLC (RMD), an Oklahoma limited liability company
formed on November 1, 2007 for the purposes of distributing
oil country tubular goods in North America as a certified
minority supplier. RMD is currently certified by each of the
Oklahoma Minority Supplier Development Council and the North
Central Texas Regional Certification Agency as a minority
business enterprise. If for any reason RMD ceases to be
certified as a minority business enterprise, then customers who
may derive advantages from purchasing products from RMD as a
result of its status as a certified minority business enterprise
could terminate their relationships with RMD or reduce their
purchasing volume. The loss of a significant customer of RMD, or
a significant decrease in a customers orders, may have a
material adverse effect on our business, results of operations
and financial condition.
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We have a
substantial amount of goodwill and other intangibles recorded on
our balance sheet, partly because of our recent acquisitions and
business combination transactions. The amortization of acquired
assets will reduce our future reported earnings and,
furthermore, if our goodwill or other intangible assets become
impaired, we may be required to recognize charges that would
reduce our income.
As of June 26, 2008, we had $1.8 billion of goodwill
and other intangibles recorded on our balance sheet. A
substantial portion of these intangible assets result from our
use of purchase accounting in connection with the GS
Acquisition, our acquisition of Midway-Tristate Corporation, and
the Red Man Transaction. In accordance with the purchase
accounting method, the excess of the cost of purchased assets
over the fair value of such assets is assigned to intangible
assets and is amortized over a period of time. The amortization
expense associated with our intangible assets will have a
negative effect on our future reported earnings. Many other
companies, including many of our competitors, will not have the
significant acquired intangible assets that we have because they
have not participated in recent acquisitions and business
combination transactions similar to ours. Thus, their reported
earnings will not be as negatively affected by the amortization
of intangible assets as our reported earnings will be.
Additionally, under U.S. generally accepted accounting
principles, goodwill and certain other intangible assets are not
amortized but must be reviewed for possible impairment annually,
or more often in certain circumstances if events indicate that
the asset values are not recoverable. Such reviews could result
in an earnings charge for the impairment of goodwill, which
would reduce our income and negatively affect our stock price
even though there would be no impact on our underlying cash flow.
We face risks
associated with conducting business in markets outside of North
America.
Nigeria is currently the only country outside of North America
in which we conduct business, though we are aware that our
customers use our products outside of North America as well. In
addition, we are evaluating the possibility of establishing
distribution networks in certain other foreign countries,
particularly in West Africa, the Middle East, Europe and South
America. Though our revenue from business in developing
countries is currently not significant, our business, results of
operations and financial condition could be materially and
adversely affected by changes in the developing countries in
which we do business in the future or in which we expand our
business, particularly those countries which have historically
experienced a high degree of political
and/or
economic instability. Examples of risks inherent in such
non-North
American activities include changes in the political and
economic conditions in the countries in which we operate,
including civil uprisings and terrorist acts, unexpected changes
in regulatory requirements, changes in tariffs, the adoption of
foreign or domestic laws limiting exports to certain foreign
countries, fluctuations in currency exchange rates and the value
of the U.S. dollar, restrictions on repatriation of
earnings, expropriation of property without fair compensation,
governmental actions that result in the deprivation of contract
or proprietary rights, the acceptance of business practices
which are not consistent with or antithetical to prevailing
business practices we are accustomed to in North America, and
governmental sanctions. If we begin doing business in a foreign
country in which we do not presently operate, we may also face
difficulties in operations and diversion of management time in
connection with establishing our business there.
The
requirements of being a public company, including compliance
with the reporting requirements of the Exchange Act and the
requirements of the Sarbanes-Oxley Act, may strain our
resources, increase our costs and distract management, and we
may be unable to comply with these requirements in a timely or
cost-effective manner.
As a public company, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, or the
Exchange Act, and the corporate governance standards of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the
New York Stock Exchange. These requirements may place a strain
on our management, systems and resources. The Exchange Act will
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require that we file annual, quarterly and current reports with
respect to our business and financial condition within specified
time periods. The Sarbanes-Oxley Act will require that we
maintain effective disclosure controls and procedures and
internal control over financial reporting. Due to our limited
operating history, our disclosure controls and procedures and
internal controls may not meet all of the standards applicable
to public companies subject to the Sarbanes-Oxley Act. In order
to maintain and improve the effectiveness of our disclosure
controls and procedures and internal control over financial
reporting, significant resources and management oversight will
be required. This may divert managements attention from
other business concerns, which could have a material adverse
effect on our business, financial condition, results of
operations and the price of our common stock.
We also expect that it could be difficult and will be
significantly more expensive to obtain directors and
officers liability insurance, and we may be required to
accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a
result, it may be more difficult for us to attract and retain
qualified persons to serve on our board of directors or as
executive officers. Advocacy efforts by shareholders and third
parties may also prompt even more changes in governance and
reporting requirements. We cannot predict or estimate the amount
of additional costs we may incur or the timing of such costs.
We will be
exposed to risks relating to evaluations of controls required by
Section 404 of the Sarbanes-Oxley Act.
We are in the process of evaluating our internal controls
systems to allow management to report on, and our independent
auditors to audit, our internal control over financial
reporting. We will be performing the system and process
evaluation and testing (and any necessary remediation) required
to comply with the management certification and auditor
attestation requirements of Section 404 of the
Sarbanes-Oxley Act, and will be required to comply with
Section 404 in our annual report for the year ended
December 31, 2009 (subject to any change in applicable SEC
rules). Furthermore, upon completion of this process, we may
identify control deficiencies of varying degrees of severity
under applicable U.S. Securities and Exchange Commission,
or SEC, and Public Company Accounting Oversight Board, or PCAOB,
rules and regulations that remain unremediated. As a public
company, we will be required to report, among other things,
control deficiencies that constitute a material
weakness or changes in internal controls that, or that are
reasonably likely to, materially affect internal control over
financial reporting. A material weakness is a
significant deficiency or combination of significant
deficiencies in internal control over financial reporting that
results in a reasonable possibility that a material misstatement
of the annual or interim financial statements will not be
prevented or detected on a timely basis.
If we fail to implement the requirements of Section 404 in
a timely manner, we might be subject to sanctions or
investigation by regulatory authorities such as the SEC or the
PCAOB. If we do not implement improvements to our disclosure
controls and procedures or to our internal controls in a timely
manner, our independent registered public accounting firm may
not be able to certify as to the effectiveness of our internal
control over financial reporting pursuant to an audit of our
internal control over financial reporting. This may subject us
to adverse regulatory consequences or a loss of confidence in
the reliability of our financial statements. We could also
suffer a loss of confidence in the reliability of our financial
statements if our independent registered public accounting firm
reports a material weakness in our internal controls, if we do
not develop and maintain effective controls and procedures or if
we are otherwise unable to deliver timely and reliable financial
information. Any loss of confidence in the reliability of our
financial statements or other negative reaction to our failure
to develop timely or adequate disclosure controls and procedures
or internal controls could result in a decline in the price of
our common stock. In addition, if we fail to remedy any material
weakness, our financial statements may be inaccurate, we may
face restricted access to the capital markets and our stock
price may be adversely affected.
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We are a
controlled company within the meaning of the New
York Stock Exchange rules and, as a result, will qualify for,
and may rely on, exemptions from certain corporate governance
requirements.
A company of which more than 50% of the voting power is held by
an individual, a group or another company is a controlled
company within the meaning of the New York Stock Exchange
rules and may elect not to comply with certain corporate
governance requirements of the New York Stock Exchange,
including:
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the requirement that a majority of our board of directors
consist of independent directors;
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the requirement that we have a nominating/corporate governance
committee that is composed entirely of independent directors
with a written charter addressing the committees purpose
and responsibilities; and
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the requirement that we have a compensation committee that is
composed entirely of independent directors.
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Following this offering, we will rely on all of the exemptions
listed above. Accordingly, you will not have the same
protections afforded to stockholders of companies that are
subject to all of the corporate governance requirements of the
New York Stock Exchange.
We are a newly
combined company with a limited combined operating history, and
the financial statements presented in this prospectus may
therefore not give you an accurate indication of what our future
results of operations are likely to be.
The Red Man Transaction closed on October 31, 2007 and we
have operated as a combined company only since that time. Our
limited combined operating history may make it difficult to
forecast our future operating results and financial condition.
Because of the significance of the Red Man Transaction, the
financial statements for periods prior to the transaction are
not comparable with those after the transaction, and the lack of
comparable data may make it difficult to evaluate our results of
operations and future prospects. The only historical financial
statements of our combined company included in this prospectus
are audited financial statements for the eleven months ended
December 31, 2007 (which includes McJunkins results
for the full eleven-month period and Red Mans results for
only the two months following October 31, 2007) and
unaudited financial statements for the six months ended
June 26, 2008. Pro forma financial information that assumes
that the Red Man Transaction closed on January 1, 2007 as
opposed to the actual closing date of October 31, 2007 is
presented with respect to the twelve months ended
December 31, 2007 and the six months ended June 28,
2007. However, due to our limited combined operating history,
these historical financial statements and the related pro forma
information may not give you an accurate indication of what our
actual results would have been if the combination had been
completed at the beginning of the periods presented or of what
our future results of operations and financial condition are
likely to be. In addition, we acquired Midway-Tristate
Corporation in April 2007, and we acquired the remaining
approximate 49% minority voting interest in Midfield in July
2008, but our pro forma financial statements do not (and are not
required to) give effect to either of these transactions.
Additionally, other historical financial statements reflecting
the separate historical results of operations, financial
position and cash flows of McJunkin and Red Man prior to the Red
Man Transaction are also included in this prospectus. These
financial statements reflect the results of operations,
financial condition and cash flows of McJunkin and Red Man as
stand-alone companies and thus they may not give you an accurate
indication of what our combined results would have been if the
Red Man Transaction had been completed at an earlier time or of
what our future results of operations and financial condition
are likely to be.
32
Risks Related to
this Offering and our Common Stock
There is no
existing market for our common stock, and we do not know if one
will develop to provide you with adequate liquidity. If our
stock price fluctuates after this offering, you could lose a
significant part of your investment.
Prior to this offering, there has not been a public market for
our common stock. If an active trading market does not develop,
you may have difficulty selling any of our common stock that you
buy. The initial public offering price for the shares will be
determined by negotiations among the Company, the selling
stockholder and the underwriters and may not be indicative of
prices that will prevail in the open market following this
offering. Consequently, you may not be able to sell shares of
our common stock at prices equal to or greater than the price
you paid in this offering. The market price of our common stock
may be influenced by many factors including:
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fluctuations in oil and natural gas prices;
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the failure of securities analysts to cover our common stock
after this offering or changes in financial estimates by
analysts;
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announcements by us or our competitors of significant contracts
or acquisitions or other business developments;
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variations in quarterly results of operations;
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loss of a large customer or supplier;
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U.S. and international general economic conditions;
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increased competition;
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terrorist acts;
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future sales of our common stock or the perception that such
sales may occur; and
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investor perceptions of us and the industries in which our
products are used.
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As a result of these factors, investors in our common stock may
not be able to resell their shares at or above the initial
offering price. 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 companies like us. These broad market and
industry factors may significantly reduce the market price of
our common stock, regardless of our operating performance.
Following the
completion of this offering, certain affiliates of The Goldman
Sachs Group, Inc. will continue to control us and may have
conflicts of interest with other stockholders. Conflicts of
interest may arise because affiliates of our principal
stockholder have continuing agreements and business
relationships with us.
Upon completion of this offering, certain affiliates of The
Goldman Sachs Group, Inc. (the Goldman Sachs Funds)
will control % of our outstanding
common stock, or % if the
underwriters exercise their option in full. As a result, the
Goldman Sachs Funds will continue to be able to control the
election of our directors, determine our corporate and
management policies and determine, without the consent of our
other stockholders, the outcome of any corporate transaction or
other matter submitted to our stockholders for approval,
including potential mergers or acquisitions, asset sales and
other significant corporate transactions. The Goldman Sachs
Funds will also have sufficient voting power to amend our
organizational documents.
Conflicts of interest may arise between our principal
stockholder and us. Affiliates of our principal stockholder
engage in transactions with our company. One affiliate of our
principal stockholder, Goldman Sachs Credit Partners, L.P., is
the joint lead arranger for our $1,275 million senior
secured credit facilities and our $450 million term loan
facility. See Certain Relationships and Related Party
33
Transactions. Further, the Goldman Sachs Funds are in the
business of making investments in companies and may, from time
to time, acquire and hold interests in businesses that compete
directly or indirectly with us and they may either directly, or
through affiliates, also maintain business relationships with
companies that may directly compete with us. In general, the
Goldman Sachs Funds or their affiliates could pursue business
interests or exercise their voting power as stockholders in ways
that are detrimental to us but beneficial to themselves or to
other companies in which they invest or with whom they have a
material relationship. Conflicts of interest could also arise
with respect to business opportunities that could be
advantageous to the Goldman Sachs Funds and they may pursue
acquisition opportunities that may be complementary to our
business, and as a result, those acquisition opportunities may
not be available to us. Under the terms of our amended and
restated certificate of incorporation, the Goldman Sachs Funds
will have no obligation to offer us corporate opportunities. See
Description of Our Capital Stock Corporate
Opportunities.
As a result of these relationships, the interests of the Goldman
Sachs Funds may not coincide with the interests of our company
or other holders of our common stock. So long as the Goldman
Sachs Funds continue to control a significant amount of the
outstanding shares of our common stock, the Goldman Sachs Funds
will continue to be able to strongly influence or effectively
control our decisions, including potential mergers or
acquisitions, asset sales and other significant corporate
transactions. See Certain Relationships and Related Party
Transactions.
We do not
currently intend to pay dividends in the foreseeable
future.
It is uncertain when, if ever, we will declare dividends to our
stockholders. We do not currently intend to pay dividends in the
foreseeable future. Our ability to pay dividends is constrained
by our holding company structure under which we are dependent on
payments by our subsidiaries. Additionally, we and our
subsidiaries are parties to credit agreements which restrict our
ability and their ability to pay dividends. See Dividend
Policy and Description of our Indebtedness.
You should not rely on an investment in us if you require
dividend income. In the foreseeable future, the only possible
return on an investment in us would come from an appreciation of
our common stock and there can be no assurance that our common
stock will appreciate after this offering.
Shares
eligible for future sale may cause the price of our common stock
to decline.
Sales of substantial amounts of our common stock in the public
market, or the perception that these sales may occur, could
cause the market price of our common stock to decline. This
could also impair our ability to raise additional capital
through the sale of our equity securities. Under our amended and
restated certificate of incorporation, we are authorized to
issue up
to shares
of common stock, of
which shares
of common stock are currently outstanding. Of these shares,
the shares
of common stock sold in this offering will be freely
transferable without restriction or further registration under
the Securities Act by persons other than affiliates,
as that term is defined in Rule 144 under the Securities
Act. Our principal stockholder, directors and executive
officers, who collectively beneficially
own shares,
will enter into
lock-up
agreements, pursuant to which they will agree, subject to
certain exceptions, not to sell or transfer, directly or
indirectly, any shares of our common stock for a period of
180 days from the date of this prospectus, subject to
extension in certain circumstances. Upon the expiration of these
lock-up
agreements, all of these shares of common stock will be tradable
subject to limitations imposed by Rule 144 under the
Securities Act. See Shares Eligible for Future Sale.
34
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Statements
that are predictive in nature, that depend upon or refer to
future events or conditions or that include the words
believe, expect, anticipate,
intend, estimate and other expressions
that are predictions of or indicate future events and trends and
that do not relate to historical matters identify
forward-looking statements. Our forward-looking statements
include, among others, statements about our business strategy,
our industry, our future profitability, and the costs of
operating as a public company. These statements involve known
and unknown risks, uncertainties and other factors, including
the factors described under Risk Factors, that may
cause our actual results and performance to be materially
different from any future results or performance expressed or
implied by these forward-looking statements. Such risks and
uncertainties include, among other things:
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decreases in oil and gas prices;
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decreases in oil and gas industry expenditure levels, which may
result from decreased oil and natural gas prices or other
factors;
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increased usage of alternative fuels, which may negatively
affect oil and gas industry expenditure levels;
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U.S. and international general economic conditions;
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our ability to compete successfully with other companies in our
industry;
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the risk that manufacturers of our products will sell a
substantial amount of goods directly to end users in the markets
that we serve;
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unexpected supply shortages;
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cost increases by our suppliers;
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our lack of long-term contracts with most of our suppliers;
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increases in customer, manufacturer and distributor inventory
levels;
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price reductions by suppliers of products sold by us, which
could cause the value of our inventory to decline;
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decreases in steel prices, which could significantly lower our
profit;
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increases in steel prices, which we may be unable to pass along
to our customers, which could significantly lower our profit;
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our lack of long-term contracts with many of our customers and
our lack of contracts with customers that require minimum
purchase volumes;
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changes in our customer and product mix;
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the potential adverse effects associated with integrating Red
Man into our business and whether the Red Man Transaction will
yield its intended benefits;
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ability to integrate acquired companies into our business;
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the success of our acquisition strategies;
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our significant indebtedness;
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the dependence on our subsidiaries for cash to meet our debt
obligations;
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changes in our credit profile;
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a decline in demand for certain of our products if import
restrictions on these products are lifted;
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35
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environmental, health and safety laws and regulations;
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the sufficiency of our insurance policies to cover losses,
including liabilities arising from litigation;
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product liability claims against us;
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pending or future asbestos-related claims against us;
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the potential loss of key personnel;
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interruption in the proper functioning of our information
systems or failure to timely and properly complete our current
information systems integration project;
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loss of third-party transportation providers;
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potential inability to obtain necessary capital;
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risks related to hurricanes and other adverse weather events;
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the failure of Red Man Distributors LLC to continue to be
certified as a minority business enterprise;
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impairment of our goodwill or other intangible assets;
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adverse changes in political or economic conditions in the
countries in which we operate;
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potential increases in costs and distraction of management
resulting from the requirements of being a public company;
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risks relating to evaluations of internal controls required by
Section 404 of the Sarbanes-Oxley Act;
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the operation of our company as a controlled
company; and
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our limited operating history as a combined company.
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You should not place undue reliance on our forward-looking
statements. Although forward-looking statements reflect our good
faith beliefs, reliance should not be placed on forward-looking
statements because they involve known and unknown risks,
uncertainties and other factors, which may cause our actual
results, performance or achievements to differ materially from
anticipated future results, performance or achievements
expressed or implied by such forward-looking statements. We
undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new
information, future events, changed circumstances or otherwise.
36
USE OF
PROCEEDS
We will not receive any of the proceeds from the sale of shares
of our common stock by PVF Holdings LLC, the selling
stockholder. PVF Holdings LLC intends to distribute the net
proceeds of this offering, after giving effect to the
underwriting discount, to its members, which include certain
members of our board of directors and senior management team and
various of their affiliates. See Principal and Selling
Stockholders.
Additionally, affiliates of Goldman, Sachs & Co. own a
majority interest in PVF Holdings LLC. Accordingly, such
affiliates will receive a significant portion of the proceeds
from this offering. See Underwriting.
37
DIVIDEND
POLICY
Following the completion of this offering, we do not anticipate
paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings from our business, if
any, to finance operations and the expansion of our business.
Any future determination to pay cash dividends will be at the
discretion of our board of directors and will be dependent upon
our financial condition, results of operations, capital
requirements and other factors that the board deems relevant. In
addition, the covenants contained in our subsidiaries
credit facilities limit the ability of our subsidiaries to pay
dividends to us, which limits our ability to pay dividends to
our stockholders. Our ability to pay dividends is also limited
by the covenants contained in our $450 million term loan
facility, and our ability to pay dividends may be further
limited by covenants contained in the instruments governing
future indebtedness that we or our subsidiaries may incur in the
future. See Description of Our Indebtedness.
On May 21, 2008, our board of directors approved a dividend
of $475 million to our stockholders, of which $474,096,204
was distributed to PVF Holdings LLC and $903,796 was held by us
in accordance with the terms of our restricted stock award
agreements with holders of our restricted stock. PVF Holdings
LLC distributed its share of the proceeds of the dividend to its
members, including certain members of our board of directors and
management team, in accordance with the terms and conditions of
the Limited Liability Company Agreement of PVF Holdings LLC. See
Certain Relationships and Related Party
Transactions Transactions with the Goldman Sachs
Funds May 2008 Dividend. For a list of our
executive officers and directors who received proceeds of this
dividend and the amount of proceeds that each received, see the
table in Certain Relationships and Related Party
Transactions Transactions with Executive Officers
and Directors May 2008 Dividend on
page 147. This dividend is not indicative of future
dividends we may pay to our stockholders.
38
CAPITALIZATION
The following table sets forth our consolidated cash and cash
equivalents and capitalization as of June 26, 2008:
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on an actual basis; and
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on an as adjusted basis to give effect to (1) the payment
of expenses in connection with this offering and
(2) transactions in connection with our purchase of the
minority interest in Midfield Supply ULC, one of our
subsidiaries, on July 31, 2008.
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You should read this table in conjunction with Unaudited
Pro Forma Consolidated Financial Statements,
Selected Historical Consolidated Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and related notes included elsewhere in
this prospectus.
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June 26, 2008
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Actual
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As Adjusted
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(in millions)
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Cash and cash equivalents
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$
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8.8
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$
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Debt (including current portion):
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Senior secured revolving credit facility(1)
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204.4
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Senior secured term loan facility
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567.8
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Junior term loan facility
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450.0
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Midfield revolving credit facility(2)
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51.7
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Midfield term loan facility
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9.8
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Midfield notes payable
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1.0
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Total debt before Midfield shareholder loans
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1,284.7
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Midfield shareholder loans(3)
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29.1
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Total debt
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1,313.8
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Minority interest in subsidiaries(3)
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Stockholders equity:
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Common stock, $0.01 par value per
share; shares
authorized, shares
issued and outstanding(4)
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Preferred stock, $0.01 par value per share; no shares
authorized, issued or outstanding,
actual; shares
authorized; no shares issued and outstanding as adjusted
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Additional paid-in capital
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Total stockholders equity
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825.7
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Total capitalization
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$
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$
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(1)
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As of June 26, 2008, we had outstanding $204.4 million
of borrowings and availability of $490.9 million under our
senior secured revolving credit facility.
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(2)
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As of June 26, 2008, we had outstanding $51.7 million
of borrowings and availability of $51.6 million under the
Midfield revolving credit facility. The as adjusted amount
includes $5.4 million in drawings under our revolving
credit facility for purposes of paying expenses in connection
with this offering.
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(3)
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The as adjusted column gives effect to total payments made in
connection with our purchase on July 31, 2008 of all of the
minority interest in Midfield Supply ULC, one of our
subsidiaries. Total
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payments consisted of CDN$90.04 million (US$87.97 million)
paid to shareholders of and lenders to Midfield Holdings
(Alberta) Ltd., the holder of the minority interest, and
approximately US$47.7 million paid to former shareholders
of Red Man pursuant to the stock purchase agreement entered into
in connection with the Red Man Transaction. In connection with
the purchase of the minority interest, the Midfield shareholder
loans were paid in full. Our minority interest in subsidiaries
was eliminated upon consummation of the purchase because we had
no minority interest in subsidiaries other than the purchased
interest.
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(4)
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The number of shares of common stock outstanding on an actual
and as adjusted basis:
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excludes shares
of common stock issuable upon the exercise of stock options
granted to certain of our employees pursuant to the McJ Holding
Corporation 2007 Stock Option Plan; and
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excludes shares
of non-vested restricted stock awarded to certain of our
employees and directors pursuant to the McJ Holding Corporation
2007 Restricted Stock Plan.
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40
DILUTION
Our pro forma net tangible book value per share as of
June 26, 2008, both before and after giving effect to this
offering, was approximately
$ million. Pro forma net
tangible book value per share represents the amount of tangible
assets less total liabilities divided by the pro forma number of
shares of common stock outstanding (giving effect to
the
for split of our
common stock which will occur prior to the pricing of this
offering). There will be no increase in our pro forma net
tangible book value per share on account of this offering
because we will not receive any proceeds from the sale of shares
in this offering. Purchasers of shares in this offering will not
incur immediate dilution because our pro forma net tangible book
value per share will not be affected by this offering.
The following table sets forth as of June 26, 2008 the
number of shares of common stock purchased from us or to be
purchased from the selling stockholder, total consideration paid
or to be paid and the average price per share paid by our
existing stockholders and by new investors, on a pro forma basis
to give effect to
the
for
split of our common stock which will occur prior to the pricing
of this offering:
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Shares Purchased
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Total Consideration
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Average Price
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Number
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Percent
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Amount
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Percent
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Per Share
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Existing stockholders(1)
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%
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$
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%
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$
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New investors(2)(3)
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Total
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%
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$
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%
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$
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(1)
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Total consideration and average price per share paid by the
existing stockholders give effect to the $475 million
distribution made to the existing stockholders in May 2008 using
proceeds from our senior secured revolving credit facility and
junior term loan facility. If the table were adjusted to not
give effect to these payments, existing stockholders total
consideration for their shares would be
$ with an average share price of
$ .
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(2)
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A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share,
which is the midpoint of the price range set forth on the cover
page of this prospectus, would increase (decrease) total
consideration paid by new investors and total consideration paid
by all stockholders by
$ million, assuming the
number of shares offered by the selling stockholder, as set
forth on the cover page of the prospectus, remains the same.
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(3)
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If the underwriters exercise their option to
purchase shares
from the selling stockholder in full, then new investors would
purchase shares,
or approximately % of shares
outstanding, and the total consideration paid by new investors
would increase to $ ,
or % of the total consideration
paid (based on the midpoint of the range set forth on the cover
page of this prospectus).
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As of June 26, 2008, there were options outstanding to
purchase shares of our common stock, with exercise prices
ranging from $ to
$ per share and a weighted average
exercise price of $ per share
(after taking into account
the
for
split of our common stock which will occur prior to the pricing
of this offering). Also, as of June 26, 2008, there
were shares
of unvested restricted stock outstanding (after giving effect to
the stock split). The tables and calculations above assume that
those options have not been exercised and the restricted stock
has not vested. If these options were exercised at the weighted
average exercise price and the restricted stock was fully
vested, the additional dilution per share to new investors would
be $ .
41
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
On January 31, 2007, McJunkin Red Man Holding Corporation,
an affiliate of The Goldman Sachs Group, Inc., acquired a
majority of the equity of the entity now known as McJunkin Red
Man Corporation (then known as McJunkin Corporation) (the
GS Acquisition). In this prospectus, the term
Predecessor refers to McJunkin Corporation and its
subsidiaries prior to January 31, 2007 and the term
Successor refers to the entity now known as McJunkin
Red Man Holding Corporation and its subsidiaries on and after
January 31, 2007. As a result of the change in McJunkin
Corporations basis of accounting in connection with the GS
Acquisition, Predecessors financial statement data for the
one month ended January 30, 2007 and earlier periods is not
comparable to Successors financial data for the eleven
months ended December 31, 2007 and subsequent periods.
McJunkin Corporation completed a business combination
transaction with Red Man Pipe & Supply Co. (the
Red Man Transaction) on October 31, 2007. At
that time McJunkin Corporation was renamed McJunkin Red Man
Corporation. Operating results for the eleven-month period ended
December 31, 2007 include the results of McJunkin Red Man
Holding Corporation for the full period and the results of Red
Man Pipe & Supply Co. (Red Man) for the
two months after the business combination on October 31,
2007. Accordingly, our results for the 11 months ended
December 31, 2007 are not comparable to McJunkins
results for the years ended December 31, 2006 and 2005.
The selected consolidated financial information presented below
under the captions Statement of Operations Data and Other
Financial Data for the one month ended January 30, 2007
(Predecessor) and the eleven months ended December 31,
2007, and the selected consolidated financial information
presented below under the caption Balance Sheet Data as of
December 31, 2007, have been derived from the consolidated
financial statements of McJunkin Red Man Holding Corporation
included elsewhere in this prospectus that have been audited by
Ernst & Young LLP, independent registered public
accounting firm. The selected consolidated financial information
presented below as of and for the years ended December 31,
2005 and 2006 has been derived from the consolidated financial
statements of our Predecessor, McJunkin Corporation, included
elsewhere in this prospectus that have been audited by Schneider
Downs & Co., Inc., independent registered public
accounting firm. The selected consolidated financial information
presented below as of and for the years ended December 31,
2003 and 2004 has been derived from the audited consolidated
financial statements of our predecessor, McJunkin Corporation,
that are not included in this prospectus.
The selected unaudited interim consolidated financial
information presented below under the captions Statement of
Operations Data and Other Financial Data for the six months
ended June 26, 2008 and the five months ended June 28,
2007, and the selected unaudited consolidated financial
information presented below under the caption Balance Sheet Data
as of June 26, 2008, have been derived from our unaudited
interim consolidated financial statements, which are included
elsewhere in this prospectus and have been prepared on the same
basis as our audited consolidated financial statements. In the
opinion of management, the interim data reflect all adjustments,
consisting of normal and recurring adjustments, necessary for a
fair presentation of results for these periods. Operating
results for the six months ended June 26, 2008 include the
results of McJunkin Corporation and Red Man for the full period.
Operating results for the five-month period ending June 28,
2007 do not reflect the operating results of Red Man, as the Red
Man Transaction did not occur until October 31, 2007.
Accordingly, the results for the six months ended June 26,
2008 are not comparable to the results for the five months ended
June 28, 2007. In addition, operating results for the
six-month period ended June 26, 2008 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 2008.
The purchase price allocation for the GS Acquisition has been
finalized but the purchase price allocation for the Red Man
Transaction has not been finalized. We expect the purchase price
allocation for the Red Man Transaction to be finalized by
October 31, 2008. The purchase price has been finalized for
both the GS Acquisition and the Red Man Transaction and the
consideration for such transactions will not increase.
42
The selected historical consolidated financial data presented
below has been derived from financial statements that have been
prepared using United States generally accepted accounting
principles, or GAAP. This data should be read in conjunction
with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
consolidated financial statements and related notes included
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
One Month
|
|
|
|
Five Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 30, 2007
|
|
|
|
June 28, 2007
|
|
|
June 26, 2008
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In millions, except per share and share data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
142.5
|
|
|
|
$
|
784.9
|
|
|
$
|
2,196.0
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
114.6
|
|
|
|
|
635.9
|
|
|
|
1,803.8
|
|
Selling, general and administrative expenses
|
|
|
14.6
|
|
|
|
|
80.7
|
|
|
|
200.1
|
|
Depreciation and amortization
|
|
|
0.3
|
|
|
|
|
1.7
|
|
|
|
5.2
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
4.6
|
|
|
|
15.6
|
|
Profit sharing
|
|
|
1.3
|
|
|
|
|
5.6
|
|
|
|
13.5
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
1.3
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
130.8
|
|
|
|
|
729.8
|
|
|
|
2,041.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
11.7
|
|
|
|
|
55.1
|
|
|
|
154.5
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
|
(24.3
|
)
|
|
|
(35.0
|
)
|
Minority interests
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
(0.1
|
)
|
Other, net
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(0.5
|
)
|
|
|
|
(25.2
|
)
|
|
|
(35.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11.2
|
|
|
|
|
29.9
|
|
|
|
119.1
|
|
Income tax expense
|
|
|
4.6
|
|
|
|
|
12.3
|
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6.6
|
|
|
|
$
|
17.6
|
|
|
$
|
75.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$
|
376.70
|
|
|
|
$
|
171.69
|
|
|
$
|
245.41
|
|
Earnings per share, diluted
|
|
|
376.70
|
|
|
|
|
171.36
|
|
|
|
244.92
|
|
Weighted average shares, basic
|
|
|
17,510
|
|
|
|
|
102,594
|
|
|
|
309,421
|
|
Weighted average shares, diluted
|
|
|
17,510
|
|
|
|
|
102,792
|
|
|
|
310,034
|
|
Pro forma earnings per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
1,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2.0
|
|
|
|
$
|
16.5
|
|
|
$
|
8.8
|
|
Working capital
|
|
|
211.1
|
|
|
|
|
324.0
|
|
|
|
686.1
|
|
Total assets
|
|
|
474.2
|
|
|
|
|
1,551.7
|
|
|
|
3,294.3
|
|
Total debt, including current portion
|
|
|
4.8
|
|
|
|
|
747.4
|
|
|
|
1,284.7
|
|
Minority interest in subsidiaries
|
|
|
16.0
|
|
|
|
|
|
|
|
|
95.2
|
|
Stockholders equity
|
|
|
245.2
|
|
|
|
|
392.9
|
|
|
|
824.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
6.6
|
|
|
|
$
|
1.9
|
|
|
$
|
70.5
|
|
Net cash provided by (used in) investing activities
|
|
|
(0.2
|
)
|
|
|
|
(933.3
|
)
|
|
|
(16.4
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(8.3
|
)
|
|
|
|
945.9
|
|
|
|
(55.2
|
)
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
One Month
|
|
|
|
11 Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 30,
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
2007
|
|
|
|
(In millions, except as otherwise indicated)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
798.2
|
|
|
$
|
1,081.2
|
|
|
$
|
1,445.8
|
|
|
$
|
1,713.7
|
|
|
$
|
142.5
|
|
|
|
$
|
2,124.9
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
644.5
|
|
|
|
867.6
|
|
|
|
1,177.1
|
|
|
|
1,394.3
|
|
|
|
114.6
|
|
|
|
|
1,734.6
|
|
Selling, general and administrative expenses
|
|
|
118.7
|
|
|
|
140.5
|
|
|
|
155.7
|
|
|
|
173.9
|
|
|
|
14.6
|
|
|
|
|
201.9
|
|
Depreciation and amortization
|
|
|
4.3
|
|
|
|
3.9
|
|
|
|
3.7
|
|
|
|
3.9
|
|
|
|
0.3
|
|
|
|
|
5.4
|
|
Amortization of intangibles
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
10.5
|
|
Profit sharing
|
|
|
5.1
|
|
|
|
11.5
|
|
|
|
13.1
|
|
|
|
15.1
|
|
|
|
1.3
|
|
|
|
|
13.2
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
773.1
|
|
|
|
1,024.0
|
|
|
|
1,349.9
|
|
|
|
1,587.5
|
|
|
|
130.8
|
|
|
|
|
1,968.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
25.1
|
|
|
|
57.2
|
|
|
|
95.9
|
|
|
|
126.2
|
|
|
|
11.7
|
|
|
|
|
156.4
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2.5
|
)
|
|
|
(2.5
|
)
|
|
|
(2.7
|
)
|
|
|
(2.8
|
)
|
|
|
(0.1
|
)
|
|
|
|
(61.7
|
)
|
Minority interests
|
|
|
(0.6
|
)
|
|
|
(1.9
|
)
|
|
|
(2.8
|
)
|
|
|
(4.1
|
)
|
|
|
(0.4
|
)
|
|
|
|
(0.1
|
)
|
Other, net
|
|
|
(0.9
|
)
|
|
|
(0.1
|
)
|
|
|
(1.3
|
)
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(4.0
|
)
|
|
|
(4.5
|
)
|
|
|
(6.8
|
)
|
|
|
(8.3
|
)
|
|
|
(0.5
|
)
|
|
|
|
(62.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
21.1
|
|
|
|
52.7
|
|
|
|
89.1
|
|
|
|
117.9
|
|
|
|
11.2
|
|
|
|
|
93.5
|
|
Income tax expense
|
|
|
8.9
|
|
|
|
21.3
|
|
|
|
36.6
|
|
|
|
48.3
|
|
|
|
4.6
|
|
|
|
|
36.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12.2
|
|
|
$
|
31.4
|
|
|
$
|
52.5
|
|
|
$
|
69.6
|
|
|
$
|
6.6
|
|
|
|
$
|
56.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share Class A, basic
|
|
$
|
2,994.24
|
|
|
$
|
2,960.24
|
|
|
$
|
2,952.12
|
|
|
$
|
3,972.08
|
|
|
|
|
|
|
|
|
|
|
Earnings per share Class A, diluted
|
|
$
|
2,994.24
|
|
|
$
|
2,960.24
|
|
|
$
|
2,952.12
|
|
|
$
|
3,972.08
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares Class A, basic
|
|
|
16,940
|
|
|
|
16,940
|
|
|
|
16,940
|
|
|
|
16,940
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares Class A, diluted
|
|
|
16,940
|
|
|
|
16,940
|
|
|
|
16,940
|
|
|
|
16,940
|
|
|
|
|
|
|
|
|
|
|
Earnings per share Class B, basic
|
|
$
|
3,190.49
|
|
|
$
|
4,200.98
|
|
|
$
|
4,442.12
|
|
|
$
|
4,012.08
|
|
|
|
|
|
|
|
|
|
|
Earnings per share Class B, diluted
|
|
$
|
3,190.49
|
|
|
$
|
4,200.98
|
|
|
$
|
4,442.12
|
|
|
$
|
4,012.08
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares Class B, basic
|
|
|
570
|
|
|
|
570
|
|
|
|
570
|
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares Class B, diluted
|
|
|
570
|
|
|
|
570
|
|
|
|
570
|
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
376.70
|
|
|
|
$
|
410.64
|
|
Earnings per share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
376.70
|
|
|
|
$
|
409.84
|
|
Weighted average shares, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,510
|
|
|
|
|
138,627
|
|
Weighted average shares, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,510
|
|
|
|
|
138,899
|
|
Pro forma earnings per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share, Class A
|
|
$
|
975
|
|
|
$
|
6,200
|
|
|
$
|
1,490
|
|
|
$
|
40
|
|
|
$
|
|
|
|
|
$
|
|
|
Dividends per common share, Class B
|
|
$
|
1,950
|
|
|
$
|
12,400
|
|
|
$
|
2,980
|
|
|
$
|
80
|
|
|
$
|
|
|
|
|
$
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
One Month
|
|
|
|
11 Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 30,
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
2007
|
|
|
|
(In millions, except as otherwise indicated)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6.3
|
|
|
$
|
10.4
|
|
|
$
|
5.9
|
|
|
$
|
3.7
|
|
|
$
|
2.0
|
|
|
|
$
|
10.1
|
|
Working capital
|
|
|
112.3
|
|
|
|
115.6
|
|
|
|
129.0
|
|
|
|
212.3
|
|
|
|
211.1
|
|
|
|
|
663.5
|
|
Total assets
|
|
|
265.3
|
|
|
|
323.9
|
|
|
|
434.0
|
|
|
|
481.0
|
|
|
|
474.2
|
|
|
|
|
2,925.0
|
|
Total debt, including current portion
|
|
|
24.7
|
|
|
|
14.2
|
|
|
|
3.1
|
|
|
|
13.0
|
|
|
|
4.8
|
|
|
|
|
868.4
|
|
Minority interest in subsidiaries
|
|
|
6.8
|
|
|
|
8.7
|
|
|
|
11.5
|
|
|
|
15.6
|
|
|
|
16.0
|
|
|
|
|
100.7
|
|
Stockholders equity
|
|
|
120.9
|
|
|
|
132.3
|
|
|
|
168.8
|
|
|
|
242.6
|
|
|
|
245.2
|
|
|
|
|
1,210.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
25.1
|
|
|
$
|
32.3
|
|
|
$
|
30.4
|
|
|
$
|
18.4
|
|
|
$
|
6.6
|
|
|
|
$
|
110.2
|
|
Net cash (used in) investing activities
|
|
|
(8.5
|
)
|
|
|
(1.4
|
)
|
|
|
(6.7
|
)
|
|
|
(3.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
(1,788.9
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(15.5
|
)
|
|
|
(26.8
|
)
|
|
|
(21.1
|
)
|
|
|
(17.2
|
)
|
|
|
(8.3
|
)
|
|
|
|
1,687.2
|
|
45
PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 2007, McJunkin Red Man Holding Corporation,
an affiliate of The Goldman Sachs Group, Inc., acquired a
majority of the equity of McJunkin Red Man Corporation (then
known as McJunkin Corporation) (the GS Acquisition).
In connection with the GS Acquisition, McJunkin Corporation
entered into a $575 million term loan facility on
January 31, 2007. On October 31, 2007, McJunkin
Corporation completed a business combination transaction with
Red Man Pipe & Supply Co. (the Red Man
Transaction). At that time McJunkin Corporation was
renamed McJunkin Red Man Corporation. McJunkin Red Man
Corporation entered into a $650 million revolving credit
facility on October 31, 2007 in connection with the Red Man
Transaction. This revolving credit facility was upsized to
$700 million on June 10, 2008.
The unaudited pro forma consolidated income statement of
McJunkin Red Man Holding Corporation for the twelve months ended
December 31, 2007 has been derived from (1) the
audited consolidated statement of income of McJunkin Corporation
for the one month ended January 30, 2007 (before the GS
Acquisition), (2) the audited consolidated statement of
income of McJunkin Red Man Holding Corporation for the eleven
months ended December 31, 2007 (which includes the results
of McJunkin for 11 months and the results of Red Man for
the two months ended December 31, 2007), and (3) the
audited statement of operations of Red Man Pipe &
Supply Co. for the twelve months ended October 31, 2007.
The unaudited pro forma consolidated income statement of
McJunkin Red Man Holding Corporation for the twelve months ended
December 31, 2007 has been adjusted to exclude the results
of Red Man for the two months ended December 31, 2007 and
to give pro forma effect to (1) the GS Acquisition and the
Red Man Transaction as if each such transaction had occurred on
January 1, 2007, and (2) our entering into our
$575 million term loan facility and our $700 million
revolving credit facility, as if we had entered into these
facilities on January 1, 2007.
The unaudited pro forma consolidated income statement of
McJunkin Red Man Holding Corporation for the six months ended
June 28, 2007 has been derived from (1) the audited
consolidated statement of income of McJunkin Corporation for the
one month ended January 30, 2007 (before the GS
Acquisition), (2) the unaudited consolidated statement of
income of McJunkin Red Man Holding Corporation for the five
months ended June 28, 2007 (before the Red Man
Transaction), and (3) the unaudited consolidated statement
of operations of Red Man Pipe & Supply Co. for the six
months ended April 30, 2007. The unaudited pro forma
consolidated income statement of McJunkin Red Man Holding
Corporation for the six months ended June 28, 2007 has been
adjusted to give pro forma effect to (1) the GS Acquisition
and the Red Man Transaction as if each such transaction had
occurred on January 1, 2007, and (2) our entering into
our $575 million term loan facility and our
$700 million revolving credit facility, as if we had
entered into these facilities on January 1, 2007.
The purchase price allocation for the GS Acquisition has been
finalized but the purchase price allocation for the Red Man
Transaction has not been finalized. We expect the purchase price
allocation for the Red Man Transaction to be finalized by
October 31, 2008. The purchase price has been finalized for
both the GS Acquisition and the Red Man Transaction and the
consideration for such transactions will not increase.
The unaudited pro forma consolidated financial statements do not
give effect to our acquisition of Midway-Tristate Corporation
(Midway) on April 30, 2007 and therefore do not
include Midways results for the four months ended
April 30, 2007 nor do they give pro forma effect to Midway
as if the acquisition had occurred on January 1, 2007.
Midway was not a significant acquisition within the
meaning of
Rule 3-05
of
Regulation S-X.
The unaudited pro forma income statements also do not give
effect to our purchase of the approximate 49% minority voting
interest in Midfield, one of our subsidiaries, on July 31,
2008. Red Man originally acquired 51% of Midfield in 2005 and
the purchase of the remaining 49% in July 2008 was not a
significant acquisition within the meaning of Rule
3-05
of
Regulation
S-K.
The
assets and liabilities of Midfield are included in the audited
consolidated financial statements of MRM at December 31,
2007.
The unaudited pro forma consolidated financial statements are
provided for informational purposes only and do not purport to
represent or be indicative of the results that actually would
have been obtained
46
had the transactions described above occurred on
January 1, 2007 and are not intended to project our
consolidated financial position or results of operations for any
future period. The pro forma adjustments are based on available
information and certain assumptions that we believe are
reasonable. The pro forma adjustments and certain assumptions
are described in the accompanying notes. Other information
included under this heading has been presented to provide
additional analysis. We will expense the costs of this offering.
The unaudited pro forma consolidated financial statements below
should be read in conjunction with the historical financial
statements, the related notes and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this prospectus.
PRO FORMA INCOME
STATEMENT FOR THE SIX MONTHS ENDED JUNE 28, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McJunkin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McJunkin
|
|
|
|
Red Man
|
|
|
|
Red Man
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
One Month
|
|
|
|
Five Months
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
Combined Six
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
|
Months Ended
|
|
|
|
January 30,
|
|
|
|
June 28,
|
|
|
|
April 30,
|
|
|
|
Pro Forma
|
|
|
|
June 28,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Adjustments
|
|
|
|
2007
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
(In millions)
|
|
Sales
|
|
$
|
142.5
|
|
|
|
$
|
784.9
|
|
|
|
$
|
934.7
|
|
|
|
|
|
|
|
|
$
|
1,862.1
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
114.6
|
|
|
|
|
635.9
|
|
|
|
|
779.4
|
|
|
|
|
|
|
|
|
|
1,529.9
|
|
Selling, general and administrative expenses
|
|
|
14.6
|
|
|
|
|
80.7
|
|
|
|
|
73.9
|
|
|
|
|
|
|
|
|
|
169.2
|
|
Depreciation and amortization
|
|
|
0.3
|
|
|
|
|
1.7
|
|
|
|
|
2.8
|
|
|
|
|
0.6
|
(a)
|
|
|
|
5.4
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
4.6
|
|
|
|
|
1.6
|
|
|
|
|
6.1
|
(b)
|
|
|
|
12.3
|
|
Profit sharing
|
|
|
1.3
|
|
|
|
|
5.6
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
11.3
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
1.0
|
|
|
|
|
1.0
|
(c)
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
130.8
|
|
|
|
|
729.8
|
|
|
|
|
863.1
|
|
|
|
|
7.7
|
|
|
|
|
1,731.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
11.7
|
|
|
|
|
55.1
|
|
|
|
|
71.6
|
|
|
|
|
(7.7
|
)
|
|
|
|
130.7
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
|
(24.3
|
)
|
|
|
|
(9.1
|
)
|
|
|
|
3.1
|
(d)
|
|
|
|
(30.4
|
)
|
Minority interest
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
0.4
|
(e)
|
|
|
|
(0.1
|
)
|
Other, net
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(0.5
|
)
|
|
|
|
(25.2
|
)
|
|
|
|
(9.0
|
)
|
|
|
|
3.5
|
|
|
|
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11.2
|
|
|
|
|
29.9
|
|
|
|
|
62.6
|
|
|
|
|
(4.2
|
)
|
|
|
|
99.5
|
|
Income tax expense
|
|
|
4.6
|
|
|
|
|
12.3
|
|
|
|
|
23.4
|
|
|
|
|
(3.1
|
)(f)
|
|
|
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6.6
|
|
|
|
$
|
17.6
|
|
|
|
$
|
39.2
|
|
|
|
$
|
(1.4
|
)
|
|
|
$
|
61.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$
|
376.70
|
|
|
|
$
|
171.69
|
|
|
|
$
|
220.22
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, diluted
|
|
|
376.70
|
|
|
|
|
171.36
|
|
|
|
|
220.22
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, basic
|
|
|
17,510
|
|
|
|
|
102,594
|
|
|
|
|
178,000
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, diluted
|
|
|
17,510
|
|
|
|
|
102,792
|
|
|
|
|
178,000
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, basic(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, diluted(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Reflects the increase in
depreciation resulting from the revaluation of our property,
plant and equipment in connection with the GS Acquisition and
the Red Man Transaction, as if these transactions had each
occurred on January 1, 2007. All significant assets that
were acquired in each of these transactions were revalued to
their estimated fair value. The pro forma adjustment was
determined by dividing the fair value of each asset over the
newly determined life of the respective asset as determined as
of the date of the transactions. This methodology assumes that a
valuation completed as of January 1, 2007 would have
yielded a similar result. Utilizing this asset-by-asset
approach, we determined that six months of depreciation for the
assets acquired in the GS Acquisition would have equated to
$2.5 million, and six months of depreciation for the assets
acquired in the Red Man Transaction would have equated to
$2.9 million. Therefore, the pro forma adjustment includes
a $544,000 increase in depreciation in connection with the
revaluation of property, plant and equipment acquired in the GS
Acquisition, and a $80,000 increase in depreciation in
connection with the revaluation of property, plant and equipment
acquired in the Red Man Transaction, for an adjustment of
$624,000 overall.
|
47
|
|
|
|
|
|
|
|
|
Fair Value of Fixed Assets Acquired in the GS Acquisition
|
|
Asset Description
|
|
Fair Value
|
|
|
Average Life
|
|
|
|
(in millions)
|
|
|
|
|
|
Land
|
|
$
|
5.0
|
|
|
|
|
|
Buildings and improvements
|
|
|
10.1
|
|
|
|
40
|
|
Machinery, shop equipment, and vehicles
|
|
|
15.7
|
|
|
|
5
|
|
Furniture, fixtures, and office equipment
|
|
|
2.9
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Fixed Assets Acquired in the Red Man
Transaction
|
|
Asset Description
|
|
Fair Value
|
|
|
Average Life
|
|
|
|
(in millions)
|
|
|
|
|
|
Land
|
|
$
|
1.3
|
|
|
|
|
|
Buildings and improvements
|
|
|
3.2
|
|
|
|
40
|
|
Machinery, shop equipment, and vehicles
|
|
|
4.4
|
|
|
|
8
|
|
Furniture, fixtures, and office equipment
|
|
|
6.1
|
|
|
|
3
|
|
|
|
|
(b)
|
|
Reflects the increase in
amortization of intangibles in connection with the GS
Acquisition and the Red Man Transaction, as if these
transactions had each occurred on January 1, 2007. In
accordance with the purchase accounting method, the fair value
of certain identifiable assets is amortized over the
assets estimated life. The pro forma adjustment was
determined by dividing the fair value of the intangible asset
over the estimated life of the asset. This methodology assumes
that a valuation completed as of January 1, 2007 would have
yielded a similar result. Using straight line amortization, we
determined that the six month amortization expense for the
assets related to the GS Acquisition is $5.3 million, and
the six month amortization expense for the assets related to the
Red Man Transaction is $6.9 million. Therefore the pro
forma adjustment includes a $707,500 increase in the
amortization of intangibles in connection with the assets
acquired in the GS Acquisition, and a $5,371,000 increase in
amortization of intangibles in connection with the assets
acquired in the Red Man Transaction, for an adjustment of
$6,078,500 overall.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GS Acquisition-related Amortizable Intangibles
|
|
|
|
|
Amortizable Intangible
|
|
Value
|
|
|
Estimated Life (in Years)
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Backlog
|
|
$
|
1.6
|
|
|
|
1
|
|
|
|
|
|
Customer Base
|
|
|
356.0
|
|
|
|
40
|
|
|
|
|
|
Non-Compete Agreements
|
|
|
1.0
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Man Transaction-related Amortizable Intangibles
|
|
|
|
|
Amortizable Intangible
|
|
Value
|
|
|
Estimated Life (in Years)
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Red Man Backlog
|
|
$
|
2.0
|
|
|
|
1
|
|
|
|
|
|
Red Man Customer Base
|
|
|
229.0
|
|
|
|
17
|
|
|
|
|
|
|
|
|
(c)
|
|
Reflects compensation expense
relating to the equity awards granted to certain employees in
connection with the GS Acquisition and the Red Man
Transaction, as if each had occurred on January 1, 2007. A
Black-Scholes option pricing model was used to estimate the fair
value of the stock options granted in 2007. For purposes of
measuring compensation, we relied on a calculated value that
requires certain assumptions including the volatility based on
the appropriate industry sector. For a discussion of these
assumptions, see Note 9 to our historical financial
statements for the eleven months ended December 31, 2007.
This adjustment was calculated based on the actual expense
recorded in June 2008, because this would have reflected six
months of stock-based compensation expense using the
aforementioned assumptions. Any forfeitures would have been
immaterial in determining this adjustment.
|
|
|
|
(d)
|
|
Reflects the interest expense for
(1) interest resulting from our entering into our
$575 million term loan facility and the $700 million
revolving credit facility, as if we entered into these
facilities on January 1, 2007 and (2) amortization of
the related deferred financing costs. To calculate interest
expense, an average interest rate of 7.11% based on LIBOR was
multiplied by an average annual debt balance of
$802 million. The total annual interest expense based on
the assumptions described is $57.5 million, and the total
for six months would be $28.5 million. The total adjustment
to the pro forma financials for interest expense is a decrease
of $3.3 million. Deferred financing fees for both the GS
Acquisition and the Red Man Transaction were recorded at the
closing dates, and the pro forma adjustment assumes that both
transactions occurred as of January 1, 2007. The deferred
financing fees for the GS Acquisition were $15.5 million
and the deferred financing fees for the Red Man Transaction were
$7.7 million. These fees are amortized using the straight
line amortization method over 74 months. Therefore, the six
month amortization expense related to the deferred financing
fees for six months is $1,896,000. The total adjustment to the
pro forma financials for deferred financing fees is an increase
of $326,000. Actual interest expense may be higher or lower
depending upon fluctuations in interest rates. A
1
/
8
%
change in interest rates would have resulted in a $501,000
change in interest expense for the six-month period. No pro
forma adjustment has been made to reflect an increase in
interest expense that would have resulted had we entered into
our $450 million junior term loan facility at any time during
the six-month period because our entry into this facility was
not related to funding the Red Man Transaction or the GS
Acquisition.
|
|
|
|
(e)
|
|
Reflects elimination of our
minority interest related to McJunkin Appalachian Oilfield
Supply Company in connection with the GS Acquisition on January
31, 2007 as if we acquired the minority interest on January 1,
2007.
|
48
|
|
|
(f)
|
|
Reflects the reduction in income
tax expense as a result of (1) the pro forma adjustments
described above, which resulted in a lower amount of pre-tax
income, and (2) the lower effective income tax rate applicable
to our combined company, which is lower than the historical
income tax rates applicable to McJunkin and Red Man separately,
as if our combined companys current income tax rate was in
effect from January 1, 2007 onward. The tax rate assumed in this
calculation was 37.5%. The total adjustment necessary was
calculated by multiplying this rate with the total adjusted
pre-tax income. The adjustment needed is the difference between
this calculated rate and the tax recorded in the respective
financial statements.
|
|
|
|
(g)
|
|
Stock options are disregarded in
the calculation of earnings per share if they are determined to
be
anti-dilutive.
At June 28, 2007, the companys
anti-dilutive
stock options totaled 1,169.
|
PRO FORMA INCOME
STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McJunkin
|
|
|
|
|
|
|
|
Red Man
|
|
|
|
|
|
|
|
|
|
|
|
McJunkin
|
|
|
|
Red Man
|
|
|
|
Red Man
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
Eleven
|
|
|
|
Twelve
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
|
|
|
|
One Month
|
|
|
|
Months
|
|
|
|
Months
|
|
|
|
Two Months
|
|
|
|
|
|
|
|
Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
|
Ended
|
|
|
|
January 30,
|
|
|
|
December 31,
|
|
|
|
October 31,
|
|
|
|
December 31,
|
|
|
|
Pro Forma
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
|
2007
|
|
|
|
2007*
|
|
|
|
Adjustments
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
(In millions)
|
|
Sales
|
|
$
|
142.5
|
|
|
|
$
|
2,124.9
|
|
|
|
$
|
1,982.0
|
|
|
|
$
|
(296.7
|
)
|
|
|
|
|
|
|
|
$
|
3,952.7
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
114.6
|
|
|
|
|
1,734.6
|
|
|
|
|
1,632.3
|
|
|
|
|
(252.3
|
)
|
|
|
|
|
|
|
|
|
3,229.2
|
|
Selling, general and administrative expenses
|
|
|
14.6
|
|
|
|
|
201.9
|
|
|
|
|
176.9
|
|
|
|
|
(27.7
|
)
|
|
|
|
|
|
|
|
|
365.7
|
|
Depreciation and amortization
|
|
|
0.3
|
|
|
|
|
5.4
|
|
|
|
|
6.0
|
|
|
|
|
(1.1
|
)
|
|
|
|
0.2
|
(a)
|
|
|
|
10.8
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
10.5
|
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
10.4
|
(b)
|
|
|
|
24.6
|
|
Profit sharing
|
|
|
1.3
|
|
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
13.5
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
(c)
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
130.8
|
|
|
|
|
1,968.5
|
|
|
|
|
1,818.9
|
|
|
|
|
(282.1
|
)
|
|
|
|
14.6
|
|
|
|
|
3,650.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
11.7
|
|
|
|
|
156.4
|
|
|
|
|
163.1
|
|
|
|
|
(14.6
|
)
|
|
|
|
(14.6
|
)
|
|
|
|
302.3
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
|
(61.7
|
)
|
|
|
|
(20.6
|
)
|
|
|
|
7.3
|
|
|
|
|
14.3
|
(d)
|
|
|
|
(60.8
|
)
|
Minority interests
|
|
|
(0.4
|
)
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
0.4
|
(e)
|
|
|
|
0.0
|
|
Other, net
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
(2.7
|
)
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(0.5
|
)
|
|
|
|
(62.9
|
)
|
|
|
|
(23.3
|
)
|
|
|
|
7.3
|
|
|
|
|
14.7
|
|
|
|
|
64.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11.2
|
|
|
|
|
93.5
|
|
|
|
|
139.8
|
|
|
|
|
(7.3
|
)
|
|
|
|
0.1
|
|
|
|
|
237.6
|
|
Income tax expense
|
|
|
4.6
|
|
|
|
|
36.6
|
|
|
|
|
57.6
|
|
|
|
|
(2.4
|
)
|
|
|
|
(7.3
|
)(f)
|
|
|
|
89.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6.6
|
|
|
|
$
|
56.9
|
|
|
|
$
|
82.2
|
|
|
|
$
|
(4.9
|
)
|
|
|
$
|
7.4
|
|
|
|
$
|
148.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$
|
376.70
|
|
|
|
$
|
410.64
|
|
|
|
$
|
461.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, diluted
|
|
|
376.70
|
|
|
|
|
409.84
|
|
|
|
$
|
461.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, basic
|
|
|
17,510
|
|
|
|
|
138,627
|
|
|
|
|
178,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, diluted
|
|
|
17,510
|
|
|
|
|
138,899
|
|
|
|
|
178,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, basic(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares, diluted(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Represents actual amounts recorded
by Red Man during the period; no
transaction-related
costs have been reversed.
|
|
|
|
(a)
|
|
Reflects the increase in
depreciation resulting from the revaluation of our property,
plant and equipment in connection with the GS Acquisition and
the Red Man Transaction, as if these transactions had each
occurred on January 1, 2007. All significant assets that
were acquired in each of these transactions were revalued to
their estimated fair value. The pro forma adjustment was
determined by dividing the fair value of each asset over the
newly determined life of the respective asset as determined as
of the date of the transactions. This methodology assumes that a
valuation completed as of January 1, 2007 would have
yielded a similar result. Utilizing this asset-by-asset
approach, we determined that a full year of depreciation for the
assets acquired in the GS Acquisition would have equated to $5.1
million, and the full year of
|
49
|
|
|
|
|
depreciation for the assets
acquired in the Red Man Transaction would have equated to $5.7
million. Therefore, the pro forma adjustment includes a $590,000
decrease in depreciation in connection with the revaluation of
property, plant and equipment acquired in the GS Acquisition,
and a $760,000 increase in depreciation in connection with the
revaluation of property, plant and equipment acquired in the Red
Man Transaction, for an adjustment of $170,000 overall.
|
|
|
|
|
|
|
|
|
|
Fair Value of Fixed Assets Acquired in the GS Acquisition
|
|
Asset Description
|
|
Fair Value
|
|
|
Average Life
|
|
|
|
(in millions)
|
|
|
|
|
|
Land
|
|
$
|
5.0
|
|
|
|
|
|
Buildings and improvements
|
|
|
10.1
|
|
|
|
40
|
|
Machinery, shop equipment, and vehicles
|
|
|
15.7
|
|
|
|
5
|
|
Furniture, fixtures, and office equipment
|
|
|
2.9
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Fixed Assets Acquired in the Red Man
Transaction
|
|
Asset Description
|
|
Fair Value
|
|
|
Average Life
|
|
|
|
(in millions)
|
|
|
|
|
|
Land
|
|
$
|
1.3
|
|
|
|
|
|
Buildings and improvements
|
|
|
3.2
|
|
|
|
40
|
|
Machinery, shop equipment, and vehicles
|
|
|
4.4
|
|
|
|
8
|
|
Furniture, fixtures, and office equipment
|
|
|
6.1
|
|
|
|
3
|
|
|
|
|
(b)
|
|
Reflects the increase in
amortization of intangibles in connection with the GS
Acquisition and the Red Man Transaction, as if these
transactions had each occurred on January 1, 2007. In
accordance with the purchase accounting method, the fair value
of certain identifiable assets is amortized over the
assets estimated life. The pro forma adjustment was
determined by dividing the fair value of the intangible asset
over the estimated life of the asset. This methodology assumes
that a valuation completed as of January 1, 2007 would have
yielded a similar result. Using straight line amortization, we
determined that the full year amortization expense for the
assets related to the GS Acquisition is $10.7 million, and the
full year amortization expense for the assets related to the Red
Man Transaction is $13.9 million. Therefore, the pro forma
adjustment includes a $190,000 increase in the amortization of
intangibles in connection with the assets acquired in the GS
Acquisition, and a $10,250,000 increase in amortization of
intangibles in connection with the assets acquired in the Red
Man Transaction, for an adjustment of $10,440,000 overall.
|
|
|
|
|
|
|
|
|
|
GS Acquisition-related Amortizable Intangibles
|
|
Amortizable Intangible
|
|
Value
|
|
|
Estimated Life (in Years)
|
|
|
|
(in millions)
|
|
|
|
|
Backlog
|
|
$
|
1.6
|
|
|
|
1
|
|
Customer Base
|
|
|
356.0
|
|
|
|
40
|
|
Non-Complete Agreements
|
|
|
1.0
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Red Man Transaction-related Amortizable Intangibles
|
|
Amortizable Intangible
|
|
Value
|
|
|
Estimated Life (in Years)
|
|
|
|
(in millions)
|
|
|
|
|
Red Man Backlog
|
|
$
|
2.0
|
|
|
|
1
|
|
Red Man Customer Base
|
|
|
229.0
|
|
|
|
17
|
|
Midfield Customer Base
|
|
|
31.4
|
|
|
|
13
|
|
|
|
|
(c)
|
|
Reflects compensation expense
relating to the equity awards granted to certain employees in
connection with the GS Acquisition and the Red Man Transaction,
as if each had occurred on January 1, 2007. A Black-Scholes
option pricing model was used to estimate the fair value of the
stock options granted in 2007. For purposes of measuring
compensation, we relied on a calculated value that requires
certain assumptions including the volatility based on the
appropriate industry sector. For a discussion of these
assumptions, see Note 9 to our audited historical
statements for the eleven months ended December 31, 2007
for these assumptions. This adjustment was calculated based on
the actual expense recorded in June 2008, because this would
have reflected six months of stock based-compensation expense
using the aforementioned assumptions. The adjustment was
calculated by annualizing the actual 2008 expense. Any
forfeitures would have been immaterial in determining this
adjustment.
|
|
|
|
(d)
|
|
Reflects the interest expense for
(1) interest resulting from our entering into our
$575 million term loan facility and the $700 million
revolving credit facility, as if we entered into these
facilities on January 1, 2007 and (2) amortization of
the related deferred financing costs. To calculate interest
expense, an average interest rate of 7.11% based on LIBOR was
multiplied by an average annual debt balance of
$802 million. The total annual interest expense based on
the assumptions described is $57.5 million. The total adjustment
to the pro forma financials for interest expense is a decrease
of $14.6 million. Deferred financing fees for both the GS
Acquisition and the Red Man Transaction were recorded at the
closing date, and the pro forma adjustment assumes that both
transactions occurred as of January 1, 2007. The deferred
financing fees for the GS Acquisition were $15.5 million and the
deferred financing fees for the Red Man Transaction were $7.7
million. These fees are amortized using the straight line
amortization method over 74 months. Therefore, the amortization
expense related to the deferred financing fees for the full year
is $3,792,000. The total adjustment to the pro forma financials
for deferred financing fees is an increase of $338,000. Actual
interest expense may be higher or lower depending upon
fluctuations in interest rates. A
1
/
8
%
change in interest rates would have resulted in a $1,002,000
change in interest expense for the twelve-month period. No pro
forma adjustment has been made to reflect an increase in
interest
|
50
|
|
|
|
|
expense that would have resulted
had we entered into our $450 million junior term loan
facility at any time during the twelve-month period because our
entry into this facility was not related to funding the Red Man
Transaction or the GS Acquisition.
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|
|
|
(e)
|
|
Reflects elimination of our
minority interest related to McJunkin Appalachian Oilfield
Supply Company in connection with the GS Acquisition on
January 31, 2007 as if we acquired the minority interest on
January 1, 2007.
|
|
|
|
(f)
|
|
Reflects the reduction in income
tax expense as a result of (1) the pro forma adjustments
described above, which resulted in a lower amount of pre-tax
income, and (2) the lower effective income tax rate
applicable to our combined company, which is lower than the
historical income tax rates applicable to McJunkin and Red Man
separately, as if our combined companys current income tax
rate was in effect from January 1, 2007 onward. The tax
rate assumed in this calculation was 37.5%. The total adjustment
necessary was calculated by multiplying this rate with the total
adjusted pre-tax income. The adjustment needed is the difference
between this calculated rate and the tax recorded in the
respective financial statements.
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|
|
|
(g)
|
|
Stock options are disregarded in
the calculation of earnings per share if they are determined to
be
anti-dilutive.
At December 31, 2007, the companys
anti-dilutive
stock options totaled 3,533.
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51
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction
with our financial statements and related notes included
elsewhere in this prospectus. This discussion and analysis
contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking
statements as a result of a number of factors, including, but
not limited to, those set forth under Risk Factors,
Cautionary Note Regarding Forward-Looking Statements
and elsewhere in this prospectus.
Overview
We are the largest North American distributor of pipe, valves
and fittings (PVF) and related products and services
to the energy industry based on sales and the leading PVF
distributor serving this industry across each of the upstream
(exploration, production, and extraction of underground oil and
gas), midstream (gathering and transmission of oil and gas, gas
utilities, and the storage and distribution of oil and gas) and
downstream (crude oil refining and petrochemical processing)
markets. We have an unmatched presence of over 250 branches that
are located in the most active oil and gas regions in North
America. We offer an extensive array of PVF and oilfield
supplies encompassing over 100,000 products, we are diversified
by geography and end market and we seek to provide
best-in-class
service to our customers by satisfying the most complex,
multi-site needs of some of the largest companies in the energy
and industrial sectors as their primary supplier. As a result,
we have an average relationship of over 20 years with our
top ten customers and our pro forma sales in 2007 were over
twice as large as our nearest competitor in the energy industry.
We believe the critical role we play in our customers
supply chain, our unmatched scale and extensive product
offering, our broad North American geographic presence, our
customer-linked scalable information systems and our efficient
distribution capabilities serve to solidify our long-standing
customer relationships and drive our growth.
We have benefited in recent years from several growth trends
within the energy industry including high levels of expansion
and maintenance capital expenditures by our customers. This
growth in spending has been driven by several factors, including
underinvestment in North American energy infrastructure,
production and capacity constraints and anticipated strength in
the oil, natural gas, refined products and petrochemical
markets. While current prices for oil and natural gas are high
relative to historical levels, we believe that investment in the
energy sector by our customers would continue at prices well
below current levels. In addition, our products are often used
in extreme operating environments leading to the need for a
regular replacement cycle. As a result, over 50% of our
historical and pro forma sales in 2007 were attributable to
multi-year maintenance, repair and operations (MRO)
contracts where we have demonstrated an over 99% average annual
retention rate since 2000. The combination of these ongoing
factors has helped increase demand for our products and
services, resulting in record levels of customer orders to be
shipped as of September 2008. For the twelve months ended
December 31, 2007 on a pro forma basis, we generated sales
of $3,952.7 million, Adjusted EBITDA of $370.4 million
and net income of $150.8 million. During the twelve months
ended December 31, 2007 on a pro forma basis, approximately
46% of our sales were attributable to upstream activities,
approximately 22% were attributable to midstream activities, and
approximately 32% were attributable to downstream activities. In
addition, for the eleven months ended December 31, 2007,
without giving pro forma effect to the Red Man Transaction, we
generated sales of $2,124.9 million, EBITDA of
$171 million and net income of $56.9 million, and for
the twelve months ended October 31, 2007, before giving
effect to the Red Man Transaction, Red Man generated sales of
$1,982.0 million, EBITDA of $170 million and net
income of $82.2 million.
52
Key Factors
Affecting Our Business
Our revenues are predominantly derived from the sale of PVF and
other oilfield service supplies to the energy industry in North
America. Our business is therefore dependent upon conditions in
the energy sector and, in particular, maintenance and
expansionary capital expenditures by our customers in the
upstream, midstream and downstream sectors of the energy
industry. Growth in spending has been, and we believe will
continue to be, driven by several factors, including
underinvestment in North American energy infrastructure,
production and capacity constraints, and anticipated strength in
the oil, natural gas, refined products and petrochemical
markets. The outlook for future oil, natural gas, refined
products and petrochemical prices are influenced by numerous
factors, including but not limited to the factors listed in
Risk Factors beginning on page 18 as well as
the following factors:
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|
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Oil and gas price volatility.
Proceeds
from the sale of PVF and related products to the oil and gas
industry constitute a significant portion of our sales. As a
result, we depend upon the oil and gas industry and its ability
and willingness to make capital expenditures to explore for,
develop and produce oil and gas and refined products. If these
expenditures decline due to declining prices or otherwise, our
business will suffer.
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|
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|
Fluctuations in steel
prices.
Fluctuations in steel prices can lead
to volatility in the pricing of our products, which can
influence the buying patterns of our customers and have a
negative impact on our results of operations.
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Economic downturns.
The demand for our
products is dependent on the general economy, the energy and
industrials sectors and other factors. Downturns in the general
economy or in the energy and industrials sectors (domestically
or internationally) could cause demand for our products to
materially decrease.
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|
Increases in customer, manufacturer and distributor
inventory levels of PVF and related
products.
Customer, manufacturer and
distributor inventory levels of PVF and related products can
change significantly from period to period. Increases in our
customers inventory levels can have a direct adverse
affect on the demand for our products when customers draw from
inventory rather than purchase new products. Reduced demand, in
turn, would likely result in reduced sales volume and overall
profitability. Increased inventory levels by manufacturers or
other distributors can cause an oversupply of PVF and related
products in our markets and reduce the prices that we are able
to charge for our products. Reduced prices, in turn, would
likely reduce our profitability.
|
History
McJunkin Corporation (McJunkin) and Red Man
Pipe & Supply Co. (Red Man), two leading
national PVF distributors, completed a business combination
transaction in October 2007 to create our combined company
(McJunkin Red Man). The combination created the
largest North American PVF distributor to the energy industry
based on sales, with pro forma sales of more than twice those of
our nearest competitor in the energy industry.
McJunkin
Corporation
McJunkin Corporation (formerly known as McJunkin Supply Company)
was founded in 1921 in Charleston, West Virginia by
brothers-in-law
Jerry McJunkin and H. Bernard Wehrle and initially primarily
served the local oil and gas industry. Following post-war
economic expansion, by the end of the 1960s McJunkin had 29
branches in 18 states with sales of approximately
$60 million, focusing primarily on the downstream sector.
In 1989 McJunkin broadened its upstream presence by merging its
oil and gas division with Appalachian Pipe & Supply
Co. to form McJunkin Appalachian Oilfield Supply Company
(McJunkin Appalachian), which focused primarily on
upstream oil and gas customers. Since 2001, McJunkin Corporation
has integrated eight acquisitions, with pro forma
53
revenues in the respective years of acquisition totaling
approximately $300 million, and became a leading supplier
of PVF products to customers in the Appalachian region and
California.
In January 2007, affiliates of Goldman Sachs Capital Partners
(the Goldman Sachs Funds) acquired a controlling
interest in McJunkin Corporation. The Goldman Sachs Funds are
part of Goldman Sachs Principal Investment Area, a leading
private equity and mezzanine investor.
Red Man
Pipe & Supply Co.
Red Man was founded in 1977 in Tulsa, Oklahoma by the late Lewis
B. Ketchum, a member and former Chief of the Delaware Indian
Tribe headquartered in Oklahoma. The heritage and tradition of
the Delaware Indian was very important to Mr. Ketchum and
was the basis upon which he gave the company the name Red
Man. Red Man began as a distributor to the upstream energy
sector and subsequently expanded into the midstream and
downstream energy sectors. Since then, Red Man has grown
organically and through a number of acquisitions in the United
States. In 2005, Red Man acquired an approximate 51% voting
interest in Canadian oilfield distributor Midfield, giving Red
Man a significant presence in the Western Canadian Sedimentary
Basin. We acquired the remaining voting interest and equity
interest in Midfield on July 31, 2008.
In October 2007, McJunkin and Red Man completed a business
combination transaction (the Red Man Transaction) to
form the combined company, McJunkin Red Man.
Results of
Operations
Our results of operations for the year ended December 31,
2007 consist of McJunkin Red Man Holding Corporations
results of operations for the eleven months ended
December 31, 2007 and McJunkin Corporations results
of operations for the one month ended January 30, 2007. Our
financial statements for 2007 include two reporting periods
because on January 31, 2007, the entity now known as
McJunkin Red Man Holding Corporation, an affiliate of the
Goldman Sachs Funds, acquired a majority of the equity of the
entity now known as McJunkin Red Man Corporation (then known as
McJunkin Corporation, or McJunkin), and McJunkins basis of
accounting was deemed to have changed on that date. As a result,
we have compared below (1) our results of operations for
the six months ended June 26, 2008 with our results of
operations for the five months ended June 28, 2007 and
McJunkins results of operations for the one month ended
January 30, 2007, (2) our results of operations for
the eleven months ended December 31, 2007 and
McJunkins results of operations for the one month ended
January 30, 2007 with McJunkins results of operations
for the year ended December 31, 2006, and
(3) McJunkins results of operations for the year
ended December 31, 2006 with McJunkins results of
operations for the year ended December 31, 2005. McJunkin
Red Man Holding Corporations results of operations for
periods subsequent to January 30, 2007 (before the GS
Acquisition occurred) may not be comparable to McJunkins
results of operations prior to that date.
Operating results for the eleven-month period ended
December 31, 2007 include the results of McJunkin Red Man
Holding Corporation for the full period and the results of Red
Man for the two months after the business combination on
October 31, 2007. Accordingly, results for the year ended
December 31, 2006 (which do not reflect the operating
results of Red Man) are not comparable to the results for the
eleven months ended December 31, 2007 (which include the
operating results of Red Man for two months). Operating results
for the five-month period ending June 28, 2007 do not
reflect the operating results of Red Man, as the Red Man
Transaction did not occur until October 31, 2007.
Accordingly, the results for the six months ended June 26,
2008 (which include the operating results of Red Man for the
full period) are not comparable to the results for the five
months ended June 28, 2007.
Given the materiality of Red Mans financial results to our
business, we have also compared (1) the results of
operations of Red Man for the year ended October 31, 2007
with Red Mans results
54
of operations for the year ended October 31, 2006 and
(2) the results of operations of Red Man for the year ended
October 31, 2006 with Red Mans results of operations
for the year ended October 31, 2005. Red Mans results
of operations are included in our results of operations
beginning after October 31, 2007.
Six Months
Ended June 26, 2008 (Successor) Compared to the Five Months
Ended June 28, 2007 (Successor) and the One Month Ended
January 30, 2007 (Predecessor)
Sales.
Sales include the revenue
recognized from the sales of our products and services to
customers and freight billings to customers, less cash discounts
taken by customers in return for their early payment of our
invoices to them. Our sales were $2,196 million for the six
months ended June 26, 2008 as compared to $785 million
for the five months ended June 28, 2007 and McJunkins
sales of $143 million for the one month ended
January 30, 2007. The increase of $1,268 million for
the six months ended June 26, 2008 as compared to the
combined six-month period ended June 28, 2007 was due to
the inclusion of $1,047 million of Red Man sales in the six
months ended June 26, 2008, as well as the inclusion of
Midway Tri-States sales for the full six months of 2008
compared with only May and June of 2007 of approximately
$48 million and significant increases in our exploration
and production and petroleum refining business.
Cost of Sales.
Cost of sales consists
of the cost of our products at their weighted average actual
cost, in-bound and out-bound freight expense, LIFO expense,
manufacturers rebates, physical inventory gains/losses,
and inventory obsolescence charges, less cash discounts that we
earn by early payment of vendor invoices. Our cost of sales was
$1,804 million for the six months ended June 26, 2008
as compared to $636 million for the five months ended
June 28, 2007 and McJunkins cost of sales of
$115 million for the one month ended January 30, 2007.
As a percentage of sales, cost of sales was 82.1% for the six
months ended June 26, 2008 as compared to 81.0% for the
five months ended June 28, 2007 and 80.4% for the one-month
period ended January 30, 2007. The increase of
$1.053 billion for the six months ended June 26, 2008
as compared to the combined
six-month
period ended June 28, 2007 was due to the inclusion of
$882 million of Red Man cost of sales, the inclusion of
Midways cost of sales for the full six months of 2008
compared with only May and June of 2007 of approximately
$40 million, increases in our exploration and production
and petroleum refining business, and additional LIFO expense
resulting from greater rates of inflation in the cost of our
products in 2008. Certain purchasing costs and warehousing
activities (including receiving, inspection, stocking, picking
and packing costs), as well as general warehousing expenses, are
included in selling, general and administrative expenses and not
in cost of sales. As such, our gross profit may not be
comparable to others who may include these expenses as a
component of cost of goods sold. Purchasing and warehousing
activities costs approximated $24.0 million for the six
months ended June 26, 2008 compared to $11.4 million
for the five months ended June 28, 2007 and McJunkins
$2.3 million expense for the one month ended
January 30, 2007.
Selling, General and Administrative
Expenses.
Costs such as salaries, wages,
employee benefits, rent, utilities, communications, insurance,
fuel, and taxes (other than state and federal income taxes) that
are necessary to operate our branch and corporate operations are
included in selling, general and administrative expenses. Also
contained in this category are certain items that are
non-operational in nature, including certain costs of acquiring
and integrating other businesses. Our selling, general and
administrative expenses were $200.1 million for the six
months ended June 26, 2008 as compared to
$80.7 million for the five months ended June 28, 2007
and McJunkins selling, general and administrative expenses
of $14.6 million for the one month ended January 30,
2007. As a percentage of sales, selling, general and
administrative expenses were 9.1% for the six months ended
June 26, 2008 as compared to 10.3% for the combined
six-month period ended June 28, 2007. The increase of
$104.8 million for the six months ended June 26, 2008
as compared to the combined
six-month
period ended June 28, 2007 was due to the inclusion of Red
Mans $98.7 million of selling, general and
administrative expenses; the absence of $8.6 million of
expenses incurred in the 2007 periods related to the GS
Acquisition (including payments of $6.2 million to former
McJunkin
55
Appalachian shareholders); an increase in wages and benefits of
$8.7 million; Red Man integration expenses of
$2.3 million; and an increase in fuel expense of
$0.8 million.
Depreciation and Amortization.
Our
depreciation and amortization was $5.2 million for the six
months ended June 26, 2008 as compared to $1.7 million
for the five months ended June 28, 2007 and McJunkins
depreciation and amortization of $0.3 million for the one
month ended January 30, 2007. The increase of
$3.2 million for the six months ended June 26, 2008 as
compared to the combined six-month period ended June 28,
2007 was due to the inclusion of depreciation on the Midway
Supply and Red Man assets from the date of each transaction as
well as the write up of assets to fair value in purchase
accounting for the GS Acquisition and the Midway and Red Man
transactions. Depreciation increased $234,000 due to the
Midway transaction, and $2.6 million due to the Red Man
transaction.
Amortization of Intangibles.
In
connection with the January 2007 acquisition of a controlling
interest in McJunkin by the Goldman Sachs Funds, the April 2007
acquisition of Midway Tristate by McJunkin, and the October 2007
business combination between Red Man and McJunkin, the fair
values of intangible assets were determined based upon
assumptions related to future cash flows, discounts rates and
asset lives. These amortizable intangible assets consist of
sales order backlog at the date of the transactions, the
customer base of each entity, and non-compete agreements which
are amortized over a weighted average amortization period of
30.3 years. Our amortization of intangibles was
$15.6 million for the six months ended June 26, 2008
as compared to $4.6 million for the five months ended
June 28, 2007 and McJunkins amortization of
intangibles of $0.02 million for the one month ended
January 30, 2007. The increase of $11.0 million for
the six months ended June 26, 2008 as compared to the
combined six-month period ended June 28, 2007 was the
result of the timing of each of the three transactions described
above. In particular, the six months ended June 26, 2008
included $10.5 million of amortization expense associated
with the Red Man Transaction for which there were no
corresponding amounts for the five months ended June 28,
2007 and one month ended January 30, 2007. This
$10.5 million of amortization expense includes
$2.6 million of amortization which was estimated in 2007
because the business combination occurred late in the year and
the purchase price allocation was preliminary pending receipt of
appraisals and valuations at year-end. Further, amortization of
intangibles increased $335,000 for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007 due to amortization expense related to
the Midway transaction.
Profit Sharing.
We have a qualified,
defined-contribution plan for employees who meet eligibility
requirements, generally six months of service. This plan
provides for annual discretionary contributions generally based
upon company operating results. Our profit sharing expense was
$13.5 million for the six months ended June 26, 2008
as compared to $5.6 million for the five months ended
June 28, 2007 and McJunkins profit sharing of
$1.3 million for the one month ended January 30, 2007.
The increase of $6.6 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007 was due to an increase in the number of
our employees primarily as a result of the Midway and Red Man
transactions. Profit sharing increased $7.1 million due to
the Red Man Transaction.
Stock-Based Compensation.
Our
equity-based compensation consists of restricted common units in
PVF Holdings LLC, profit units in PVF Holdings LLC, restricted
stock and non-qualified stock options. In conjunction with the
acquisition of McJunkin by the Goldman Sachs Funds, certain key
employees received restricted common units in PVF Holdings LLC,
and in conjunction with the acquisition of McJunkin by the
Goldman Sachs Funds and the Red Man Transaction, certain key
employees received profits units in PVF Holdings LLC. In
addition, effective March 27, 2007, our board of directors
approved the formation of the 2007 Restricted Stock Plan and the
2007 Stock Option Plan. The purpose of these plans is to aid us
in recruiting and retaining key employees, directors and
consultants of outstanding ability and to motivate such key
employees, directors and consultants to exert their best efforts
on our behalf by providing them incentives in the form of
restricted stock and stock options. It is expected that the
Company will benefit from the added interest
56
which such key employees, directors and consultants will have
in the welfare of the Company as a result of their proprietary
interest in the Companys success. Our
stock-based
compensation was $3.3 million for the six months ended
June 26, 2008 as compared to $1.3 million for the five
months ended June 28, 2007 and no stock-based compensation
for the one month ended January 30, 2007. The increase of
$2.0 million for the six months ended June 26, 2008 as
compared to the combined six-month period ended June 28,
2007 was due to the adoption of our equity plans in January and
March 2007 and the addition of incremental participants as a
result of the Red Man Transaction in October 2007. Stock-based
compensation increased $1.7 million due to the addition of
the Red Man participants in October 2007.
Operating Income.
As a result of the
aforementioned items, our operating income was
$154.5 million for the six months ended June 26, 2008
as compared to $55.1 million for the five months ended
June 28, 2007 and McJunkins operating income of
$11.7 million for the one month ended January 30,
2007, an increase of $87.7 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007.
Interest Expense.
Our interest expense
was $35.0 million for the six months ended June 26,
2008 as compared to $24.3 million for the five months ended
June 28, 2007 and McJunkins interest expense of
$0.1 million for the one month ended January 30, 2007.
The increase of $10.6 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007 was primarily due to increased amounts
of debt incurred
and/or
assumed in conjunction with the GS Acquisition and the Midway
and Red Man transactions, including Midfields Canadian
debt. We incurred approximately $83 million of debt on our
asset-backed revolving credit facility in connection with the
acquisition of Midway resulting in an increase in interest
expense of approximately $1.4 million. Interest expense was
further increased by approximately $8.4 million as a result
of the incurrence of approximately $190 million of
incremental borrowings under our asset-backed revolving credit
facility and the assumption of approximately $68 million of
debt in connection with the Red Man Transaction. Interest
expense for the six months ended June 26, 2008 also
reflects approximately $2.6 million of expense associated
with the Junior Term Loan Facility which was entered into on
May 22, 2008, the proceeds of which were used to fund a
dividend to our shareholders.
Minority Interests.
Our minority
interests were $0.1 million for the six months ended
June 26, 2008 (all related to Midfield) as compared to none
for the five months ended June 28, 2007 and McJunkins
minority interests of $0.4 million for the one month ended
January 30, 2007 (which was due to McJunkin Appalachian).
The decrease of $0.3 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007 was due to the repurchase of the
minority interest held by McJunkin Appalachians management
in January 2007. In connection with our 1989 transaction with
Appalachian Pipe and Supply which formed our McJunkin
Appalachian subsidiary, certain members of Appalachians
management group retained a minority ownership in the combined
company. As part of the acquisition of McJunkin by the Goldman
Sachs Funds in January 2007, these minority shareholders were
bought out and McJunkin Appalachian became a wholly owned
subsidiary of McJunkin. On December 31, 2007, McJunkin
Appalachian was merged into McJunkin Red Man Corporation. In
addition, in 2005 Red Man acquired an approximate 51% interest
in Midfield.
Other Income (Expense), Net.
Our other
expense, net was $0.3 million for the six months ended
June 26, 2008 as compared to other expense, net of
$0.9 million for the five months ended June 28, 2007
and McJunkins other expense, net of $15,000 for the one
month ended January 30, 2007. The decrease of
$0.6 million for the six months ended June 26, 2008 as
compared to the combined six-month period ended June 28,
2007 was due in part to $0.4 million derivatives expense,
$0.1 million increase in bank charges, and
$0.1 million increase in directors fees.
Income Tax Expense.
Our income tax
expense was $43.2 million for the six months ended
June 26, 2008 as compared to $12.3 million for the
five months ended June 28, 2007 and McJunkins income
tax expense of $4.6 million for the one month ended
January 30, 2007. The increase of
57
$26.3 million for the six months ended June 26, 2008
as compared to the combined six-month period ended June 28,
2007 was due to the inclusion of Red Mans results, which
added $10.3 million to our income tax expense, and higher
pre-tax income, partially offset by certain tax savings in the
six months ended June 26, 2008. Our effective tax rates
were 36.26% for the six months ended June 26, 2008, 41.18%
for the five months ended June 28, 2007 and 41.08% for the
one month ended January 30, 2007. These rates differ from
the federal statutory rate of 35% principally as a result of
state income taxes. The rate for the six months ended
June 26, 2008 is lower than the rates for the five months
ended June 28, 2007 and the one month ended
January 30, 2007 primarily due to lower state taxes.
Net Income.
Our net income was
$75.9 million for the six months ended June 26, 2008
as compared to $17.6 million for the five months ended
June 28, 2007 and McJunkins net income of
$6.6 million for the one month ended January 30, 2007.
Net income increased $51.7 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007.
Eleven Months
Ended December 31, 2007 (Successor) and One Month Ended
January 30, 2007 (Predecessor) Compared to Year Ended
December 31, 2006 (Predecessor)
Sales.
Our sales were $2.1 billion
for the eleven months ended December 31, 2007 and
McJunkins sales were $142.5 million for the one month
ended January 30, 2007, as compared to McJunkins
sales of $1.7 billion for the year ended December 31,
2006. The increase of $554 million for the combined
twelve-month period ended December 31, 2007 as compared to
the year ended December 31, 2006 was due to the inclusion
of Red Mans sales of $297 million and Midways
sales of approximately $98 million during the 2007 periods,
and increases in our exploration and production and petroleum
refining business.
Cost of Sales.
Our cost of sales was
$1.7 billion for the eleven months ended December 31,
2007 and McJunkins cost of sales was $115 million for
the one month ended January 30, 2007, as compared to
McJunkins cost of sales of $1.4 billion for the year
ended December 31, 2006. As a percentage of sales, cost of
sales was 81.6% for the combined twelve-month period ended
December 31, 2007 as compared to 81.4% for the year ended
December 31, 2006. The increase in cost of sales of
$455 million for the combined twelve-month period ended
December 31, 2007 as compared to the year ended
December 31, 2006 was due to the inclusion of Red
Mans cost of sales of $252 million and Midways
cost of sales of approximately $83 million, and increases
in our exploration and production and petroleum refining
business, partially offset by a decrease in LIFO expense of
$6.5 million due to decreased inflation rates in the cost
of our products in 2007. Certain purchasing costs and
warehousing activities (including receiving, inspection,
stocking, picking and packing costs), as well as general
warehousing expenses, are included in selling, general and
administrative expenses and not in cost of sales. As such, our
gross profit may not be comparable to others who may include
these expenses as a component of cost of goods sold. Purchasing
and warehousing activities costs approximated $34.1 million
for the year ended December 31, 2007 compared to
$26.9 million for the year ended December 31, 2006.
Selling, General and Administrative
Expenses.
Our selling, general and
administrative expenses were $201.9 million for the eleven
months ended December 31, 2007 and McJunkins selling,
general and administrative expenses were $14.6 million for
the one month ended January 30, 2007, as compared to
McJunkins selling, general and administrative expenses of
$173.9 million for the year ended December 31, 2006.
As a percentage of sales, selling, general and administrative
expenses were 9.5% for the combined twelve-month period ended
December 31, 2007 as compared to 10.1% for the year ended
December 31, 2006. The increase of $42.6 million for
the combined twelve-month period ended December 31, 2007 as
compared to the year ended December 31, 2006 was due to the
inclusion of two months of Red Mans selling, general and
administrative expenses totaling $28.0 million in the
twelve-months ended December 31, 2007; payments of
$6.2 million to the former McJunkin Appalachian
shareholders in 2007; eight months of expenses of approximately
$4.4 million from the Midway operations acquired at the end
of April 2007; $4.2 million of expenses
58
related to the GS Acquisition in 2007; an increase in franchise
taxes of $1.3 million due to the increase in shareholders
equity resulting from the GS Acquisition; $0.8 million
in acquisition and integration expenses related to Red Man; a
$0.6 million increase in fuel costs; and $0.3 million
in acquisition and integration expenses related to Midway.
Depreciation and Amortization.
Our
depreciation and amortization was $5.4 million for the
eleven months ended December 31, 2007 and McJunkins
depreciation and amortization was $0.3 million for the one
month ended January 30, 2007, as compared to
McJunkins depreciation and amortization of
$3.9 million for the year ended December 31, 2006. The
increase of $1.8 million for the combined twelve-month
period ended December 31, 2007 as compared to the year
ended December 31, 2006 was primarily due to the recording
of depreciation expense with respect to the Red Man and Midway
transactions in 2007, and the write up of McJunkins assets
to fair value in conjunction with the GS Acquisition in January
2007. Depreciation increased $143,000 in connection with the
write up of the fixed assets related to the GS Acquisition.
Depreciation also increased $1.1 million and $235,000 due
to the Red Man and Midway transactions, respectively.
Amortization of Intangibles.
Our
amortization of intangibles was $10.5 million for the
eleven months ended December 31, 2007 and McJunkins
amortization of intangibles was $16,000 for the one month ended
January 30, 2007, as compared to McJunkins
amortization of intangibles of $0.3 million for the year
ended December 31, 2006. The increase of $10.2 million
for the combined twelve-month period ended December 31,
2007 as compared to the year ended December 31, 2006 was
due to the acquisition of McJunkin by the Goldman Sachs Funds in
January 2007 ($9.8 million) and the Midway acquisition in
April 2007 ($0.7 million). Intangibles amortization
totaling $2.6 million with respect to the Red Man
Transaction was recorded in the six months ended June 26,
2008.
Profit Sharing.
Our profit sharing was
$13.2 million for the eleven months ended December 31,
2007 and McJunkins profit sharing was $1.3 million
for the one month ended January 30, 2007, as compared to
McJunkins profit sharing of $15.1 million for the
year ended December 31, 2006. The decrease of
$0.6 million for the combined twelve-month period ended
December 31, 2007 as compared to the year ended
December 31, 2006 was due to lower
non-qualified
plan contributions as a result of the departure of several
members of management who left the company in connection with
the GS Acquisition, offset in part by an increase of
approximately 100 employees added with the Midway
acquisition on April 30, 2007.
Stock-Based Compensation.
Our
stock-based compensation was $3.0 million for the eleven
months ended December 31, 2007. McJunkin had no stock based
compensation for the one month ended January 30, 2007 or
for the year ended December 31, 2006. Our equity-based
compensation consists of restricted common units in PVF Holdings
LLC, profit units in PVF Holdings LLC, restricted stock and
non-qualified stock options. In conjunction with the acquisition
of McJunkin by the Goldman Sachs Funds, certain key employees
received restricted common units in PVF Holdings LLC, and in
conjunction with the acquisition of McJunkin by the Goldman
Sachs Funds and the Red Man Transaction, certain key employees
received profits units in PVF Holdings LLC. In addition,
effective March 27, 2007 our board of directors approved
the formation of the 2007 Restricted Stock Plan and the 2007
Stock Option Plan.
Operating Income.
Our operating income
was $156.3 million for the eleven months ended
December 31, 2007 and McJunkins operating income was
$11.7 million for the one month ended January 30,
2007, as compared to McJunkins operating income of
$126.2 million for the year ended December 31, 2006.
Operating income increased by $41.9 million for the
combined twelve-month period ended December 31, 2007 as
compared to the year ended December 31, 2006 as a result of
the items mentioned above.
Interest Expense.
Our interest expense
was $61.7 million for the eleven months ended
December 31, 2007 and McJunkins interest expense was
$0.1 million for the one month ended January 30, 2007,
as compared to McJunkins interest expense of
$2.8 million for the year ended December 31, 2006. The
increase of $59.0 million for the combined twelve-month
period ended
59
December 31, 2007 as compared to the year ended
December 31, 2006 was primarily due to our entering into
and borrowing under our then-existing $300 million
asset-backed revolving credit facility and our $575 million
term loan facility to finance the acquisition of McJunkin by the
Goldman Sachs Funds on January 31, 2007.
Minority Interests.
Our minority
interests were $0.1 million for the eleven months ended
December 31, 2007 and McJunkins minority interests
were $0.4 million for the one month ended January 30,
2007, as compared to McJunkins minority interests of
$4.1 million for the year ended December 31, 2006. The
decrease of $3.6 million for the combined twelve-month
period ended December 31, 2007 as compared to the year
ended December 31, 2006 was primarily due to the minority
shareholders in McJunkin Appalachian selling their interests as
part of the January 2007 acquisition of McJunkin by the Goldman
Sachs Funds whereby McJunkin Appalachian became a wholly owned
subsidiary.
Other Income (Expense), Net.
Our other
expense, net was $1.1 million for the eleven months ended
December 31, 2007 and McJunkins other expense, net
was $15,000 for the one month ended January 30, 2007, as
compared to McJunkins other expense, net of
$1.4 million for the year ended December 31, 2006. The
decrease of $0.2 million expense for the combined
twelve-month period ended December 31, 2007 as compared to
the year ended December 31, 2006 was due to a change in our
corporate charitable contributions policy in 2007 which reduced
contribution expense in 2007 by $0.4 million and a decrease
in board of directors fees of $0.2 million, offset in
part by the absence of gains from the sales of various parcels
of real estate ($0.5 million) and life insurance proceeds
received by McJunkin upon the deaths of certain stockholders not
actively involved in management of the company, which were lower
in 2007 as compared to 2006 by $0.3 million.
Income Tax Expense.
Our income tax
expense was $36.5 million for the eleven months ended
December 31, 2007 and McJunkins income tax expense
was $4.6 million for the one month ended January 30,
2007, as compared to McJunkins income tax expense of
$48.3 million for the year ended December 31, 2006.
The decrease of $7.2 million for the combined twelve-month
period ended December 31, 2007 as compared to the year
ended December 31, 2006 was due to (1) a decrease in
pretax income of $13.2 million, permanent items decreased
by $3.5 million due to one month of minority interest
compared to 12 months in 2006, (2) a decrease in state
taxable income of $14.6 million which resulted in a
decrease in state income tax expense, and (3) a foreign tax
credit of $.8 million in 2007 which we did not have in
2006, offset in part by an increase of $2.4 million
relating to the inclusion of Red Mans results for the last
two months of 2007.
The total provision for income taxes varied from the
U.S. federal statutory rate due to the following:
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|
|
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|
|
|
|
|
|
|
|
|
|
Successor
|
|
Predecessor
|
|
|
Period
|
|
Period
|
|
Period
|
|
|
Eleven
|
|
|
|
|
|
|
Months
|
|
One Month
|
|
Year
|
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
December 31,
|
|
January 30,
|
|
December 31,
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
(dollars in thousands)
|
|
Federal tax expense at statutory rate
|
|
$
|
32,721
|
|
|
|
35
|
%
|
|
$
|
3,918
|
|
|
|
35
|
%
|
|
$
|
41,270
|
|
|
|
35
|
%
|
State taxes net of federal income tax benefit
|
|
|
3,971
|
|
|
|
4.2
|
%
|
|
|
502
|
|
|
|
4.5
|
%
|
|
|
5,653
|
|
|
|
4.8
|
%
|
Non-deductible expenses
|
|
|
424
|
|
|
|
0.5
|
%
|
|
|
26
|
|
|
|
0.2
|
%
|
|
|
409
|
|
|
|
0.3
|
%
|
Foreign
|
|
|
(827
|
)
|
|
|
(0.9
|
)%
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
0
|
|
|
|
0.0
|
%
|
Other
|
|
|
270
|
|
|
|
0.3
|
%
|
|
|
153
|
|
|
|
1.4
|
%
|
|
|
1,008
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
36,559
|
|
|
|
39.1
|
%
|
|
$
|
4,599
|
|
|
|
41.1
|
%
|
|
$
|
48,340
|
|
|
|
41.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
60
Net Income.
Our net income was
$56.9 million for the eleven months ended December 31,
2007 and McJunkins net income was $6.6 million for
the one month ended January 30, 2007, as compared to
McJunkins net income of $69.6 million for the year
ended December 31, 2006. The decrease of $6.1 million
for the combined twelve-month period ended December 31,
2007 as compared to the year ended December 31, 2006 was
due to the factors described above.
Year Ended
December 31, 2006 (Predecessor) Compared to the Year Ended
December 31, 2005 (Predecessor)
Sales.
McJunkins sales were
$1.7 billion for the year ended December 31, 2006 as
compared to $1.4 billion for the year ended
December 31, 2005. The increase of $268 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005 was due to increases in our sales
to the exploration and production, gas transmission and
distribution, and petroleum refining end markets.
Cost of Sales.
McJunkins cost of
sales was $1.4 billion for the year ended December 31,
2006 as compared to $1.2 billion for the year ended
December 31, 2005. As a percentage of sales,
McJunkins cost of sales was 81.4% for the year ended
December 31, 2006 as compared to 81.4% for the year ended
December 31, 2005. The increase of $217 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005 was due to increases in our sales
to the exploration and production, gas transmission and
distribution, and petroleum refining end markets, partially
offset by a decrease in LIFO expense of $7.9 million
resulting from a decrease in the inflation rate experienced in
the cost of our products. Certain purchasing costs and
warehousing activities (including receiving, inspection,
stocking, picking and packing costs), as well as general
warehousing expenses, are included in selling, general and
administrative expenses and not in cost of sales. As such, our
gross profit may not be comparable to others who may include
these expenses as a component of cost of goods sold. Purchasing
and warehousing activities costs approximated $26.9 million
for the year ended December 31, 2006 compared to
$25.1 million for the year ended December 31, 2005.
Selling, General and Administrative
Expenses.
McJunkins selling, general
and administrative expenses were $173.9 million for the
year ended December 31, 2006 as compared to
$155.7 million for the year ended December 31, 2005.
As a percentage of sales, McJunkins selling, general and
administrative expenses were 10.2% for the year ended
December 31, 2006 as compared to 10.8% for the year ended
December 31, 2005. The increase of $18.2 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005 was due to an $8.4 million
increase in incentive compensation expense due to higher levels
of sales and profitability; a $4.6 million increase in
employee salaries, wages, overtime, benefits, and temporary
labor due to increased sales activity; $3.0 million of
consulting fees for strategic planning services; an increase in
fuel costs of $0.6 million; and $0.4 million of
expenses related to the acquisition of McJunkin by the Goldman
Sachs Funds. Additionally, in 2005 we recorded losses of
$0.7 million related to Hurricanes Katrina and Rita on
which insurance recoveries were higher than anticipated. As a
result of these insurance recoveries, 2006 expenses were reduced
by $0.3 million.
Depreciation and
Amortization.
McJunkins depreciation
and amortization was $3.9 million for the year ended
December 31, 2006 as compared to $3.7 million for the
year ended December 31, 2005. The increase of
$0.2 million for the year ended December 31, 2006 as
compared to the year ended December 31, 2005 was due to the
depreciation recorded in 2006 regarding certain distribution
center expansions that were made in 2005.
Amortization of
Intangibles.
McJunkins amortization of
intangibles was $0.3 million for the year ended
December 31, 2006 and $0.3 million for the year ended
December 31, 2005.
Profit Sharing
Expenses.
McJunkins profit sharing
expenses were $15.1 million for the year ended
December 31, 2006 as compared to $13.1 million for the
year ended December 31, 2005. The increase of
$2.0 million for the year ended December 31, 2006 as
compared to the year ended
61
December 31, 2005 was due to increased compensation,
primarily management incentive compensation, increased
profitability and an increase in the number of employees from
year to year.
Operating Income.
As a result of the
items mentioned above, McJunkins operating income was
$126.2 million for the year ended December 31, 2006 as
compared to $95.9 million for the year ended
December 31, 2005, an increase of $30.3 million.
Interest Expense.
McJunkins
interest expense was $2.8 million for the year ended
December 31, 2006 as compared to $2.7 million for the
year ended December 31, 2005, an increase of
$0.1 million attributable to marginally higher levels of
debt.
Minority Interests.
McJunkins
minority interests were $4.1 million for the year ended
December 31, 2006 as compared to $2.8 million for the
year ended December 31, 2005. The increase of
$1.3 million for the year ended December 31, 2006 as
compared to the year ended December 31, 2005 was due to a
$9.5 million increase in net income at McJunkin Appalachian
to $28.7 million for the year ended December 31, 2006
from $19.2 million for the year ended December 31,
2005.
Other Expenses, Net.
McJunkins
other expenses, net were $1.4 million for the year ended
December 31, 2006 as compared to $1.3 million for the
year ended December 31, 2005. The increase of
$0.1 million for the year ended December 31, 2006 as
compared to the year ended December 31, 2005 was partly due
to a $0.3 million increase in allowance for doubtful
accounts receivable, offset by a decrease in charitable
contributions expense in 2006 of $0.6 million due to the
absence in 2006 of certain special contributions made in 2005,
including $0.1 million in contributions made to Hurricane
Katrina relief efforts. Additionally, we realized a gain of
$0.7 million on the sale of real estate in 2006, realized a
gain of $0.9 million on the sale of stock in PrimeEnergy in
2005, and received income of $0.5 million from swap
valuation in 2005 (the swap instrument expired in 2005).
Income Tax Expense.
McJunkins
income tax expense was $48.3 million for the year ended
December 31, 2006 as compared to $36.6 million for the
year ended December 31, 2005. The increase of
$11.7 million for the year ended December 31, 2006 as
compared to the year ended December 31, 2005 was due to
pre-tax income increased $28.8 million and permanent items
increased $1.0 million primarily due to increased minority
interest income related to McJunkin Appalachian.
The total provision for income taxes varied from the
U.S. federal statutory rate due to the following:
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|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Period
|
|
Period
|
|
|
Year
|
|
Year
|
|
|
Ended
|
|
Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2006
|
|
2005
|
|
|
(dollars in thousands)
|
|
Federal tax expense at statutory rate
|
|
$
|
41,270
|
|
|
|
35
|
%
|
|
$
|
31,193
|
|
|
|
35
|
%
|
State taxes net of federal income tax benefit
|
|
|
5,653
|
|
|
|
4.8
|
%
|
|
|
4,254
|
|
|
|
4.8
|
%
|
Non-deductible expenses
|
|
|
409
|
|
|
|
0.3
|
%
|
|
|
372
|
|
|
|
0.4
|
%
|
Other
|
|
|
1,008
|
|
|
|
0.9
|
%
|
|
|
764
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
48,340
|
|
|
|
41.0
|
%
|
|
$
|
36,583
|
|
|
|
41.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income.
McJunkins net income
was $69.6 million for the year ended December 31, 2006
as compared to $52.5 million for the year ended
December 31, 2005. The increase of $17.1 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005 was due to the factors described
above.
62
Red Man: Year
Ended October 31, 2007 Compared to the Year Ended
October 31, 2006.
Sales.
Red Mans sales were
$2.0 billion for the year ended October 31, 2007 as
compared to $1.8 billion for the year ended
October 31, 2006. The increase of $166.7 million for
the year ended October 31, 2007 as compared to the year
ended October 31, 2006 was due primarily to an increase of
$179.5 million in Red Man US sales to $1,499.2 million
for the year ended October 31, 2007 as compared to
$1,319.7 million for the year ended October 31, 2006,
partially offset by a $12.8 million decrease in Midfield
sales to $482.8 million for the year ended October 31,
2007 as compared to $495.6 million for the year ended
October 31, 2006. The increase in Red Man US sales was
primarily attributable to growth in upstream and midstream
oil & gas operations reflecting higher spending by
exploration, production and field services companies associated
with increased drilling and completion activities. The decrease
in Midfield sales was attributable to a slowing of spending by
exploration, production and field services companies associated
with decreased drilling and completion activities in Canada.
Cost of Products Sold.
Red Mans
cost of products sold was $1.6 billion for the year ended
October 31, 2007 as compared to $1.6 billion for the
year ended October 31, 2006. As a percentage of sales, Red
Mans cost of products sold was 82.4% for the year ended
October 31, 2007 as compared to 85.4% for the year ended
October 31, 2006. The increase of $81.2 million for
the year ended October 31, 2007 as compared to the year
ended October 31, 2006 was due primarily to an increase in
sales of $166.7 million to $1,982.0 million in the
year ended October 31, 2007 as compared to
$1,815.3 million for the year ended October 31, 2006
due primarily to growth in upstream and midstream
oil & gas operations reflecting higher spending by
exploration, production and field services companies associated
with increased drilling and completion activities. The decrease
in the percentage of cost of product sold of 82.4% in 2007 as
compared with 85.4% in 2006 was due to lower cost of product
sold percentages for both the Midfield business and the Red Man
US business in 2007 as compared to 2006, due to lower cost of
product sold percentages of other pipe, valve and fittings
partially offset by an overall increase in tubulars cost of
product sold percentages in 2007 as compared to 2006. Also, Red
Man had an $8.0 million decrease in the LIFO reserve in
2007 as compared to a $35.9 million increase in the LIFO
reserve in 2006. Certain purchasing costs and warehousing
activities (including receiving, inspection, stocking, picking
and packing costs), as well as general warehousing expenses, are
included in selling, general and administrative expenses and not
in cost of products sold. As such, our gross profit may not be
comparable to others who may include these expenses as a
component of cost of goods sold. Purchasing and warehousing
activities costs approximated $17.2 million for the year
ended October 31, 2007 compared to $14.8 million for
the year ended October 31, 2006.
Selling, General and Administrative
Expenses.
Red Mans selling, general and
administrative expenses were $186.6 million for the year
ended October 31, 2007 as compared to $172.2 million
for the year ended October 31, 2006. As a percentage of
sales, Red Mans selling, general and administrative
expenses were 9.4% for the year ended October 31, 2007 as
compared to 9.5% for the year ended October 31, 2006. The
increase of $14.4 million, or 8.4%, for the year ended
October 31, 2007 as compared to the year ended
October 31, 2006 was due to an increase in sales of
$166.7 million in 2007 compared with 2006, which represents
a 9.2% increase in sales, which resulted in increased selling,
general and administrative expenses commensurate with the sales
activity increase.
Operating Income.
Red Mans
operating income was $163.1 million for the year ended
October 31, 2007 as compared to $92.0 million for the
year ended October 31, 2006. The increase of
$71.1 million for the year ended October 31, 2007 as
compared to the year ended October 31, 2006 was due to the
factors described above.
Interest Expense.
Red Mans
interest expense was $20.6 million for the year ended
October 31, 2007 as compared to $15.0 million for the
year ended October 31, 2006. The increase of
63
$5.6 million for the year ended October 31, 2007 as
compared to the year ended October 31, 2006 was due to
higher average borrowings during 2007 as compared to 2006.
Other Income (Expense), Net.
Red
Mans other income (expense), net was $(2.7) million
for the year ended October 31, 2007 as compared to
$3.3 million for the year ended October 31, 2006. The
decrease of $6.0 million for the year ended
October 31, 2007 as compared to the year ended
October 31, 2006 was primarily due to a goodwill impairment
loss on Midfield of $5.1 million recorded in the year ended
October 31, 2007. Red Man performed an impairment analysis
for its goodwill and intangible assets and engaged an
independent valuation specialist to determine the fair values of
Red Mans business units. The valuation analysis determined
that the fair value of the Nusco pipe divisions goodwill
and intangible assets was lower than their carrying value as of
July 31, 2007.
Income Tax Expense.
Red Mans
income tax expense was $57.6 million for the year ended
October 31, 2007 as compared to $26.5 million for the
year ended October 31, 2006. The increase of
$31.1 million for the year ended October 31, 2007 as
compared to the year ended October 31, 2006 was primarily
due to an increase in earnings before income taxes of
$59.5 million to $139.8 million for the year ended
October 31, 2007 as compared to $80.3 million for the
year ended October 31, 2006 as well as an increase in the
effective income tax rate in 2007 as compared to 2006.
Non-Controlling Interest.
Red
Mans non-controlling interest was $0.1 million for
the year ended October 31, 2007 as compared to
$0.2 million for the year ended October 31, 2006.
Earnings From Discontinued
Operations.
Red Man earnings from
discontinued operations were $(2.2) million for the year
ended October 31, 2006. These earnings are associated with
Nusco Mfg., a division of Midfield Supply ULC, which was
disposed of in June 2006.
Gain on Sale of Discontinued
Operations.
Red Man recorded a gain on sale
of discontinued operations of $8.2 million for the year
ended October 31, 2006 in connection with the disposition
in June 2006 of Nusco Mfg., a division of Midfield Supply ULC.
Net Income.
Red Mans net income
was $82.2 million for the year ended October 31, 2007
as compared to $59.6 million for the year ended
October 31, 2006. The increase of $22.6 million for
the year ended October 31, 2007 as compared to the year
ended October 31, 2006 was due to the factors described
above.
Red Man: Year
Ended October 31, 2006 Compared to the Year Ended
October 31, 2005.
Sales.
Red Mans sales were
$1.8 billion for the year ended October 31, 2006 as
compared to $1.2 billion for the year ended
October 31, 2005. The increase of $591.2 million for
the year ended October 31, 2006 as compared to the year
ended October 31, 2005 was primarily due to the acquisition
of a controlling interest in Midfield in June 2005. Sales of
Midfield were $495.6 million for the year ended
October 31, 2006 as compared with $158.7 million for
the year ended October 31, 2005, an increase of
$336.9 million due to a full year of sales in 2006. In
addition, Red Man US sales were $1,319.7 million for the
year ended October 31, 2006 as compared with
$1,065.4 million for the year ended October 31, 2005,
an increase of $254.3 million due primarily to growth in
upstream and midstream oil & gas operations reflecting
higher spending by exploration, production & field
services companies associated with increased drilling and
completion activities.
Cost of Products Sold.
Red Mans
cost of products sold was $1.6 billion for the year ended
October 31, 2006 as compared to $1.0 billion for the
year ended October 31, 2005. As a percentage of sales, Red
Mans cost of products sold was 85.4% for the year ended
October 31, 2006 as compared to 83.6% for the year ended
October 31, 2005. The increase of $528.1 million for
the year ended October 31, 2006 as compared to the year
ended October 31, 2005 was primarily due to the acquisition
of Midfield in June 2005 and growth in upstream and midstream
oil and gas operations in the United States. In addition, Red
Man US cost of products sold was $1,132.5 million for the
year ended October 31, 2006 as compared with
$886.7 million for the year ended October 31, 2005, an
increase of $245.8 million, primarily due to growth in
upstream and midstream oil and gas operations
64
reflecting higher spending by exploration, production and field
services companies associated with increased drilling and
completion activities. The increase in cost of product sold as a
percentage of sales of 85.4% in 2006 as compared with 83.6% in
2005 was due to higher cost of product sold percentages for the
Midfield business which was a larger percentage of the overall
Red Man business in 2006 as compared to 2005 and an overall
increase in tubulars cost of product sold percentages in the
United States in 2006 as compared to 2005, partially offset by
lower cost of product sold percentages of other pipe, valve and
fittings business in the United States. Also, Red Man had a
$35.9 million increase in the LIFO reserve in 2006, which
increased its cost of products sold as a percentage of sales as
compared with a $0.7 million reduction in 2005, which
decreased its cost of products sold as a percentage of sales.
Certain purchasing costs and warehousing activities (including
receiving, inspection, stocking, picking and packing costs), as
well as general warehousing expenses, are included in selling,
general and administrative expenses and not in cost of products
sold. As such, our gross profit may not be comparable to others
who may include these expenses as a component of cost of goods
sold. Purchasing and warehousing activities costs approximated
$14.8 million for the year ended October 31, 2006
compared to $10.0 million for the year ended
October 31, 2005.
Selling, General and Administrative
Expenses.
Red Mans selling, general and
administrative expenses were $172.2 million for the year
ended October 31, 2006 as compared to $100.2 million
for the year ended October 31, 2005. As a percentage of
sales, Red Mans selling, general and administrative
expenses were 9.5% for the year ended October 31, 2006 as
compared to 8.2% for the year ended October 31, 2005. The
increase of $72.0 million for the year ended
October 31, 2006 as compared to the year ended
October 31, 2005 was due primarily to an additional
$47.7 million in expenses for Midfield due to including
them for a full year in 2006. In addition, there was an
additional $18.2 million in employee related expenses in
the United States due primarily to a 12.4% increase in the
overall average headcount in 2006 as compared with 2005 due to
increased business activities. The increase in selling, general
and administrative expenses as a percentage of sales of 9.5% in
2006 as compared with 8.2% in 2005 was primarily due to higher
Midfield expenses as a percentage of overall expenses in 2006 as
compared with 2005.
Operating Income.
Red Mans
operating income was $92.0 million for the year ended
October 31, 2006 as compared to $100.9 million for the
year ended October 31, 2005. The decrease of
$8.9 million for the year ended October 31, 2006 as
compared to the year ended October 31, 2005 was due to an
increase in the LIFO reserve of $35.9 million in 2006 as
compared to a $0.7 million reduction in 2005, and an
increase in selling, general and administrative expenses to
$172.2 million in 2006 as compared to $100.2 million
in 2005, partially offset by an increase in pre-LIFO gross
margin of $300.1 million in 2006 as compared to
$200.4 million in 2005.
Interest Expense.
Red Mans
interest expense was $15.0 million for the year ended
October 31, 2006 as compared to $8.4 million for the
year ended October 31, 2005. The increase of
$6.6 million for the year ended October 31, 2006 as
compared to the year ended October 31, 2005 was due
primarily to $7.3 million of interest on debt of Midfield
for the year ended October 31, 2006 as compared to
$2.2 million for the year ended October 31, 2005. This
increase was primarily due to a full year of interest in 2006 as
compared to four and one-half months in 2005 due to the
acquisition of Midfield in June 2005. In addition, Red Man U.S.
interest expense for the year ended October 31, 2006 was
$7.7 million as compared to $6.2 million for the year
ended October 31, 2005 due primarily to increased
borrowings in 2006 versus 2005.
Other Income (Expense), Net.
Red
Mans other income (expense), net was $3.3 million for
the year ended October 31, 2006 as compared to
$1.0 million for the year ended October 31, 2005. The
increase of $2.3 million for the year ended
October 31, 2006 as compared to the year ended
October 31, 2005 was primarily due to an insurance
settlement related to Hurricanes Katrina and Rita in 2006.
Income Tax Expense.
Red Mans
income tax expense was $26.5 million for the year ended
October 31, 2006 as compared to $34.2 million for the
year ended October 31, 2005. The decrease of
65
$7.7 million for the year ended October 31, 2006 as
compared to the year ended October 31, 2005 was due
primarily to a decrease in earnings before income taxes of
$13.2 million in 2006 as compared to 2005 as well as a
lower effective income tax rate in 2006 as compared to 2005.
Non-Controlling Interest.
Red
Mans non-controlling interest was $0.2 million for
the year ended October 31, 2006 as compared to none for the
year ended October 31, 2005.
Earnings From Discontinued
Operations.
Red Mans earnings from
discontinued operations were $(2.2) million for the year
ended October 31, 2006 as compared to $0.5 million for
the year ended October 31, 2005. These earnings are
associated with Nusco Mfg., a division of Midfield Supply ULC,
which was disposed of in June 2006.
Gain on Sale of Discontinued
Operations.
Red Man recorded a gain on sale
of discontinued operations of $8.2 million for the year
ended October 31, 2006 in connection with the disposition
by Midfield of Nusco Mfg. in June 2006.
Net Income.
Red Mans net income
was $59.6 million for the year ended October 31, 2006
as compared to $59.8 million for the year ended
October 31, 2005, a decrease of $0.2 million.
Liquidity and
Capital Resources
Our primary sources of liquidity consist of cash generated from
our operating activities, existing cash balances and borrowings
under our existing revolving credit facilities. Our ability to
generate sufficient cash flows from our operating activities
will continue to be primarily dependent on our sales of pipe,
valves, fittings and other products and services to our
customers at margins sufficient to cover fixed and variable
expenses. As of June 26, 2008 we had cash and cash
equivalents of $8.8 million and up to $542.5 million
available under our revolving credit facilities.
We believe our sources of liquidity will be sufficient to
satisfy the anticipated cash requirements associated with our
existing operations for at least the next twelve months.
However, our future cash requirements could be higher than we
currently expect as a result of various factors. Additionally,
our ability to generate sufficient cash from our operating
activities depends on our future performance, which is subject
to general economic, political, financial, competitive and other
factors beyond our control.
Our credit facilities consist of a $575 million term loan
facility, a $700 million revolving credit facility, a
$450 million junior term loan facility, and the two credit
facilities of our subsidiary Midfield. The $575 million
term loan facility was entered into for purposes of financing
the GS Acquisition in January 2007, and was subsequently amended
in connection with the Red Man Transaction in October 2007. The
$700 million revolving credit facility was entered into for
purposes of financing the Red Man Transaction in October 2007.
The $450 million junior term loan facility was entered into
in connection with our May 2008 recapitalization and the
proceeds of the facility were distributed by way of a dividend
to stockholders of McJunkin Red Man Holding Corporation.
Revolving
Credit Facility and Term Loan Facility
Our subsidiary McJunkin Red Man Corporation is the borrower
under a $700 million revolving credit facility (the
Revolving Credit Facility) and a $575 million
term loan facility (the Term Loan Facility and,
together with the Revolving Credit Facility, the Senior
Secured Facilities). $204.4 million of borrowings
were outstanding and $490.9 million were available under the
Revolving Credit Facility as of June 26, 2008. Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc. are co-lead
arrangers and joint bookrunners for each of these facilities.
McJunkin Red Man Corporation entered into the Term Loan
Facility, as well as a $300 million asset-backed revolving
credit facility with The CIT Group/Business Credit, Inc., and
the other financial institutions party thereto, in January 2007
for purposes of financing the acquisition of McJunkin
Corporation by affiliates of Goldman Sachs. The Term Loan
Facility was amended, and the Revolving
66
Credit Facility was entered into, for purposes of financing the
Red Man Transaction in October 2007 and refinancing the
$300 million asset-backed revolving credit facility. The
Revolving Credit Facility was upsized on June 10, 2008 from
$650 million to $700 million.
Letter of Credit and Swingline
Sublimits.
The Revolving Credit Facility
provides for the extension of both revolving loans and swingline
loans and the issuance of letters of credit. The aggregate
principal amount of revolving loans outstanding at any time
under the Revolving Credit Facility may not exceed
$700 million, subject to adjustments based on changes in
the borrowing base and less the sum of aggregate letters of
credit outstanding and the aggregate principal amount of
swingline loans outstanding, provided that the borrower may
elect to increase the limit on the revolving loans or term loans
outstanding as described in Incremental
Facilities below. There is a $60 million sub-limit on
swingline loans and the total letters of credit outstanding at
any time may not exceed $60 million.
Maturity.
The revolving loans have a
maturity date of October 31, 2013 and the swingline loans
have a maturity date of October 24, 2013. Any letters of
credit outstanding under the Revolving Credit Facility will
expire on October 24, 2013. The maturity date of the term
loans under the Term Loan Facility is January 31, 2014.
Interest Rate and Fees.
The term loans
bear interest at a rate per annum equal to, at the
borrowers option, either (i) the greater of the prime
rate and the federal funds effective rate plus 0.50%, plus in
either case 2.25%; or (ii) LIBOR plus 3.25%. On
June 26, 2008, $567.8 million was outstanding under
the Term Loan Facility and the interest rate on these loans was
6.13%.
The revolving loans bear interest at a rate per annum equal to,
at the borrowers option, either (i) the greater of
the prime rate and the federal funds effective rate plus 0.50%,
plus in either case (a) 0.50% if the borrowers
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00, (b) 0.25% if such
ratio is greater than or equal to 2.00 to 1.00 but less than
2.75 to 1.00, or (c) 0.00% if such ratio is less than 2.00
to 1.00; or (ii) LIBOR plus (a) 1.50% if the
borrowers consolidated total debt to consolidated adjusted
EBITDA ratio is greater than or equal to 2.75 to 1.00,
(b) 1.25% if such ratio is greater than or equal to 2.00 to
1.00 but less than 2.75 to 1.00, or (c) 1.00% if such ratio
is less than 2.00 to 1.00. Interest on swingline loans is
calculated on the basis of the rate described in clause (i)
of the preceding sentence. The weighted average interest rate on
the revolving loans as of June 26, 2008 was 4.14% and the
interest rate on the swingline loans was 5.25%.
Additionally, the borrower is required to pay a commitment fee
with respect to unutilized revolving credit commitments at a
rate per annum equal to (i) 0.375% if the borrowers
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00 and (ii) 0.25% if
such ratio is less than 2.75 to 1.00. The borrower is also
required to pay fees on the stated amounts of outstanding
letters of credit for the account of all revolving lenders at a
per annum rate equal to (i) 1.375% if the borrowers
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00, (ii) 1.125% if such
ratio is greater than or equal to 2.00 to 1.00 but less than
2.75 to 1.00, or (iii) 0.875% if such ratio is less than
2.00 to 1.00. The borrower is required to pay a fronting fee for
the account of the letter of credit issuer in respect of each
letter of credit issued by it at a rate for each day equal to
0.125% per annum on the average daily stated amount of such
letter of credit. The borrower is also obligated to pay directly
to the letter of credit issuer upon each issuance of, drawing
under,
and/or
amendment of, a letter of credit issued by it such amount as the
borrower and the letter of credit issuer agree upon for
issuances of, drawings under or amendments of, letters of credit
issued by the letter of credit issuer.
Prepayments.
The borrower may
voluntarily prepay revolving loans, swingline loans and term
loans in whole or in part at the borrowers option, in each
case without premium or penalty. If the borrower refinances the
term loans on certain terms prior to October 31, 2008, the
borrower will be
67
subject to a prepayment penalty of 1.00% of the aggregate
principal amount of such payment. The borrower is required to
prepay outstanding term loans with 100% of the net cash proceeds
of:
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a disposition of any business units, assets or other property of
the borrower or any of the borrowers restricted
subsidiaries not in the ordinary course of business, subject to
certain exceptions for permitted asset sales;
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a casualty event with respect to collateral for which the
borrower or any of its restricted subsidiaries receives
insurance proceeds, or proceeds of a condemnation award or other
compensation;
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the issuance or incurrence by the borrower or any of its
restricted subsidiaries of indebtedness, subject to certain
exceptions; and
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any sale-leaseback transaction permitted under the Term Loan
Facility.
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Not later than the date that is 90 days after the last day
of any fiscal year, the borrower under the Term Loan Facility
will be required to prepay the outstanding term loans under the
Term Loan Facility with an amount equal to (i) 50% of
excess cash flow for such fiscal year, provided that
(a) the percentage will be reduced to 25% if the
borrowers ratio of consolidated total debt to consolidated
EBITDA for the most recent four consecutive fiscal quarters is
no greater than 2.50 to 1.00 but greater than 2.00 to 1.00, and
(b) no prepayment of term loans with excess cash flow is
required if the borrowers ratio of consolidated total debt
to consolidated EBITDA for the most recent four consecutive
fiscal quarters is no greater than 2.00 to 1.00, minus
(ii) the principal amount of term loans under the Term Loan
Facility voluntarily prepaid during such fiscal year.
In addition, if at any time the aggregate amount of outstanding
loans, unreimbursed letter of credit drawings and undrawn
letters of credit under the Revolving Credit Facility exceeds
the total revolving credit commitments and (ii) the
borrowing base, the borrower will be required to repay
outstanding loans or cash collateralize letters of credit in an
aggregate amount equal to such excess, with no reduction of the
commitment amount. If the amount available under the Revolving
Credit Facility is less than 7% of total revolving credit
commitments for any period of five consecutive business days, or
an event of default pursuant to certain provisions of the
Revolving Credit Facility has occurred, the borrower would be
required to transfer funds from certain blocked accounts daily
into a collection account under the exclusive control of the
agent under the Revolving Credit Facility.
Amortization.
The term loans are
repayable in quarterly installments in an amount equal to the
principal amount of the term loans outstanding on the quarterly
installment date multiplied by 0.25%, with the balance of the
principal amount due on the term loan maturity date of
January 31, 2014.
Incremental Facilities.
Subject to
certain terms and conditions, the borrower may request an
increase in revolving loan commitments and term loan
commitments. The increase in revolving loan commitments may not
exceed the sum of (i) $150 million, plus
(ii) only after the entire amount in the preceding
clause (i) is drawn, an amount such that on a pro forma
basis after giving effect to the new revolving credit
commitments and certain other specified transactions, the
secured leverage ratio will be no greater than 4.75 to 1.00. The
borrowers ability to borrow under such incremental
facilities, however, would still be limited by the borrowing
base. The incremental term loan commitments may not exceed the
difference between (i) up to $100 million, and
(ii) the sum of all incremental revolving commitments and
incremental term loan commitments taken together. Any lender
that is offered to provide all or part of the new revolving loan
commitments or new term loan commitments may elect or decline,
in its sole discretion, to provide such new commitments. No
lender is required to fund any of such amounts.
Collateral and Guarantors.
The
obligations under the Senior Secured Facilities are guaranteed
by the borrowers wholly owned domestic subsidiaries. The
obligations under the Revolving Credit Facility are secured,
subject to certain significant exceptions, by substantially all
of
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the assets of the borrower and the subsidiary guarantors,
including (i) a first-priority security interest in
personal property consisting and arising from inventory and
accounts receivable; (ii) a second-priority pledge of
certain of the capital stock held by the borrower or any
subsidiary guarantor; and (iii) a second-priority security
interest in, and mortgages on, substantially all other tangible
and intangible assets of the borrower and each subsidiary
guarantor. The obligations under the Term Loan Facility are
secured, subject to exceptions, by substantially all of the
assets of the borrower and the subsidiary guarantors, including
(i) a second-priority security interest in personal
property consisting of and arising from inventory and accounts
receivable; (ii) a first-priority pledge of certain of the
capital stock held by the borrower or any subsidiary guarantor;
and (iii) a first-priority security interest in, and
mortgages on, substantially all other tangible and intangible
assets of the borrower and each subsidiary guarantor.
Covenants.
The Senior Secured
Facilities contain customary covenants. These agreements, among
other things, restrict, subject to certain exceptions, the
ability of the borrower and its subsidiaries to incur additional
indebtedness, create liens on assets, engage in mergers,
consolidations or sales of assets, dispose of subsidiary
interests, make investments, loans or advances, pay dividends,
make payments with respect to subordinated indebtedness, enter
into sale and leaseback transactions, change the business
conducted by the borrower and its subsidiaries taken as a whole,
and enter into agreements that restrict subsidiary dividends or
limit the ability of the borrower or any subsidiary guarantor to
create or keep liens for the benefit of the lenders with respect
to the obligations under the Senior Secured Facilities. The
Senior Secured Facilities require the borrower to enter into
interest rate swap, cap and hedge agreements for purposes of
ensuring that no less than 50% of the aggregate principal amount
of the total indebtedness of the borrower and its subsidiaries
then outstanding is either subject to such interest rate
agreements or bears interest at a fixed rate.
The Term Loan Facility requires the borrower to maintain a
maximum ratio of consolidated total debt to consolidated
adjusted EBITDA and a minimum ratio of consolidated adjusted
EBITDA to consolidated interest expense. Each of these ratios is
calculated for the period that is four consecutive fiscal
quarters prior to the date of calculation. These financial
covenants are set forth in the table below:
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Maximum
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Minimum
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Consolidated
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Consolidated
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Total Debt to
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Adjusted EBITDA to
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Consolidated
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Consolidated
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Adjusted EBITDA
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Interest Expense
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Four Consecutive Fiscal
Quarters Ending on:
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Ratio
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Ratio
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June 30, 2008
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4.25:1.00
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(a)
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3.00:1.00
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(b)
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September 30, 2008
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4.25:1.00
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3.00:1.00
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December 31, 2008
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4.25:1.00
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3.00:1.00
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March 31, 2009
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3.50:1.00
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3.25:1.00
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June 30, 2009
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3.50:1.00
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3.25:1.00
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September 30, 2009
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3.50:1.00
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3.25:1.00
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December 31, 2009
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3.50:1.00
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3.25:1.00
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March 31, 2010
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2.75:1.00
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3.25:1.00
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June 30, 2010
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2.75:1.00
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3.25:1.00
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September 30, 2010
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2.75:1.00
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3.25:1.00
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December 31, 2010
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2.75:1.00
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3.25:1.00
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March 31, 2011
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2.50:1.00
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3.25:1.00
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June 30, 2011
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2.50:1.00
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3.25:1.00
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September 30, 2011
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2.50:1.00
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3.25:1.00
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December 31, 2011
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2.50:1.00
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3.25:1.00
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March 31, 2012 and thereafter
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2.50:1.00
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3.50:1.00
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(a)
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The borrowers actual consolidated total debt to
consolidated Adjusted EBITDA ratio was 2.44:1.00 for the four
fiscal quarters ending on December 31, 2007 and was
1.95:1.00 for the four fiscal quarters ending on June 30,
2008.
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(b)
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The borrowers actual consolidated Adjusted EBITDA to
consolidated interest expense ratio was 5.27:1.00 for the four
fiscal quarters ending on December 31, 2007 and was
6.86:1.00 for the four fiscal quarters ending on June 30,
2008.
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If the borrower fails to comply with the consolidated total debt
to consolidated adjusted EBITDA ratio, then within ten days
after the date on which financial statements for the applicable
period are due under the Term Loan Facility, the Goldman Sachs
Funds and other investors in the borrower (or any direct or
indirect parent of the borrower) have a cure right which allows
any of them to make a direct or indirect equity investment in
the borrower or any restricted subsidiary of the borrower in
cash. If such cure right is exercised, the consolidated total
debt to consolidated adjusted EBITDA ratio of the borrower will
be recalculated to give pro forma effect to the net cash
proceeds received from the exercise of the cure right. The cure
right is subject to certain limitations. For the four prior
consecutive fiscal quarters, there must be at least one fiscal
quarter in which the cure right is not exercised. Additionally,
the equity investment contributed under the cure right may not
exceed the amount necessary to bring the borrower back into
compliance with the restrictions regarding the borrowers
consolidated total debt to consolidated adjusted EBITDA ratio.
The computation of the consolidated total debt to consolidated
adjusted EBITDA ratio and the consolidated adjusted EBITDA to
consolidated interest expense ratio are governed by the specific
terms of the Term Loan Facility. The computation of these ratios
requires a calculation of consolidated adjusted EBITDA. In
general, under the terms of our Revolving Credit Facility, Term
Loan Facility and our Junior Term Loan Facility (as described
below), adjusted EBITDA is defined as consolidated net income,
plus (without duplication and to the extent already deducted in
arriving at consolidated net income):
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total interest expense and to the extent not reflected in such
total interest expense, any losses on hedging obligations or
other derivative instruments entered into for the purpose of
hedging interest rate risk, net of interest income and gains on
such hedging obligations and costs of surety bonds in connection
with financing activities;
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provisions for taxes based on income, profits or capital,
including state, franchise and similar taxes and foreign
withholding taxes paid or accrued;
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depreciation and amortization;
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other non-cash charges;
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extraordinary losses and unusual or non-recurring charges,
severance, relocation costs and curtailments or modifications to
pension and post-retirement employee benefit plans;
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restructuring charges or reserves;
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any deductions attributable to minority interests;
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management, monitoring, consulting and advisory fees and related
expenses paid to the Goldman Sachs Funds and their affiliates;
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any costs or expenses incurred pursuant to any management equity
plan or stock option plan or any other management or employee
benefit plan or agreement or any stock subscription or
shareholder agreement, to the extent that such costs or expenses
are funded with cash proceeds contributed to the capital of
McJunkin Red Man Corporation or net cash proceeds of an issuance
of stock or stock equivalents of McJunkin Red Man
Corporation; and
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(i) for any period that includes a fiscal quarter occurring
prior to the fifth fiscal quarter occurring after
January 31, 2007, certain specified cost savings and
(ii) for any period that includes a fiscal quarter
occurring thereafter, the amount of net cost savings that we
project in good faith to be realized as a result of specified
actions taken by us in connection with certain
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specified transactions, including the Red Man Transaction
(calculated on a pro forma basis as though such cost savings had
been realized on the first day of such period), net of the
amount of actual benefits realized during such period from such
actions, subject to certain limitations and exceptions with
respect to clause (ii) above;
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less, without duplication and to the extent included in arriving
at consolidated net income, the sum of the following:
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extraordinary gains and unusual or non-recurring gains;
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non-cash gains (excluding any non-cash gain to the extent it
represents the reversal of an accrual or reserve for a potential
cash item that reduced consolidated net income in any prior
period);
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gains on asset sales (other than asset sales in the ordinary
course of business);
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any net after-tax income from the early extinguishment of
indebtedness or hedging obligations or other derivative
instruments; and
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all gains from investments recorded using the equity method;
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provided that certain adjustments, such as certain currency
translation gains and losses and adjustments resulting from the
application of Statement of Financial Accounting Standards
No. 133, shall be excluded from the calculation of
consolidated adjusted EBITDA to the extent they are included in
consolidated net income. Additionally, to the extent included in
consolidated net income, the adjusted EBITDA of properties,
businesses or assets acquired during the applicable period shall
be included in the calculation of consolidated adjusted EBITDA
to the extent not subsequently disposed of, and the adjusted
EBITDA of properties, businesses and assets sold during the
applicable period shall be excluded from the calculation of
adjusted EBITDA.
Also, the calculation of consolidated adjusted EBITDA with
respect to any period includes, to the extent included in
consolidated net income, for the four consecutive fiscal
quarters last ended to the extent such four-quarter period
includes all or any part of a fiscal quarter included in a
post-acquisition
period (a period beginning on the date that a permitted
acquisition is consummated and ending on the last day of the
fourth full fiscal quarter immediately following the date that
the permitted acquisition is consummated), a pro forma
adjustment equal to the increase or decrease in consolidated
adjusted EBITDA projected by us in good faith as a result of
(i) actions taken during such post-acquisition period for
the purposes of realizing reasonably identifiable and factually
supportable cost savings or (ii) any additional costs
incurred during such post-acquisition period, in each case in
connection with the combination of the operations of such
acquired entity or business with our operations. For purposes of
this calculation, it may be assumed that such cost savings will
be realizable during the entirety of the four consecutive fiscal
quarters last ended, and that any such pro forma increase or
decrease to consolidated adjusted EBITDA shall be without
duplication for cost savings or additional costs already
included in consolidated adjusted EBITDA for the four
consecutive fiscal quarters last ended.
We present consolidated adjusted EBITDA, or Adjusted EBITDA,
because it is a material component of material covenants within
our Term Loan Facility and Junior Term Loan Facility and also
affects the interest rate charged on revolving loans under our
Revolving Credit Facility. As such, it has a material impact on
our liquidity and financial position. However, Adjusted EBITDA
is not a defined term under GAAP and should not be considered as
an alternative to net income as a measure of
71
operating results or as an alternative to cash flows as a
measure of liquidity. Adjusted EBITDA is calculated as follows:
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Predecessor
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Successor
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Pro Forma
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Successor
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Pro Forma
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Successor
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Year
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Year
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One Month
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Eleven Months
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Year
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Five Months
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Six Months
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Six Months
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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December 31,
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December 31,
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January 30,
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December 31,
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December 31,
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June 28,
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June 28,
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June 26,
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2005
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2006
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2007
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2007
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2007
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2007
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2007
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2008
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(Unaudited)
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(Unaudited)
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(Unaudited)
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(Unaudited)
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(In millions)
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Net income
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$
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52.5
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$
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69.6
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$
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6.6
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$
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56.9
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$
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150.8
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$
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17.6
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$
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62.8
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$
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75.9
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Plus:
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Interest expense
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2.7
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2.8
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0.1
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61.7
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60.8
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24.3
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30.4
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35.0
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Income tax expense
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36.6
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48.3
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4.6
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36.5
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90.5
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12.3
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37.7
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43.2
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Amortization of intangibles
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0.3
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0.3
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10.5
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24.6
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4.6
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12.3
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15.6
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Depreciation and amortization
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3.7
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3.9
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0.3
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5.4
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10.8
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1.7
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5.4
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5.2
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Stock-based compensation
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3.0
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2.9
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1.3
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2.3
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3.3
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Red Man pre-merger contribution
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13.1
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142.2
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74.5
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Midway pre-acquisition contribution
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1.0
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2.8
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3.8
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2.8
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LIFO expense
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20.2
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12.2
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10.3
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10.3
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3.0
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3.0
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55.6
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Non-recurring and transaction-related expenses(a)
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0.4
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12.7
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12.7
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9.1
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9.1
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11.9
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Minority interest / Midfield employee profit sharing plan
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0.4
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0.9
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1.3
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0.4
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3.1
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Transaction cost savings
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1.1
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1.1
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Other(b)
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(0.4
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1.6
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(0.1
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)
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0.9
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0.8
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0.1
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1.1
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Adjusted EBITDA
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$
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115.6
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$
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139.1
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$
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26.0
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$
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344.9
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$
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370.4
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$
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151.3
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$
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163.4
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$
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249.9
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(a)
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Includes transaction costs
associated with the GS Acquisition, our acquisition of
Midway-Tristate Corporation, and the Red Man Transaction.
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(b)
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Includes franchise tax expense,
certain consulting fees, gains and losses on the sale of assets
and other nonrecurring items.
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Although the Revolving Credit Facility does not require the
borrower to comply with any financial ratio maintenance
covenants, if less than 7% of the then-outstanding credit
commitments are available to be borrowed under the Revolving
Credit Facility at any time, the borrower will not be permitted
to borrow additional amounts unless its pro forma ratio of
consolidated adjusted EBITDA to consolidated fixed charges is at
least 1.00 to 1.00.
The Term Loan Facility provides that the borrower and its
restricted subsidiaries may not make, or commit to make, capital
expenditures in excess of $25 million in any year. If the
actual amount of capital expenditures made in any fiscal year is
less than the amount permitted to be made in such fiscal year,
the amount of such difference may be carried forward and used to
make capital expenditures in the succeeding fiscal year, though
the carried forward amount may not be used beyond the
immediately succeeding fiscal year.
Events of Default.
The Senior Secured
Facilities contain customary events of default. The events of
default include the failure to pay interest and principal when
due, failure to pay fees and any other amounts owed under the
Senior Secured Facilities when due, a breach of certain
covenants in the Senior Secured Facilities, a breach of any
representation or warranty contained in the Senior Secured
Facilities in any material respect, defaults in payments with
respect to any other indebtedness in excess of $15 million
(under the Term Loan Facility) or in excess of $30 million
(under the Revolving Credit Facility), defaults with respect to
other indebtedness in excess of $15 million (under the Term
Loan Facility) or in excess of $30 million (under the
Revolving Credit Facility) that has the effect of accelerating
such indebtedness, bankruptcy, certain events relating to
employee benefits plans, failure of a material subsidiarys
guarantee to remain in full force and effect, failure of the
72
security agreement, pledge agreements pursuant to which the
stock of any material subsidiary is pledged, or any mortgage for
the benefit of the lenders under the Term Loan Facility to
remain in full force and effect, entry of one or more judgments
or decrees against the borrower or its restricted subsidiaries
involving a liability of $15 million or more in the
aggregate (under the Term Loan Facility) or $30 million or
more in the aggregate (under the Revolving Credit Facility), and
the invalidation of subordination provisions of any document
evidencing permitted additional debt having a principal amount
in excess of $15 million.
The Senior Secured Facilities also contain an event of default
upon the occurrence of a change of control. Under the Senior
Secured Facilities, a change of control shall have
occurred if (i) the Goldman Sachs Funds and certain of
their affiliates shall cease to beneficially own at least 35% of
the voting power of the outstanding voting stock of the borrower
(other than as a result of one or more widely distributed
offerings of the common stock of the borrower or any direct or
indirect parent of the borrower); or (ii) any person,
entity or group (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) shall have acquired beneficial ownership of a
percentage of the voting power of the outstanding voting stock
of the borrower that exceeds the percentage of the voting power
of such voting stock then beneficially owned, in the aggregate,
by the Goldman Sachs Funds and certain of their affiliates,
unless, in the case of either clause (i) or
(ii) above, the Goldman Sachs Funds and certain of their
affiliates have, at such time, the right or the ability by
voting power, contract or otherwise to elect or designate for
election at least a majority of the board of directors of the
borrower; or (iii) a majority of the board of directors of
the borrower ceases to consist of continuing
directors, defined as individuals who (a) were
members of the board of directors of the borrower on
October 31, 2007 (or January 31, 2007 for purposes of
determining whether an event of default has occurred under the
Term Loan Facility), (b) who have been a member of the
board of directors for at least 12 preceding months,
(c) who have been nominated to be a member of the board of
directors, directly or indirectly, by the Goldman Sachs Funds
and certain of their affiliates or persons nominated by the
Goldman Sachs Funds and certain of their affiliates or
(d) who have been nominated to be a member of the board of
directors by a majority of the other continuing directors then
in office.
Junior Term
Loan Facility
On May 22, 2008, McJunkin Red Man Holding Corporation, as
the borrower, entered into a $450 Million Term Loan Credit
Agreement (the Junior Term Loan Facility). Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc. were the
co-lead arrangers and joint bookrunners under this facility. The
proceeds from the Junior Term Loan Facility, along with
$25 million in proceeds from revolving loans drawn under
the Revolving Credit Facility, were used to fund a dividend to
McJunkin Red Man Holding Corporations stockholders,
including PVF Holdings LLC. PVF Holdings LLC distributed the
proceeds it received from the dividend to its members, including
the Goldman Sachs Funds and certain of our directors and members
of our management. See Certain Relationships and Related
Party Transactions Transactions with the Goldman
Sachs Funds May 2008 Dividend. The term loans
under the Junior Term Loan Facility are not subject to
amortization and the principal of such loans must be repaid on
January 31, 2014.
Interest Rate and Fees.
The term loans
under the Junior Term Loan Facility bear interest at a rate per
annum equal to, at the borrowers option, either
(i) the greater of the prime rate and the federal funds
effective rate plus 0.50%, plus in either case 2.25%, or
(ii) LIBOR multiplied by the statutory reserve rate plus
3.25%.
Prepayments.
We may voluntarily prepay
term loans under the Junior Term Loan Facility in whole or in
part at our option, without premium or penalty. After the
payment in full of the term loans
73
under the Term Loan Facility, we will be required to prepay
outstanding term loans under the Junior Term Loan Facility with
100% of the net cash proceeds of:
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a disposition of any of our or our restricted subsidiaries
business units, assets or other property not in the ordinary
course of business, subject to certain exceptions for permitted
asset sales;
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a casualty event with respect to collateral for which we or any
of our restricted subsidiaries receives insurance proceeds, or
proceeds of a condemnation award or other compensation;
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the issuance or incurrence by us or any of our restricted
subsidiaries of indebtedness, subject to certain
exceptions; and
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any sale-leaseback transaction permitted under the Junior Term
Loan Facility.
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Also, after the payment in full of the term loans under the Term
Loan Facility, not later than the date that is 90 days
after the last day of any fiscal year, we will be required to
prepay the outstanding term loans under the Junior Term Loan
Facility with an amount equal to (i) 50% of excess
cash flow for such fiscal year, provided that (a) the
percentage will be reduced to 25% if the borrowers ratio
of consolidated total debt to consolidated adjusted EBITDA for
the most recent four consecutive fiscal quarters is no greater
than 2.50 to 1.00 but greater than 2.00 to 1.00, and (b) no
prepayment of term loans with excess cash flow is required if
the borrowers ratio of consolidated total debt to
consolidated adjusted EBITDA for the most recent four
consecutive fiscal quarters is no greater than 2.00 to 1.00,
minus (ii) the principal amount of term loans under the
Junior Term Loan Facility voluntarily prepaid during such fiscal
year.
We must also prepay the principal amount of the term loans under
the Junior Term Loan Facility with 50% of the cash proceeds
received by us from a Qualified IPO, net of
underwriting discounts and commissions and other related
reasonable costs and expenses. A Qualified IPO is
defined as a bona fide underwritten sale to the public of our
common stock or the common stock of any of our direct or
indirect subsidiaries or our direct or indirect parent companies
pursuant to a registration statement that is declared effective
by the SEC or the equivalent offering on a private exchange or
platform. Prepayment is only required if we or one of our
subsidiaries receives cash proceeds from the Qualified IPO.
Collateral.
The term loans under the
Junior Term Loan Facility are secured by perfected security
interests in and liens on substantially all of the personal
property and certain real property of McJunkin Red Man Holding
Corporation, including the common stock we hold of McJunkin Red
Man Corporation. The term loans are not guaranteed by any of our
subsidiaries or by PVF Holdings LLC.
Certain Covenants and Events of
Default.
The Junior Term Loan Facility
contains customary covenants for a holding company facility.
These agreements, among other things, restrict, subject to
certain exceptions, the ability of the borrower to incur
additional indebtedness, create liens on assets, and engage in
activities or own assets other than certain specified activities
and assets. Also, the Junior Term Loan Facility requires the
borrower to maintain a maximum ratio of consolidated total debt
to consolidated adjusted EBITDA and a minimum ratio of
consolidated adjusted EBITDA to consolidated interest expense.
Each of these ratios is calculated for the period that is four
consecutive
74
fiscal quarters prior to the date of calculation. These
financial covenants are set forth in the table below:
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Maximum
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Minimum
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Consolidated
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Consolidated
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Total Debt to
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Adjusted EBITDA to
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Consolidated
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Consolidated
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Adjusted EBITDA
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Interest Expense
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Four Consecutive Fiscal
Quarters Ending on:
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Ratio
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Ratio
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June 30, 2008
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4.75:1.00
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(a)
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2.50:1.00
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(b)
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September 30, 2008
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4.75:1.00
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2.50:1.00
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December 31, 2008
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4.75:1.00
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2.50:1.00
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March 31, 2009
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4.00:1.00
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2.75:1.00
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June 30, 2009
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4.00:1.00
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2.75:1.00
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September 30, 2009
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4.00:1.00
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2.75:1.00
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December 31, 2009
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4.00:1.00
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2.75:1.00
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March 31, 2010
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3.25:1.00
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2.75:1.00
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June 30, 2010
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3.25:1.00
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|
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2.75:1.00
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September 30, 2010
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3.25:1.00
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|
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2.75:1.00
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December 31, 2010
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3.25:1.00
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|
2.75:1.00
|
|
March 31, 2011
|
|
|
3.00:1.00
|
|
|
|
2.75:1.00
|
|
June 30, 2011
|
|
|
3.00:1.00
|
|
|
|
2.75:1.00
|
|
September 30, 2011
|
|
|
3.00:1.00
|
|
|
|
2.75:1.00
|
|
December 31, 2011
|
|
|
3.00:1.00
|
|
|
|
2.75:1.00
|
|
March 31, 2012 and thereafter
|
|
|
3.00:1.00
|
|
|
|
3.00:1.00
|
|
|
|
|
(a)
|
|
The borrowers actual consolidated total debt to
consolidated Adjusted EBITDA ratio was 2.44:1.00 for the four
fiscal quarters ending on December 31, 2007 and was
1.95:1.00 for the four fiscal quarters ending on June 30,
2008.
|
|
|
|
(b)
|
|
The borrowers actual consolidated Adjusted EBITDA to
consolidated interest expense ratio was 5.27:1.00 for the four
fiscal quarters ending on December 31, 2007 and was
6.86:1.00 for the four fiscal quarters ending on June 30,
2008.
|
Consolidated adjusted EBITDA is calculated under the Junior Term
Loan Facility in a similar manner as under the Senior Secured
Facilities. See Description of Our
Indebtedness Revolving Credit Facility and Term Loan
Facility Covenants.
The Junior Term Loan Facility provides that the borrower and its
restricted subsidiaries may not make, or commit to make, capital
expenditures in excess of $30 million in any year. If the
actual amount of capital expenditures made in any fiscal year is
less than the amount permitted to be made in such fiscal year,
the amount of such difference may be carried forward and used to
make capital expenditures in the succeeding fiscal year, though
the carried forward amount may not be used beyond the
immediately succeeding fiscal year.
If the borrower fails to comply with the consolidated total debt
to consolidated adjusted EBITDA ratio, then the Goldman Sachs
Funds and other investors in the borrower have a cure right that
is similar to the cure right provided with respect to the Term
Loan Facility. See Description of Our
Indebtedness Revolving Credit Facility and Term Loan
Facility Covenants.
The Junior Term Loan Facility also contains customary events of
default that are similar to the events of default under the
Senior Secured Credit Facilities, including an event of default
upon a change of control. See Description of Our
Indebtedness Revolving Credit Facility and Term Loan
Facility Events of Default.
75
Purchases of Outstanding Loans.
Subject
to certain terms and conditions, the Goldman Sachs Funds and
their affiliates may from time to time seek to purchase term
loans under the Junior Term Loan Facility from the lenders under
the facility pursuant to open market purchases in an aggregate
amount not to exceed 30% of the aggregate principal amount of
the loans outstanding under the Junior Term Loan Facility. The
Goldman Sachs Funds and their affiliates may contribute such
purchased loans to PVF Holdings LLC as an equity contribution in
return for equity interests in PVF Holdings LLC and PVF Holdings
LLC will then contribute such loans to the borrower under the
Junior Term Loan Facility as an equity contribution in return
for additional stock of the borrower. In the case of such
purchases of term loans by the Goldman Sachs Funds and their
affiliates followed by contributions of the purchased loans to
PVF Holdings LLC and then to the borrower, the loans subject to
such purchases and contributions shall be cancelled.
In addition, the borrower under the Junior Term Loan Facility
may from time to time seek to purchase, subject to certain terms
and conditions, term loans under the Junior Term Loan Facility
from the lenders under the facility pursuant to open market
purchases. In the case of such purchases by the borrower, the
loans subject to such purchases shall be cancelled.
Midfield
CDN$150 Million (US$148.26 Million) Revolving Credit
Facility
One of our subsidiaries, Midfield Supply ULC, is the borrower
under a CDN$150 million (US$148.26 million) revolving
credit facility (the Midfield Revolving Credit
Facility) with Bank of America, N.A. and certain other
lenders from time to time parties thereto. Proceeds from this
facility may be used by Midfield for working capital and other
general corporate purposes. As of June 26, 2008,
US$51.7 million of borrowings were outstanding and
US$51.6 million were available under the Midfield Revolving
Credit Facility. The facility provides for the extension of up
to CDN$150 million (US$148.26 million) in revolving
loans, subject to adjustments based on the borrowing base and
less the aggregate letters of credit outstanding under the
facility. Letters of credit may be issued under the facility
subject to certain conditions, including a CDN$10 million
(US$9.88 million) sub-limit. The revolving loans have a
maturity date of November 2, 2010. All letters of credit
issued under the facility must expire at least 20 business days
prior to November 2, 2010.
Interest Rate and Fees.
The revolving
loans bear interest at a rate equal to either (i) the
Canadian prime rate, plus (a) 0.25% if the average
daily availability (as defined in the loan and security
agreement for the facility) for the previous fiscal quarter was
less than CDN$30 million (US$29.65 million) or
(b) 0.00% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CDN$30 million (US$29.65 million), or, at the
borrowers option, (ii) the rate of interest per annum
equal to the rates applicable to Canadian Dollar Bankers
Acceptances having a comparable term as the proposed loan
displayed on the CDOR Page of Reuter Monitor Money
Rates Service, plus (a) 1.75% if the average daily
availability for the previous fiscal quarter was less than
CDN$30 million (US$29.65 million), (b) 1.50% if
the average daily availability for the previous fiscal quarter
was greater than or equal to CDN$30 million
(US$29.65 million) but less than CDN$60 million
(US$59.3 million), or (c) 1.25% if the if the average
daily availability for the previous fiscal quarter was greater
than or equal to CDN$60 million (US$59.3 million).
The borrower must pay a monthly unused line fee with respect to
unutilized revolving loan commitments equal to (i) 0.25% if
the outstanding amount of borrowings under the facility for the
immediately preceding fiscal quarter are greater than 50% of the
revolving loan commitments, or (ii) 0.375% if otherwise.
The borrower must pay a monthly fronting fee equal to 0.125% per
annum of the stated amount of letters of credit issued and must
also pay a monthly fee to the agent on the average daily stated
amount of letters of credit issued equal to (i) 1.75% if
the average daily availability for the previous fiscal quarter
was less than CDN$30 million (US$29.65 million),
(ii) 1.50% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CDN$30 million (US$29.65 million) but less than
CDN$60 million (US$59.3 million), or (iii) 1.25%
if the average daily availability for the previous fiscal
quarter was greater than or equal to CDN$60 million
(US$59.3 million).
76
Prepayments.
The borrower may prepay
the revolving loans from time to time without premium or penalty.
Collateral and Guarantors.
The Midfield
Revolving Credit Facility is secured by substantially all of the
personal property of Midfield Supply ULC and its subsidiary
guarantors, Mega Production Testing Inc. and Hagan Oilfield
Supply Ltd.
Certain Covenants and Events of
Default.
The Midfield Revolving Credit
Facility contains customary covenants. These agreements, among
other things, restrict, subject to certain exceptions, the
ability of the borrower and its subsidiaries to incur additional
indebtedness, create liens on assets, make distributions, make
investments, sell, lease or transfer assets, make loans or
advances, pay certain debt, amalgamate, merge, combine or
consolidate with another entity, enter into certain types of
restrictive agreements, engage in any business other than the
business conducted by the borrower and its subsidiaries on the
closing date of the Midfield Revolving Credit Facility, enter
into transactions with affiliates, become a party to certain
employee benefit plans, enter into certain amendments with
respect to subordinated debt, make acquisitions, enter into
transactions which would reasonably be expected to have a
material adverse effect or cause a default, enter into sale and
leaseback transactions, and terminate certain agreements.
Additionally, the Midfield Revolving Credit Facility requires
the borrower to maintain a leverage ratio of no greater than
3.50 to 1.00 (measured on a monthly basis) and to maintain a
fixed charge coverage ratio of at least 1.15 to 1.00 (measured
on a monthly basis). The facility also prohibits the borrower
and its subsidiaries from making capital expenditures in excess
of $5 million in the aggregate during any fiscal year,
subject to exceptions for certain expenditures and provided that
if the actual amount of capital expenditures made in any fiscal
year is less than the amount permitted to be made in such fiscal
year, up to $250,000 of such excess may be carried forward and
used to make capital expenditures in the succeeding fiscal year.
The Midfield Revolving Credit Facility contains customary events
of default. The events of default include, among others, the
failure to pay interest, principal and other obligations under
the facilitys loan documents when due, a breach of any
representation or warranty contained in the loan documents,
breaches of certain covenants, the failure of any loan document
to remain in full force and effect, a default with respect to
other indebtedness in excess of $250,000 if the other
indebtedness may be accelerated due to such default, judgments
against the borrower and its subsidiaries in excess of $250,000
in the aggregate, the occurrence of any loss or damage with
respect to the collateral if the amount not covered by insurance
exceeds $100,000, cessation or governmental restraint of a
material part of the borrowers or a subsidiarys
business, insolvency, certain events related to benefits plans,
the criminal indictment of a senior officer of the borrower or a
guarantor or the conviction of a senior officer of the borrower
or a guarantor of certain crimes, an amendment to the
shareholders agreement among Midfield Supply ULC, the entity now
known as McJunkin Red Man Canada Ltd. and Midfield Holdings
(Alberta) Ltd. without the prior written consent of Bank of
America, N.A., and any event or condition that has a material
adverse effect on the borrower or a guarantor.
A change of control is also an event of default. A
change of control occurs if (i) McJunkin Red
Man Canada Ltd. ceases to own and control, directly or
indirectly, 51% or more of the voting equity interests of
Midfield Supply ULC, (ii) a change in the majority of
directors of Midfield Supply ULC occurs, unless approved by the
then-majority of directors, or (iii) all or substantially
all of Midfield Supply ULCs assets are sold or transferred.
Midfield
CDN$15 Million (US$14.83 Million) Facility
One of our subsidiaries, Midfield Supply ULC, is also the
borrower under a CDN$15 million (US$14.83 million) credit
facility with Alberta Treasury Branches. The facility is secured
by substantially all of the real property and equipment of
Midfield Supply ULC and its subsidiary guarantors. The facility
contains customary covenants and events of default. The
borrowers leverage
77
ratio must not exceed 3.50 to 1.00, its fixed charge coverage
ratio must be at least 1.15 to 1.00, and its ratio of tangible
asset value to borrowings outstanding must be at least 2.00 to
1.00.
The Midfield CDN$15 million (US$14.83 million) facility and
the Midfield CDN$150 million (US$148.26 million) facility
are subject to an intercreditor agreement which relates to,
among other things, priority of liens and proceeds of sale of
collateral.
Cash
Flows
The following table sets forth our cash flows for the periods
indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Man Standalone
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven
|
|
|
Five
|
|
|
Six
|
|
|
|
Year
|
|
|
|
Year
|
|
|
Month
|
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
October 31,
|
|
|
|
December 31,
|
|
|
January 30,
|
|
|
|
December 31,
|
|
|
June 28,
|
|
|
June 26,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(11,419
|
)
|
|
$
|
(56,459
|
)
|
|
$
|
102,284
|
|
|
|
$
|
30,385
|
|
|
$
|
18,352
|
|
|
$
|
6,617
|
|
|
|
$
|
110,226
|
|
|
$
|
1,895
|
|
|
$
|
70,497
|
|
Investing activities
|
|
|
(50,411
|
)
|
|
|
3,497
|
|
|
|
(12,510
|
)
|
|
|
|
(6,701
|
)
|
|
|
(3,262
|
)
|
|
|
(158
|
)
|
|
|
|
(1,788,920
|
)
|
|
|
(933,256
|
)
|
|
|
(16,437
|
)
|
Financing activities
|
|
|
60,904
|
|
|
|
52,663
|
|
|
|
(78,170
|
)
|
|
|
|
(21,084
|
)
|
|
|
(17,207
|
)
|
|
|
(8,254
|
)
|
|
|
|
1,687,188
|
|
|
|
945,860
|
|
|
|
(55,233
|
)
|
Effect of exchange rates on cash and cash equivalents
|
|
|
18
|
|
|
|
(161
|
)
|
|
|
1,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(372
|
)
|
|
|
|
|
|
|
(141
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(908
|
)
|
|
$
|
(460
|
)
|
|
$
|
13,409
|
|
|
|
$
|
2,600
|
|
|
$
|
(2,117
|
)
|
|
$
|
(1,795
|
)
|
|
|
$
|
8,122
|
|
|
$
|
14,499
|
|
|
$
|
(1,314
|
)
|
Cash Flows
Provided by (Used in) Operating Activities
McJunkin Red
Man
Our net cash provided by operating activities for the six months
ended June 26, 2008 was $70.5 million. Cash provided
by operations was primarily attributable to net income of
$75.9 million plus non-cash charges, primarily
depreciation, amortization and stock-based compensation, of
$25.6 million. These increases were partially offset by
increases in operating assets of $200.9 million (primarily
accounts receivable and inventory) and increases in accounts
payable and other current liabilities of $169.9 million.
Our net cash provided by operating activities for the five
months ended June 28, 2007 was $1.9 million. Cash
provided by operations was primarily attributable to net income
of $17.6 million plus non-cash charges, primarily
depreciation, amortization and stock-option based compensation,
of $7.4 million. These increases were partially offset by
increases in operating assets of $33.2 million (primarily
accounts receivable) and increases in accounts payable and other
current liabilities of $10.0 million.
Net cash provided by Red Mans operations is included in
our net cash provided by operating activities for the six months
ended June 26, 2008, but not in our net cash provided by
operating
78
activities for the five months ended June 28, 2007. As a
result, our cash flows for the two periods are not necessarily
comparable.
Our net cash provided by operating activities for the eleven
months ended December 31, 2007 was $110.2 million.
Cash provided by operations was primarily attributable to net
income of $56.9 million plus non-cash charges, primarily
depreciation, amortization and stock-based compensation, of
$26.9 million. In addition, we had decreases in operating
assets of $78.7 million (primarily accounts receivable and
inventory), partially offset by decreases in accounts payable
and other current liabilities of $52.3 million.
McJunkin
McJunkins net cash provided by operating activities for
the one month ended January 31, 2007 was $6.6 million.
Cash provided by operations was primarily attributable to net
income of $6.6 million plus non-cash charges, primarily
depreciation, amortization and stock based compensation, of
$0.6 million. The companys decrease in operating
assets of $10.1 million was offset by a decrease in
accounts payable and other current liabilities of
$10.7 million.
McJunkins net cash provided by operating activities for
the year ended December 31, 2006 was $18.4 million.
Cash provided by operations was attributable to net income of
$69.6 million plus non-cash charges, primarily
depreciation, amortization and deferred income taxes, of
$11.9 million, including $4.1 million relating to our
minority interest in McJunkin Appalachian. These increases were
partially offset by increases in operating assets of
$47.9 million (primarily inventory) and decreases in
accounts payable and other current liabilities of
$15.0 million.
McJunkins net cash provided by operating activities for
the year ended December 31, 2005 was $30.4 million.
Cash provided by operations was attributable to net income of
$52.5 million plus non-cash charges of $1.6 million
(primarily depreciation of $3.7 million, deferred taxes of
($4.9) million, and $2.8 million relating to our
minority interest in McJunkin Appalachian. In addition, McJunkin
had increases in operating assets of $83.1 million
(primarily accounts receivable and inventory) and increases in
accounts payable and other current liabilities of
$60.6 million.
Red Man
Red Mans net cash provided by operating activities for the
year ended October 31, 2007 was $102.3 million. Cash
provided by operations was attributable to net income of
$82.2 million plus
non-cash
charges, primarily depreciation, amortization and write-off of
obsolete inventories and deferred income taxes, of
$20.0 million, plus a non-cash charge for impairment loss
on goodwill and intangible assets of $5.1 million, plus a
decrease in operating assets, including accounts receivable and
inventories, of $10.1 million, offset by a decrease in
accounts payable and other net liabilities of $15.1 million.
Red Mans net cash used in operating activities for the
year ended October 31, 2006 was $56.5 million. Cash
used by operations was attributable to net income of
$59.7 million plus non-cash charges, primarily
depreciation, amortization and write-off of obsolete
inventories, of $9.4 million, plus an increase in accounts
payable and other net liabilities of $52.5 million, offset
by increases in operating assets, including accounts receivable
and inventories of $161.5 million and reduced by a gain on
discontinued operations of $16.6 million which was included
in net income.
Red Mans net cash used in operating activities for the
year ended October 31, 2005 was $11.4 million. Cash
used by operations was attributable to net income of
$59.8 million plus non-cash charges, primarily
depreciation, amortization and deferred income taxes, of
$20.5 million, plus an increase in accounts payable and
other net liabilities of $32.6 million, offset by increases
in operating assets, including accounts receivable and
inventories of $124.3 million.
79
Cash Flows
Provided by (Used in) Investing Activities
McJunkin Red
Man
Our net cash used in investing activities for the six months
ended June 26, 2008 was $16.4 million. We used
$11.4 million in conjunction with the acquisition of Red
Man Pipe & Supply and $7.6 million for purchases
of property, plant and equipment.
Our net cash used in investing activities for the five months
ended June 28, 2007 was $933.3 million. This was
attributable to the GS Acquisition of McJunkin Corporation in
January 2007 ($849.1 million) and our acquisition of
Midway-Tristate Corporation in April 2007 ($83.3 million).
We also used $2.2 million to purchase property, plant and
equipment and had investment income of $1.3 million.
Our net cash used in investing activities for the eleven months
ended December 31, 2007 was $1.8 billion. This was
attributable to the GS Acquisition of McJunkin Corporation in
January 2007 ($849.1 million), our acquisition of
Midway-Tristate Corporation in April 2007 ($83.3 million),
and the business combination with Red Man ($852.4 million).
We also used $5.5 million to purchase property, plant and
equipment.
McJunkin
McJunkins net cash used in investing activities for the
one month ended January 31, 2007 was $0.2 million. The
company used $0.4 million to purchase property, plant and
equipment and received proceeds of $0.2 million from the
sale of certain investments.
McJunkins net cash used in investing activities for the
year ended December 31, 2006 was $3.3 million. The
company used $5.3 million to purchase property, plant and
equipment and received $1.6 million in life insurance
proceeds related to a shareholder who was not active in the
business.
McJunkins net cash used in investing activities for the
year ended December 31, 2005 was $6.7 million.
Primarily, the company used $8.7 million to purchase
property, plant and equipment and had net proceeds of
$1.0 million from the disposal of certain property, plant
and equipment. The company also received proceeds of
$1.0 million from the sale of certain investments.
Red Man
Red Mans net cash used in investing activities for the
year ended October 31, 2007 was $12.5 million. The
company used $12.2 million to purchase property, plant and
equipment. In April and May, 2007, Red Man purchased 100%
interests in two separate companies in Canada for an aggregate
of $3.7 million. Red Man also had net proceeds of
$3.4 million from the disposal of certain property, plant
and equipment assets.
Red Mans net cash provided by investing activities for the
year ended October 31, 2006 was $3.5 million. Red Man
sold the Nusco Manufacturing division of Midfield Supply ULC in
June 2006 for cash proceeds of $35.2 million. Red Man used
$14.4 million of cash to purchase property, plant and
equipment. In June 2006 Red Man purchased certain assets from
Bear Tubular, Inc. for $4.6 million in cash. In 2006
through a series of transactions, Red Man acquired 100%
interests in four separate companies in Canada for an aggregate
of $8.2 million in cash. Red Man also made cash advances to
a related party of $4.9 million. Red Man also had net
proceeds from other investing activities of $0.4 million.
Red Mans net cash used in investing activities for the
year ended October 31, 2005 was $50.4 million. Red Man
purchased a 51% controlling interest in Midfield Supply ULC in
June 2005 for $45.9 million. In addition, $5.8 million
was used to purchase property, plant and equipment. These uses
were partially offset by proceeds from other investing
activities of $1.3 million.
80
Cash Flows
Provided by (Used in) Financing Activities
McJunkin Red
Man
Our net cash used in financing activities for the six months
ended June 26, 2008 was $55.2 million. We used
$31.4 million for payments on long-term obligations, as
well as $9.3 million for debt issuance costs. We received
cash equity contributions of $5.0 million and proceeds from
long-term obligations of $454.5 million, which was used to
fund $475 million of dividends to our shareholders.
Our net cash provided by financing activities for the five
months ended June 28, 2007 was $945.9 million. This
was attributable to financings for the acquisitions noted above
($747.4 million proceeds from long-term borrowings and cash
equity contributions of $226.2 million). We also made
payments of $4.9 million on other long-term obligations and
$22.8 million for debt issuance costs.
Our net cash used in financing activities for the eleven months
ended December 31, 2007 was $1.7 billion. This was
attributable to financings for the acquisitions noted above
($897.5 million proceeds from long-term borrowings and cash
equity contributions of $899.2 million). We also made
payments of $78.8 million on other long-term obligations
and $30.6 million for debt issuance costs.
McJunkin
McJunkins net cash used in financing activities for the
one month ended January 31, 2007 was $8.3 million,
which consisted of payments on long-term obligations.
McJunkins net cash used in financing activities for the
year ended December 31, 2006 was $17.2 million. We
paid dividends of $26.9 million to our shareholders which
were partially funded with $10.1 million of long-term debt.
McJunkins net cash used in financing activities for the
year ended December 31, 2005 was $21.1 million. The
company used $11.2 million to reduce long-term obligations
and paid $9.8 million in dividends to shareholders.
Red Man
Red Mans net cash used in financing activities for the
year ended October 31, 2007 was $78.2 million. Red Man
used cash to pay down net borrowings of $45.3 million. In
addition, Red Man paid off its existing line of credit of
$120.0 million in connection with the merger transaction
with McJunkin. Also, Red Man paid $27.6 million on its
operating line of credit, $7.1 million on repayments of
notes payable and $6.2 million in payments to minority
shareholders. These amounts were partially offset by
$120.0 million in advances from McJunkin in connection with
the merger transaction and $6.2 million in capital
contributions associated with the merger. There was an
additional $1.8 million of cash provided by other net
financing activities.
Red Mans net cash provided by financing activities for the
year ended October 31, 2006 was $52.7 million. Red Man
had cash provided by net borrowings on its line of credit of
$64.0 million. Additionally, Red Man had $13.1 million
provided in advances from minority shareholders. These amounts
of cash provided were partially offset by $20.4 million
used in payments of notes payable and net payments were
$4.0 million on other debt items.
Red Mans net cash provided by financing activities for the
year ended October 31, 2005 was $60.9 million. Red Man
had cash provided by net borrowings on its line of credit of
$49.2 million. Additionally, Red Man had $20.4 million
provided by additional notes payable. These amounts of cash
provided were partially offset by $8.0 million in payments
to minority shareholders and net payments on $0.7 million
on other debt items.
81
Working
Capital
Our working capital at June 26, 2008 was
$686.1 million, consisting of $1,355.2 million in
current assets and $669.1 million in current liabilities.
Working capital at December 31, 2007 was $663.5 million,
consisting of $1,159.7 million in current assets and
$496.2 million in current liabilities. In addition, we had
available borrowing capacity under our revolving credit
facilities of $542.5 million at June 26, 2008 and
$384.0 million at December 31, 2007.
Contractual
Obligations, Commitments and Contingencies
Contractual
Obligations
The following table summarizes our minimum payment obligations
as of December 31, 2007 relating to long-term debt,
interest payments, capital leases, operating leases, purchase
obligations and other long-term liabilities for the periods
indicated.
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration per Period
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|
|
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Less than
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|
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More than
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Total
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1 year
|
|
1-3 years
|
|
3-5 years
|
|
5 years
|
|
|
(in millions)
|
|
Contractual Obligations
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(1)
|
|
$
|
868.4
|
|
|
$
|
19.8
|
|
|
$
|
62.5
|
|
|
$
|
11.5
|
|
|
$
|
774.6
|
|
Interest payments(2)
|
|
|
366.7
|
|
|
|
64.2
|
|
|
|
123.8
|
|
|
|
118.9
|
|
|
|
59.8
|
|
Interest rate swap
|
|
|
81.3
|
|
|
|
27.1
|
|
|
|
54.2
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
|
10.1
|
|
|
|
0.9
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
5.4
|
|
Operating leases
|
|
|
46.9
|
|
|
|
18.3
|
|
|
|
18.9
|
|
|
|
7.5
|
|
|
|
2.2
|
|
Purchase obligations(3)
|
|
|
846.7
|
|
|
|
846.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities reflected on our balance sheet under
GAAP
|
|
|
49.1
|
|
|
|
25.0
|
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
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$
|
2,269.2
|
|
|
$
|
1,002.0
|
|
|
$
|
285.4
|
|
|
$
|
139.8
|
|
|
$
|
842.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
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Long-term debt amortization is based on the contractual terms of
our credit facilities. As of December 31, 2007,
$868.4 million was outstanding under these facilities. On
May 22, 2008, we entered into a $450 million junior
term loan facility. As of June 26, 2008, giving effect to
this new facility, a total of $1,284.8 million was
outstanding under our credit facilities. See Description
of Our Indebtedness. As of June 26, 2008, our total
minimum amortization payments with respect to long-term debt
were $1,284.8 million, with payments of $16.6 million due
within less than one year from June 26, 2008,
$63.2 million due within one to three years of that date,
$11.5 million due within three to five years of that date,
and $1,193.5 million due more than five years from that
date.
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|
(2)
|
|
Interest payments are based on interest rates in effect at
December 31, 2007 and assume contractual amortization
payments.
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|
|
|
(3)
|
|
Purchase obligations reflect our commitments to purchase PVF
products in the ordinary course of business. Information
presented with respect to purchase obligations is presented
(1) with respect to U.S. purchase obligations, as of
June 26, 2008 and (2) with respect to Canadian
purchase obligations, as of August 2008.
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Our ability to make payments on and to refinance our
indebtedness, to fund planned capital expenditures and to
satisfy our other capital and commercial commitments will depend
on our ability to generate cash flow in the future. This, to a
certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are
beyond our control. However, our business may not generate
sufficient cash flow from operations, and future borrowings may
not be available to us
82
under our credit facilities in an amount sufficient to enable us
to pay our indebtedness or to fund our other liquidity needs. We
may seek to sell assets to fund our liquidity needs but may not
be able to do so. We may also need to refinance all or a portion
of our indebtedness on or before maturity. We may not be able to
refinance any of our indebtedness on commercially reasonable
terms or at all.
Standby
Letters of Credit
In the normal course of business with customers, vendors and
others, we are contingently liable for performance under standby
letters of credit and bid, performance and surety bonds. We were
contingently liable for approximately $8.2 million of
standby letters of credit and bid, performance and surety bonds
at December 31, 2007. Management does not expect any
material amounts to be drawn on these instruments.
Legal
Proceedings
We are a defendant in various legal proceedings, including
numerous asbestos claims. Although we believe that we have
currently established sufficient reserves with respect to these
claims, we cannot assure you that the assumptions on which our
reserves are based will not need to be revised in the future.
Accordingly, if our actual liability for current and future
asbestos claims is higher than the amounts reserved for these
claims, it could have a material adverse effect on our business,
results of operations and financial condition. See
Business Legal Proceedings for more
information.
Seasonality
Our business experiences mild seasonal effects as demand for our
products is generally higher during the months of August,
September and October. Demand for our products during the months
of November and December and early in the year generally tends
to be lower due to a lower level of activity in our end markets
near the end of the calendar year. As a result, our results of
operations for the third quarter are generally stronger than
those for our fourth quarter. In addition, certain
E & P activities typically experience a
springtime reduction due to seasonal thaws and regulatory
restrictions, limiting the ability of drilling rigs to operate
effectively during these periods.
Off-Balance Sheet
Arrangements
We do not have any off-balance sheet arrangements as
such term is defined within the rules and regulations of the SEC.
Critical
Accounting Policies
We prepare our consolidated financial statements in accordance
with GAAP. In order to apply these principles, management must
make judgments and assumptions and develop estimates based on
the best available information at the time. Actual results may
differ based on the accuracy of the information utilized and
subsequent events. Our accounting policies are described in the
notes to our audited financial statements included elsewhere in
this prospectus. These critical accounting policies could
materially affect the amounts recorded in our financial
statements. We believe the following describes significant
judgments and estimates used in the preparation of our
consolidated financial statements:
Investments:
Investments are carried at
fair value based on quoted market prices. Prior to the
acquisition of McJunkin by the Goldman Sachs Funds on
January 31, 2007, these available for sale investments were
recorded at fair value and reflected as investments on the
balance sheets. Changes to the fair value of the assets were
recorded in other comprehensive income, net of related deferred
taxes. On January 31, 2007, these investments were
reclassified as assets held for sale as more fully described in
Assets Held for Sale below.
83
Assets Held for Sale:
Certain of the
Companys assets, consisting principally of certain
available for sale securities and certain real estate holdings,
were designated as non-core assets under the terms of the
acquisition of McJunkin by the Goldman Sachs Funds. The Company
has classified these as assets held for sale in the balance
sheet. A corresponding liability to predecessor shareholders,
net of related deferred income taxes, has been recognized to
reflect the obligation to the shareholders of record at the date
of the acquisition. Upon the sale of these assets, 95% of the
proceeds net of associated taxes will be distributed to the
predecessor shareholders. No gain or loss will be recognized as
the result of the sale of these assets.
Allowance for Doubtful Accounts:
A
portion of our accounts receivable will not be collected due to
non-payment, bankruptcies and sales returns. Our accounting
policy for the provision for doubtful accounts requires
providing an amount based on the evaluation of the aging of
accounts receivable, trend analysis, detailed analysis of
potential high-risk customers accounts, and the overall
market and economic conditions of our customers. Because this
process is subjective and based on estimates, ultimate losses
may differ significantly from those estimates. Receivable
balances are written off when we determine that the balance is
uncollectible.
Derivatives and Hedging:
The Company
uses derivative financial instruments, primarily interest rate
swaps to reduce its exposure to potential interest rate
increases. The Company records all derivatives on the balance
sheet at fair value, which is determined by independent market
quotes. The Companys swap is designated as a cash flow
hedge and it measures the effectiveness of the hedge, or the
degree that the gain (loss) for the hedging instrument offsets
the loss (gain) on the hedged item, at each reporting period.
The effective portion of the gain (loss) on the derivative
instrument is recognized in other comprehensive income as a
component of equity and, subsequently, reclassified into
earnings when the forecasted transaction affects earnings. The
ineffective portion of a derivatives change in fair value
is recognized in earnings immediately. Derivatives that do not
qualify for hedge treatment are recorded at fair value with
gains (losses) recognized in earnings in the period of change.
Goodwill and Other Intangible
Assets:
Goodwill represents the excess of
cost over the fair value of net assets acquired. Recorded
goodwill balances are not amortized but, instead, are evaluated
for impairment annually or more frequently if circumstances
indicate that an impairment may exist.
Intangible assets are initially recorded at fair value at the
date of acquisition. The determination of fair value involves
key assumptions regarding discount rates and cash flow
estimates. Amortization is provided using the straight-line
method over their estimated useful lives. The carrying value of
intangible assets is subject to an impairment test on an annual
basis, or more frequently if events or circumstances indicate a
possible impairment. The measure of impairment is based on the
estimated fair values.
Income Taxes:
Deferred tax assets and
liabilities are recorded for differences between the financial
and tax bases of assets and liabilities using the tax rate
expected to be in effect when tax benefits and costs will be
realized.
The Company adopted Financial Accounting Standards Board (FASB)
Interpretation (FIN) 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109, which provides specific guidance on the financial
statement recognition, measurement, reporting and disclosure of
uncertain tax positions taken or expected to be taken in a tax
return. We recognize the impact of our tax positions in our
financial statements if those positions will more likely than
not be sustained on audit, based on the technical merit of the
position.
Inventories:
The Companys
inventories are generally valued at the lower of cost
(principally
last-in,
first-out method) or market. The Company believes the LIFO
method more fairly presents the results of operations by more
closely matching current costs with current revenues. The use of
the last-in, first-out (LIFO) method of accounting for
inventories results in a substantial recognition of the
84
effects of inflation in the Companys financial
statements. LIFO expense or income is determined consistently
year to year in a manner which is in accordance with the
guidance in the 1984 AICPA LIFO Issues Paper,
Identification and Discussion of Certain Financial
Accounting and Reporting Issues Concerning LIFO
Inventories. Certain inventories held in Canada totaling
$78.6 million, at December 31, 2007, are valued at the
lower of weighted average cost or market. Periodically, the
Company evaluates inventory for estimated net realizable value
at the lower of cost or market based upon excess slow moving or
obsolete inventory.
Revenue Recognition:
The Company
recognizes revenue as products are shipped, title has
transferred to the customer, and the customer assumes the risk
and rewards of ownership. Out-bound shipping and handling costs
are reflected in cost of goods sold, and freight charges billed
to customers are reflected in revenues. Unusual arrangements are
subject to management approval.
Equity-Based Compensation:
The
Companys equity-based compensation consists of restricted
common units, profit units, restricted stock and non-qualified
stock options. The cost of employee services received in
exchange for an award of an equity instrument is measured based
on the grant-date fair value of the award. The Companys
policy is to expense stock-based compensation using the
fair-value of awards granted, modified or settled. Restricted
common units, profit units, and restricted stock are credited to
equity as they are expensed over their vesting periods based on
the current market value of the shares to be granted.
The fair value of non-qualified stock options is measured on the
grant date of the related equity instrument using the
Black-Scholes option-pricing model and is recognized as
compensation expense over the applicable vesting period.
Recently Issued
Accounting Standards
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157,
Fair Value
Measurements
, which establishes a framework for reporting
fair values and expands disclosures about fair value
measurement. Certain provisions of SFAS 157 became
effective beginning January 1, 2008. The adoption of this
standard had no material impact on our financial position or
results of operations. At June 26, 2008, the only financial
assets and financial liabilities that are measured at fair value
on a recurring basis are our derivative instruments.
In February 2008, the FASB issued FASB Staff Position
157-2
which
defers the effective date of SFAS 157 for nonfinancial
assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in an entitys
financial statements on a recurring basis (at least annually).
We will be required to adopt SFAS 157 for these
nonfinancial assets and nonfinancial liabilities as of
January 1, 2009. Management has not determined the impact
that the adoption of SFAS 157 deferral provisions will have
on our financial position or earnings.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159), which allows entities to choose to measure
many financial instruments and certain other items at fair
value. The provisions of SFAS 159 were effective as of
January 1, 2008. We did not elect the fair value option for
any asset or liability. Therefore, the adoption of SFAS 159
did not impact our consolidated financial statements as of the
six months ended June 26, 2008.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
. This statement defines the
acquirer as the entity that obtains control of one or more
businesses in the business combination, establishes the
acquisition date as the date that the acquirer achieves control
and requires the acquirer to recognize the assets acquired,
liabilities assumed and any non-controlling interest at their
fair values as of the acquisition date. This statement also
requires that
acquisition-related
costs of the acquirer be recognized separately from the business
combination and such costs will generally be expensed as
incurred. We will be required to adopt this statement as of
January 1, 2009. The impact of adopting SFAS 141(R)
has not been determined.
85
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements an amendment of ARB No. 51.
SFAS 160 establishes accounting and reporting standards
for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a
non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. SFAS 160
requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. All other
requirements of SFAS 160 must be applied prospectively.
SFAS 160 is effective for us beginning January 1,
2009. We are currently evaluating the potential impact of the
adoption of SFAS 160 on our consolidated financial
statements
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133
. This statement will change the disclosure
requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about how
and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and how
derivative instruments and related hedged items affect an
entitys financial position, net earnings, and cash flows.
We will be required to adopt this statement as of
January 1, 2009. The adoption of SFAS 161 is not
expected to have a material impact on our consolidated financial
statements.
Quantitative and
Qualitative Disclosures About Market Risk
The risk inherent in our market risk sensitive instruments and
positions is the potential loss from adverse changes in interest
rates.
As of June 26, 2008, all of our $1,284.7 million of
outstanding term debt was at floating rates. An increase of 1.0%
in the LIBOR rate would result in an increase in our interest
expense of approximately $10.2 million per year.
As of June 26, 2008, all of our $256.1 million of
outstanding revolving debt was at floating rates. If this amount
remained outstanding for an entire year, an increase of 1.0% in
the LIBOR rate would result in an increase in our interest
expense of approximately $2.6 million per year.
We use derivative financial instruments to help manage our
interest rate risk. On December 3, 2007, we entered into a
floating to fixed interest rate swap agreement, effective
December 31, 2007, for a notional amount of
$700.0 million to limit our exposure to interest rate
increases relating to a portion of our floating rate
indebtedness. The interest rate swap agreement terminates after
three years. At June 26, 2008, the fair value of our
interest rate swap agreement was a loss of approximately
$3.2 million, which amount is included in accrued
liabilities. As of the effective date of the interest rate swap
agreement, we designated the interest rate swap as a cash flow
hedge. As a result, the effective portion of changes in the fair
value of our swap was recorded as a component of other
comprehensive income. At June 26, 2008, $1.6 million
of unrecognized losses, net of tax, on the interest rate swap
agreement was included in other comprehensive income.
As a result of the interest rate swap agreement, our effective
interest rates as to the $700.0 million floating rate
indebtedness will be 4.868% for associated indebtedness on our
Revolving Credit Facility and 7.118% for associated indebtedness
on the Term Loan Facility per quarter through 2010 and result in
an average fixed rate of 6.672%.
86
BUSINESS
General
We are the largest North American distributor of pipe, valves
and fittings (PVF) and related products and services
to the energy industry based on sales and the leading PVF
distributor serving this industry across each of the upstream
(exploration, production, and extraction of underground oil and
gas), midstream (gathering and transmission of oil and gas, gas
utilities, and the storage and distribution of oil and gas) and
downstream (crude oil refining and petrochemical processing)
markets. We have an unmatched presence of over 250 branches that
are located in the most active oil and gas regions in North
America. We offer an extensive array of PVF and oilfield
supplies encompassing over 100,000 products, we are
diversified by geography and end market and we seek to provide
best-in-class service to our customers by satisfying the most
complex, multi-site needs of some of the largest companies in
the energy and industrials sectors as their primary supplier. As
a result, we have an average relationship of over 20 years
with our top ten customers and our pro forma sales in 2007 were
over twice as large as our nearest competitor in the energy
industry. We believe the critical role we play in our
customers supply chain, our unmatched scale and extensive
product offering, our broad North American geographic presence,
our customer-linked scalable information systems and our
efficient distribution capabilities serve to solidify our
long-standing customer relationships and drive our growth.
We have benefited in recent years from several growth trends
within the energy industry including high levels of expansion
and maintenance capital expenditures by our customers. This
growth in spending has been driven by several factors, including
underinvestment in North American energy infrastructure,
production and capacity constraints and anticipated strength in
the oil, natural gas, refined products and petrochemical
markets. While current prices for oil and natural gas are high
relative to historical levels, we believe that investment in the
energy sector by our customers would continue at prices well
below current levels. In addition, our products are often used
in extreme operating environments leading to the need for a
regular replacement cycle. As a result, over 50% of our
historical and pro forma sales in 2007 were attributable to
multi-year maintenance, repair and operations (MRO)
contracts where we have demonstrated an over 99% annual average
retention rate since 2000. The combination of these ongoing
factors has helped increase demand for our products and
services, resulting in record levels of customer orders to be
shipped as of September 2008. For the twelve months ended
December 31, 2007 on a pro forma basis, we generated sales
of $3,952.7 million, Adjusted EBITDA of $370.4 million
and net income of $150.8 million. In addition, for the
eleven months ended December 31, 2007, without giving pro
forma effect to the Red Man Transaction, we generated sales of
$2,124.9 million, EBITDA of $171 million and net
income of $56.9 million, and for the twelve months ended
October 31, 2007, before giving effect to the Red Man
Transaction, Red Man generated sales of $1,982.0 million,
EBITDA of $170 million and net income of $82.2 million.
We have established a position as the largest North American PVF
distributor to the energy industry based on sales. We distribute
products throughout North America and the Gulf of Mexico,
including in PVF intensive, rapidly expanding oil and natural
gas production areas such as the Bakken, Barnett, Fayetteville,
Haynesville and Marcellus shales. The Bakken shale is located in
the Williston Basin and is primarily in Montana, North Dakota
and Saskatchewan, the Barnett shale is located in the
Fort Worth Basin in Texas, the Fayetteville shale is
located in the Arkoma Basin and is primarily in northern
Arkansas, the Haynesville shale is located primarily in
southwestern Arkansas, northwestern Louisiana and east Texas,
and the Marcellus shale is located in the Appalachian Basin and
is primarily in Ohio, West Virginia, Pennsylvania and New York.
Growth in these oil and natural gas production areas is driven
by improved production technology, favorable market trends and
robust capital expenditure budgets. Furthermore, Midfield, one
of the three largest Canadian PVF distributors based on sales,
provides PVF products to oil and gas companies operating
primarily in Western Canada, including the Western Canadian
Sedimentary Basin, Alberta Oil Sands and heavy oil markets.
These regions are still in the early stages of infrastructure
investment with numerous companies seeking to facilitate the
long-term harvesting of difficult to extract and process crude
oil.
87
McJunkin Red Man
Locations
Across our extensive North American platform we offer a broad
complement of products and services to the upstream, midstream
and downstream sectors of the energy industry, as well as other
industrial (including general manufacturing, pulp and paper,
food and beverage) and other energy (power generation, liquefied
natural gas, coal, alternative energy) end markets. During the
twelve months ended December 31, 2007 on a pro forma basis,
approximately 46% of our sales were attributable to upstream
activities, approximately 22% were attributable to midstream
activities and approximately 32% were attributable to downstream
and other processing activities which include the refining,
chemical and other industrial and energy end markets. In
addition, before giving pro forma effect to the Red Man
Transaction, during the twelve months ended December 31,
2007, approximately 36% of our sales were attributable to
upstream activities, approximately 18% were attributable to
midstream activities and approximately 46% were attributable to
downstream and other processing activities.
We offer more than 100,000 products including an extensive array
of PVF, oilfield supply, automation, instrumentation and other
general and specialty products to our customers across our
various end markets. Due to the demanding operating conditions
in the energy industry and high costs associated with equipment
failure, customers prefer highly reliable products and vendors
with established qualifications and experience. As our PVF
products typically represent a fraction of the total cost of the
project, our customers place a premium on service given the high
cost to them of maintenance or new project delays. Our products
are typically used in high-volume, high-stress, abrasive
applications such as the gathering and transmission of oil and
natural gas, in high-pressure, extreme temperature and
high-corrosion applications such as in heating and
desulphurization in the processing and refining industries and
in steam generation units in the power industry.
With over 250 locations servicing the energy and industrial
sectors, we are an important link between our more than 10,000
customers and our more than 10,000 suppliers. We add value to
our customers and suppliers in a number of ways:
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Broad Product Offering and High Customer Service
Levels:
The breadth and depth of our product
offering enables us to provide a high level of service to our
energy and industrial customers. Given our North American
inventory coverage and branch network, we are able to fulfill
orders more quickly, including orders for less common and
specialty items, and provide
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88
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our customers with a greater array of value added services,
including multiple daily deliveries, volume purchasing, product
testing and supplier assessments, inventory management and
warehousing, technical support,
just-in-time
delivery, order consolidation, product tagging and tracking, and
system interfaces customized to customer and supplier
specifications, than if we operated on a smaller scale
and/or
only
at a local or regional level. Thus our clients, particularly
those operating throughout North America, can quickly and
efficiently source the most suitable products with the least
amount of downtime and at the lowest total transaction cost.
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Approved Manufacturer List (AML)
Services:
Our customers rely on us to provide
a high level of quality control for their PVF products. We do
this by regularly auditing many of our suppliers for quality
assurance through our Supplier Registration Process. We use the
resulting MRM ASL to supply products across many of the markets
we support, particularly for downstream and midstream customers.
This process has enabled us to achieve a preferred vendor status
with many key end users in the industry that utilize our AML
services to help devise and maintain their own approved
manufacturer listings. In this manner, we seek to ensure that
our customers timely receive reliable and high quality products
without incurring additional administrative and procurement
expenses. Our suppliers in turn look to us as a key partner,
which has been important in establishing us as an important link
in the supply chain and a leader in the industry.
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Customized and Integrated Service
Offering:
We offer our customers integrated
supply services including product procurement, product quality
assurance, physical warehousing, and inventory management and
analysis using our proprietary customized information technology
platform. This is part of an overall strategy to promote a
one stop shop for PVF purchases across the
upstream-midstream-downstream spectrum and throughout North
America through integrated supply agreements and MRO contracts
that enable our customers to focus on their core operations and
increase the efficiency of their business.
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Industry Overview
and Trends
We primarily serve the North American oil and gas industry,
generating over 90% of our revenues from supplying PVF products
and various services to customers throughout the energy
industry. Given the diverse requirements and various factors
that drive the growth of the upstream, midstream and downstream
energy sectors, our sales to each sector may vary from time to
time, though the overall strength of the energy market is
typically a good indicator of our performance. Globally, the
energy industry is experiencing a number of favorable supply and
demand dynamics that have led companies to make substantial
investments to expand their physical infrastructure and
processing capacities. On the demand side, world energy markets
are benefiting from the increased consumption of energy, caused
in part by the industrialization of China, India, and other
non-OECD countries, as well as continued global energy
infrastructure expansion. At the same time, energy supply has
been constrained due to increasing scarcity of natural
resources, declining excess capacity of existing energy assets,
geopolitical instability, natural and other unforeseen
disasters, and more stringent regulatory, safety and
environmental standards. These demand and supply dynamics
underscore the need for investment in energy infrastructure and
the next level of global exploration, extraction, production,
transportation, refining and processing of energy inputs.
Upstream: Oil and Gas.
Exploration and
production (E&P) companies, commonly referred
to as upstream companies, search for gas and oil underground and
extract it to the surface. Representative companies include BP
p.l.c., Chesapeake Energy Corporation, Chevron Corporation,
ConocoPhillips Company, Canadian Natural Resources Ltd., EnCana
Corporation, Exxon Mobil Corporation, Husky Energy Inc., Royal
Dutch Shell plc, and Suncor Corporation. Exploration and
production companies typically purchase oilfield supplies
including tools, sucker rods, pumps, storage
89
tanks and meters while producers primarily purchase high density
polyethylene pipe, valves and general oilfield supplies.
The capital spending budgets of North American oil and gas
companies have grown in recent years as tight supply conditions
and strong global demand have spurred companies to expand their
operations. According to the June 2008 Drilling and Production
Outlook prepared by Spears & Associates, Inc., North
American drilling and completion spending has grown by a 30.5%
compound annual growth rate from 2002 to 2007 and is projected
to grow by 10.2% from 2008 to 2013. Much of this growth is
expected to come from a need to compensate for accelerating
depletion rates in existing domestic oil and natural gas
reservoirs, improved E&P technologies, increased demand for
natural gas, especially from power generation, and an
anticipated rebound in Canadian upstream activity.
North American
Oil and Gas Drilling and Completion Spending
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|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Over Year % Increase
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|
2003A
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|
2004A
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|
2005A
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|
2006A
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|
2007A
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|
2008E
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2009E
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|
2010E
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|
2011E
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|
2012E
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2013E
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|
U.S.
|
|
|
34
|
%
|
|
|
64
|
%
|
|
|
23
|
%
|
|
|
41
|
%
|
|
|
10
|
%
|
|
|
6
|
%
|
|
|
16
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
|
|
8
|
%
|
|
|
7
|
%
|
Canada
|
|
|
49
|
|
|
|
25
|
|
|
|
46
|
|
|
|
13
|
|
|
|
(31
|
)
|
|
|
5
|
|
|
|
26
|
|
|
|
13
|
|
|
|
8
|
|
|
|
7
|
|
|
|
6
|
|
North America
|
|
|
37
|
|
|
|
56
|
|
|
|
26
|
|
|
|
36
|
|
|
|
3
|
|
|
|
6
|
|
|
|
17
|
|
|
|
10
|
|
|
|
9
|
|
|
|
8
|
|
|
|
7
|
|
Source: Spears & Associates
Due to this unprecedented level of exploration expenditures,
U.S. and Canadian rig counts are expected to increase at a
4.8% and a 5.7% compound annual growth rate, respectively,
between 2007 and 2012, according to the June 2008 Drilling and
Production Outlook prepared by Spears & Associates,
Inc. Furthermore, more technically sophisticated drilling
methods, such as deep and horizontal drilling, which tend to
have higher PVF requirements, coupled with higher oil and
natural gas prices relative to long term averages, are making
E&P in previously underdeveloped areas like Appalachia and
the Rockies more economically feasible. As part of this trend,
there has been growing commercial interest by our customers in
several shale deposit areas in the U.S., including the Bakken,
Barnett, Fayetteville, Haynesville and Marcellus shales, where
we have a strong local presence.
In Canada, improvements in mining and in-situ technology are
driving increased investment in the Canadian Oil Sands which,
according to the Alberta Energy and Utilities Board, contain
established reserves of almost 174 billion barrels. This
represents the second largest recoverable crude oil reserve in
the world, behind Saudi Arabia. As a result, according to
Canadian Oil Sands Supply Costs and Development Projects
(2007-2027), a report prepared by the Canadian Energy Research
Institute, projected annual capital expenditures in the Canadian
Oil Sands could increase
90
from CDN$24.9 billion (US$24.61 billion) in 2008 to
CDN$53.1 billion (US$52.84 billion) by 2011, a 28.7%
compound annual growth rate, assuming that all Oil Sands
projects that are currently announced enter the production
phase. As a result of these factors, we believe that the North
American upstream market presents strong growth prospects on
which we are well positioned to capitalize.
Canadian Oil
Sands Production
Source: Canadian Association of Petroleum Producers
Midstream: Energy.
The midstream sector
of the oil and gas industry is comprised of companies that
provide gathering, storage, transmission, distribution, and
other services related to the movement of oil, natural gas, and
refined petroleum products from sources of production to demand
centers. Representative midstream companies include Atmos Energy
Corporation, AGL Resources Inc., Buckeye Partners, L.P.,
Consolidated Edison, Inc., DCP Midstream Partners, LP,
Enterprise Products Partners L.P., Kinder Morgan Energy
Partners, L.P., Magellan Midstream Partners, L.P., NiSource,
Inc., Vectren Energy, and Williams Partners L.P. Core products
supplied for midstream infrastructure include carbon steel line
pipe for gathering and transporting oil and gas, actuation
systems for the remote opening and closing of valves, plastic
pipe for last mile transmission to end user
locations, and metering equipment for the measurement of oil and
gas delivery.
Midstream: Gas Utilities.
The gas
utilities portion of the midstream sector has been one of
McJunkin Red Mans fastest growing markets since regulatory
changes enacted in the late 1990s permitted utilities to
outsource their PVF purchasing and procurement needs.
Outsourcing provides significant labor and working capital
savings to customers through the consolidation of product
procurement spending and the delegation of warehousing
operations to us. We estimate that approximately one third of
gas utilities currently outsource and we anticipate that several
of the remaining large gas utilities will most likely switch
from the direct sourcing model to a distributor model.
Furthermore, gas utilities will increasingly seek operating
efficiencies as large natural gas pipelines and related
distribution networks continue to be built, and will
increasingly rely on companies such as ours to optimize their
supply chains.
Midstream: Oil and Gas
Transmission.
The pipeline and transmission
sector is anticipated to exhibit significant growth over the
next three years due to the new discoveries of gas reserves in
various oil and natural gas shale gas fields and the need for
additional pipelines to carry heavy sour crude from Canada to
refineries in the United States. Recent heightened activity in
oil and gas fields such as the Bakken, Barnett, Fayetteville,
Haynesville and Marcellus shales remain largely
91
unsupported by transmission facilities of the appropriate scale
necessary to bring the oil and natural gas to market. This need
for large pipelines to transport energy feedstocks to markets is
creating significant growth for PVF and other products we sell.
According to the EIA, 200 planned or approved projects (as of
April 2008), call for 10,100 miles of new pipeline between 2008
and 2010, more than twice the level from the prior three-year
period, and are estimated to cost over $28 billion. Drivers of
this pipeline development and growth include the development of
natural gas production in new geographies, the need for
increased pipeline interconnection to lower price differences
within regions, and the need to link facilities, liquefied
natural gas and otherwise, that may be developed over the next
decade.
The need for increased safety and governmental demands for
pipeline integrity has also accelerated the MRO cycle for PVF
products in this segment. After 2000, the U.S. Department
of Transportation mandated programs that hasten, based on
population densities and other considerations, the testing of
existing lines to ensure that the integrity of the pipe remains
consistent with its original design criteria. All pipe falling
outside the necessary performance criteria as it relates to
safety and overall integrity must be replaced. These new
regulations for pipeline integrity management will continue to
stimulate MRO demand for products as older pipelines are
inspected and eventually replaced.
Additions to
Natural Gas Pipeline Mileage
1998-2010
Source: EIA
Downstream and Other Processing Industries: Oil and
Gas.
Typical downstream activities include
the refining of crude oil and the selling and distribution of
products derived from crude oil, as well as the production of
petrochemicals. Representative downstream companies include BP
plc, Chevron, ConocoPhillips Company, Exxon Mobil Corporation,
Marathon Oil Corporation, Shell Oil, and Valero Energy
Corporation. Refinery infrastructure products include carbon
steel line pipe and gate valves, fittings to construct piping
infrastructure and chrome or high alloy pipe and fittings for
high heat and pressure applications. Chemical/petrochemical
products include corrosive-resistant stainless steel or high
alloy pipes, multi-turn valves and quarter-turn valves.
Total U.S. refinery capacity utilization remains high,
averaging approximately 90% over the last twenty-three years
according to data provided by the Energy Information
Administration. No new refineries have been built in the
U.S. since 1976, and the number of refineries has declined
from 223 in 1985 to 149 in 2006 where it has since remained
constant. This continued high level of refinery utilization has
stressed the existing refinery infrastructure and accelerated
PVF product replacement
92
rates. Furthermore, we expect that additional increases in
production to meet growing demand for refined products will
result in a greater number of expansion projects at existing
refineries. According to the EIA, cumulative capacity additions
are expected to increase nearly threefold, or from approximately
0.5 Mmbl/day in 2007 to approximately 1.4 Mmbl/day by
2010. We believe that this trend of increased new project and
MRO activities, coupled with continued high capacity utilization
and the need to reinvest in existing plants, will generate
significant new project and MRO contract opportunities for us.
U.S. Petroleum
Products Consumption vs. U.S. Refining Capacity
Source: EIA
As refineries look for ways to improve margins and value-added
capabilities, they are also increasingly investing in broadening
the crudes that they process to include heavier, sourer crude.
Increasingly heavy and sour crude is harsher and more corrosive
than light sweet crude and requires high-grade alloys in many
parts of the refining process. As a result of these corrosive
characteristics, processing heavier and sourer crudes shortens
product replacement cycles and, as a result, creates additional
MRO contract opportunities for us following project completion.
Thus, we believe that our specialty products will be in high
demand to meet this need. Our specialty products include, among
others, corrosion resistant components and steam products used
in various process applications in refineries.
Petrochemical plants generally use crude oil, natural gas, or
coal as a basis to produce a variety of primary petrochemicals
(e.g. ethylene and propylene) that are the building blocks for
most of the manufactured goods produced in the world today. The
burgeoning economies in China, India and other non-OECD
countries have generated increasing demand for petrochemicals
and we expect that future increases in demand will require
additional capital expenditures to increase capacity. Industry
participants include integrated oil and gas companies with
significant petrochemical operations and large industrial
chemical companies, such as BP Chemicals, Celanese Chemicals,
E.I. du Pont de Nemours and Company, Eastman Chemicals Company,
Exxon Mobil Corporation and Lyondell Chemical Company.
Other Industries Served.
Beyond the oil
and gas industry, we also supply products to other energy
sectors such as coal, power generation, liquefied natural gas
and alternative energy facilities. We also serve more general
industrial end markets such as pulp and paper, metals
processing,
93
fabrication, pharmaceutical, food and beverage and manufacturing
companies, which together make use of products such as corrosion
resistant piping products as well as automation and
instrumentation products. Some of the customers we serve in
these markets include Alcoa, Inc., Arcelor Mittal, Eli Lilly and
Company, Georgia Pacific Corporation, International Paper
Company and U.S. Steel Corporation. These other markets are
typically characterized by large physical plants requiring
significant ongoing maintenance and capital programs to ensure
efficient and reliable operations.
Overview of Our
Business
Competitive
Strengths
We consider the following to be our key competitive strengths:
Market Leader with Complete North American Coverage and
Significant Scale.
We are the leading North
American distributor of PVF and related products to the energy
industry based on sales, with at least twice the sales of our
nearest competitor in the energy industry in 2007. Our North
American network of over 250 locations in 38 U.S. states
and in Canada gives us a significant market presence and
provides us with substantial economies of scale that we believe
make us a more effective competitor. The benefits of our size
and extensive North American presence include: (1) the
ability to act as a single-source supplier to large,
multi-location customers operating across all segments of the
energy industry; (2) the ability to commit significant
financial resources to further develop our operating
infrastructure, including our information systems, and provide a
strong platform for future expansion; (3) volume purchasing
benefits from our suppliers; (4) an ability to leverage our
extensive North American inventory coverage to provide greater
overall breadth and depth of product offerings; (5) the
ability to attract and retain effective managers and
salespeople; and (6) a business model exhibiting a high
degree of operating leverage. Our presence and scale have also
enabled us to establish an efficient supply chain and logistics
platform, allowing us to better serve our customers and further
differentiate us from our competitors.
High Level of Integration and MRO Contracts with a Blue
Chip Customer Base.
We have a diversified
customer base with over 10,000 active customers and serve as the
sole or primary supplier in all end markets or in specified end
markets or geographies for many of our customers. Our top ten
customers, with whom we have had relationships for more than
20 years on average, accounted for less than 30% of 2007
pro forma sales and no single customer accounted for more than
5% of 2007 pro forma sales. Before giving pro forma effect to
the Red Man Transaction, our top ten customers accounted for
approximately 30% of our 2007 sales and our largest customer
accounted for approximately 6% of our 2007 sales. We enjoy fully
integrated relationships, including interconnected technology
systems and daily communication, with many of our customers and
we provide an extensive range of integrated and outsourced
supply services, allowing us to market a total transaction
cost concept as opposed to individual product prices. We
provide such services as multiple daily deliveries, zone stores
management, valve tagging, truck stocking and significant system
support for tracking and replenishing inventory, which we
believe results in deeply integrated customer relationships. We
sell products to many of our customers through multi-year MRO
contracts which are typically renegotiated every three to five
years. Although there are typically no guaranteed minimum
purchase amounts under these contracts, these MRO customers,
representing over 50% of both our 2007 historical and pro forma
sales, provide a relatively stable revenue stream and help
mitigate against industry downturns. We believe we have been
able to retain customers by ensuring a high level of service and
integration, as evidenced by our annual average MRO contract
retention rate of over 99% since 2000. Furthermore, we have
recently signed new MRO contracts displacing competitors that
provide opportunities for us to gain new customers and broaden
existing customer relationships.
94
Business and Geographic Diversification in the High-Growth
Areas.
We are well diversified across the
upstream, midstream and downstream operations of the energy
industry, as well as through our participation in selected
industrial end markets. During the twelve months ended
December 31, 2007 on a pro forma basis, we generated
approximately 46% of our sales in the upstream sector, 22% in
the midstream sector, and 32% in the downstream, industrial and
other energy end markets. Before giving pro forma effect to the
Red Man Transaction, during the twelve months ended
December 31, 2007, approximately 36% of our sales were
attributable to upstream activities, approximately 18% were
attributable to midstream activities and approximately 46% were
attributable to downstream and other processing activities. This
diversification affords us some measure of protection in the
event of a downturn in any one end market while providing us the
ability to offer one stop shopping for most of our
integrated energy customers. In addition, our more than 250
branches are located near major hydrocarbon and refining regions
throughout North America, including rapidly expanding oil and
natural gas E&P areas in North America, such as the Bakken,
Barnett, Fayetteville, Haynesville and Marcellus shales. Our
geographic diversity enhances our ability to respond to
customers quickly, gives us a strong presence in these high
growth E&P areas and reduces our exposure to a downturn in
any one region.
Strategic Supplier Relationships.
We
have extensive relationships with our suppliers and have key
supplier relationships dating back in certain instances over
60 years. We purchased approximately $1 billion of
products from our top ten suppliers for the twelve months ended
December 31, 2007 on a pro forma basis, representing
approximately 32% of our purchases. Before giving pro forma
effect to the Red Man Transaction, during the twelve months
ended December 31, 2007 we purchased approximately
$431 million of products from our top ten suppliers,
representing approximately 30.7% of our purchases. We believe
our customers view us as an industry leader for the formal
processes we use to evaluate vendor performance and product
quality. We employ individuals, certified by the International
Registry of Certificated Auditors, who specialize in conducting
manufacturer assessments both domestically and internationally.
Our Supplier Registration Process (SRP), which
allows us to maintain the MRM ASL, serves as a significant
strategic advantage to us in developing, maintaining and
institutionalizing key supplier relationships. For our
suppliers, being included on the MRM ASL represents an
opportunity for them to increase their product sales to our
customers. The SRP also adds value to our customers, as they
collaborate with us regarding specific manufacturer performance,
our past experiences with products and the results of our
on-site
supplier assessments. Having a timely, uninterrupted supply of
those mission critical products from approved vendors is an
essential part of our customers day-to-day operations and
we work to fulfill that need through our SRP.
A Leading IT Platform Focused on Customer
Service.
Our business is supported by our
integrated, scalable and customer-linked customized information
systems. These systems and our more than 3,400 employees
are linked by a wide area network. We are currently implementing
an initiative, expected to be completed in 2009, that will
combine our business operations onto one enterprise server-based
system. This will enable real-time access to our business
resources, including customer order processing, purchasing and
material requests, distribution requirements planning,
warehousing and receiving, inventory control and all accounting
and financial functions. Significant elements of our systems
include firm-wide pricing controls resulting in disciplined
pricing strategies, advanced scanning and customized bar-coding
capabilities, allowing for efficient warehousing activities at
customer as well as our own locations, and significant levels of
customer-specific integrations. We believe that the customized
integration of our customers systems into our own
information systems has increased customer retention by reducing
their expenses, thus creating switching costs when comparing us
to alternative sources of supply. Typically, smaller regional
and local competitors do not have IT capabilities that are as
advanced as ours.
Highly Efficient, Flexible Operating Platform Drives
Significant Free Cash Flow Generation.
We
place a particular emphasis on practicing financial discipline
as evidenced by our strong focus on return on assets, minimal
capital expenditures and high free cash flow generation. Our
disciplined cost control, coupled with our active asset
management strategies, result in a
95
business model exhibiting a high degree of operating leverage.
As is typical with the flexibility associated with a
distribution operating model, our variable cost base includes
substantially all our cost of goods sold and a significant
portion of our operating costs. Furthermore, our maintenance
capital expenditures were less than 0.2% of our pro forma sales
for the year ended December 31, 2007. This cost structure
allows us to adjust to changing industry dynamics and, as a
result, during periods of decreased sales activity, we typically
generate significant free cash flow as our costs are reduced and
working capital contracts.
Experienced and Motivated Management
Team.
Our senior management team has an
average of over 25 years of experience in the oilfield and
industrial supply business, the majority of which has been with
McJunkin Red Man or its predecessors. After giving effect to
this offering, senior management will
own % of our company indirectly
through their equity interests in PVF Holdings LLC. We also seek
to incentivize and align management with shareholder interests
through equity-linked compensation plans. Furthermore, executive
compensation is based on profitability and
return-on-investment
targets which we believe drives accountability and further
aligns the organization with our shareholders.
Business
Strategy
Our goal is to become the largest global distributor of PVF and
related products to the energy and industrials sectors. We
intend to grow our business by leveraging our existing position
as the largest North American distributor of PVF products and
services to the energy industry based on sales. Our strategy is
focused on pursuing growth by increasing organic market share
and growing our business with current customers, expanding into
new geographies and end markets, further penetrating the
Canadian Oil Sands and downstream sector, pursuing selective
strategic acquisitions and investments, increasing recurring
revenues through integrated supply, MRO and project contracts,
and continuing to increase our operational efficiency.
Increase Organic Market Share and Grow Business with
Current Customers.
We are committed to
expanding upon existing deep relationships with our current
customer base while at the same time striving to secure new
customers. To accomplish this, we are focused on providing a
one stop PVF procurement solution throughout North
America and across the upstream, midstream and downstream
sectors of the energy industry, cross-selling by leveraging our
expanded product offering resulting from the business
combination between McJunkin and Red Man in October 2007,
and increasing our penetration of existing customers new
multiyear projects.
The migration of existing customer relationships to sole or
primary sourcing arrangements is a core strategic focus. We seek
to position ourselves as the sole or primary provider of a broad
complement of PVF products and services for a particular
customer, often by end market
and/or
geography, or in certain instances across all of a
customers North American upstream, midstream and
downstream operations. Several of our largest customers have
recently switched to sole or primary sourcing contracts with us.
Additionally, we believe that significant opportunities exist to
expand upon heritage McJunkin and Red Man existing deep customer
and supplier relationships and thereby increase our market
share. While we believe that both heritage McJunkin and Red Man
organizations each maintained robust product offerings, there
also remain opportunities to cross-sell certain products into
the other heritage organizations customer base and branch
network. As part of these efforts, we are working to further
strengthen our service offerings by augmenting our product
portfolio, management expertise and sales force.
We also aim to increase our penetration of our existing
customers new projects. For example, while we often
provide nearly 100% of the PVF products for certain customers
under MRO contracts, increased penetration of those
customers new downstream and midstream projects remains a
strategic priority. Initiatives are in place to deepen
relationships with engineering and construction firms and to
extend our product offering into certain niches. We recently
integrated core project groups in several locations to focus
solely on capturing new multi-year project opportunities and we
are encouraged by these initial efforts.
96
Expand into New Geographies and End
Markets.
We intend to selectively establish
new branches in order to facilitate our expansion into new
geographies, and enter end markets where extreme operating
environments generate high PVF product replacement rates. We
continue to evaluate establishing branches and service and
supply centers, entering into joint ventures, and making
acquisitions in select domestic and international regions. While
we believe that we are one of three PVF distributors with
branches throughout North America, there is opportunity to
expand via new branch openings in certain geographies and end
markets.
While our near term strategy is to continue to expand within
North America, we believe that attractive opportunities exist to
expand internationally. Though we currently maintain only one
branch outside of North America, we continue to actively
evaluate opportunities to extend our offering to key
international markets, particularly in West Africa, the Middle
East, Europe and South America. The E&P opportunity and
current installed base of energy infrastructure internationally
is significantly larger than in North America and as a result we
believe represents an attractive long term opportunity both for
ourselves and our largest customers. While our near term focus
internationally will be centered on growing our business with
our already largely global customer base, the increased focus,
particularly by foreign-owned integrated oil companies, on
efficiency, cost savings, process improvements and core
competencies has also generated potential growth opportunities
to add new customers that we will continue to monitor closely.
We also believe opportunities exist for expansion into new and
under penetrated end markets where PVF products are used in
specialized, highly corrosive applications. These end markets
include pulp and paper, food and beverage and other general
industrial markets, in addition to other energy end markets such
as power generation, liquefied natural gas, coal, nuclear and
ethanol. We believe our extensive North American branch
platform, comprehensive PVF product offering, and reputation for
high customer service and technical expertise positions us to
participate in the growth in these end markets.
We believe there also remains an opportunity to continue to
expand into certain niche and specialty products that complement
our current extensive product offering. These products include
automated valves, instrumentation, stainless, chrome and high
nickel alloy PVF, large diameter carbon steel pipe and certain
specialty items, including steam products.
Further Penetrate the Canadian Oil Sands, Particularly the
Downstream Sector.
The Canadian Oil Sands
region and its attendant downstream markets represent very
attractive growth areas for our company. Improvements in mining
and in-situ technology are driving significant investment in the
area and, according to the Alberta Energy and Utilities Board,
the Canadian Oil Sands contain an ultimately recoverable crude
bitumen resource of 315 billion barrels, with established
reserves of almost 173 billion barrels at December 2007.
Canada has the second largest recoverable crude oil reserves in
the world, behind Saudi Arabia. Capital and maintenance
investments in the Canadian Oil Sands are expected to experience
dramatic growth due to rising global energy demand and
advancements in recovery and upgrading technologies. According
to the Alberta Ministry of Energy, an estimated
CDN$67 billion (US$66.2 billion) was invested in
Canadian Oil Sands projects from 2000 to 2007. These large
facilities require significant ongoing PVF maintenance well in
excess of traditional energy infrastructure, given the extremely
harsh operating environments and highly corrosive conditions.
According to the Alberta Ministry of Energy, almost
CDN$170 billion (US$168 billion) in Canadian Oil
Sands-related projects were underway or proposed as of June
2008, which we estimate could generate significant PVF
expenditures.
While Midfield has historically focused on the upstream and
midstream sectors in Canada, we believe that a significant
opportunity exists to penetrate the Canadian Oil Sands
downstream market which includes the upgrader and refinery
markets. We are the leading provider of PVF products to the
downstream market in the U.S. and believe this sector expertise
and existing customer relationships can be utilized by our
upstream and midstream Canadian operations to grow our
downstream sector presence in this region. We also believe there
is a significant opportunity to penetrate the Canadian
97
Oil Sands extraction market involving in-situ recovery methods,
including SAGD (steam assisted gravity drainage) and CSS (cyclic
steam stimulation) techniques used to extract the bitumen. We
have formed a full team overseen by senior management, have made
recent inventory and facility investments in Canada, including a
new 60,000 square foot distribution center facility located near
Edmonton, and have opened additional locations in Western Canada
to address this opportunity. Finally, we also believe that an
attractive opportunity exists to more fully penetrate the MRO
market in Canada, including refineries, petrochemical
facilities, utilities and pulp and paper and other general
industrial markets.
Pursue Selective Strategic Acquisitions and
Investments.
Acquisitions have been a core
focus and acquisition integration a core competency for us. We
seek opportunities to strengthen our franchise through selective
acquisitions and strategic investments. In particular, we will
consider investments that enhance our presence in the energy
infrastructure market and enable us to leverage our existing
operations, either through acquiring new branches or by
acquiring companies offering complementary products or end
market breadth. Our industry remains highly fragmented and we
believe a significant number of small and larger acquisition
opportunities remain that offer favorable synergy potential and
attractive growth characteristics. Acquisitions have been a core
focus for both the heritage McJunkin and Red Man organizations
which we plan to continue. In addition to the business
combination between McJunkin and Red Man, since 2000 we have
integrated 19 acquisitions which collectively represented over
$900 million in sales in the year of acquisition. Important
recent acquisitions include Midfield, one of the three largest
oilfield supply companies in Canada with 68 branches, and
Midway-Tristate Corporation (Midway), an oilfield
distributor primarily serving the Rockies and Appalachia
regions. Historically, our operating scale and integration
capabilities have enabled us to realize important synergies,
while minimizing execution risk, which we intend to focus on
with future acquisitions.
Increase Recurring Revenues through Integrated Supply, MRO
and Project Contracts.
We have entered into
and continue to pursue integrated supply, MRO and project
contracts with certain of our customers. These arrangements
generally designate us as the sole source or primary provider of
the upstream, midstream,
and/or
downstream requirements of our customers. In certain instances
we are the sole or primary source provider for our customers
across all the energy sectors and/or North American geographies
within which the customer operates.
Our customers have, over time, increasingly moved toward
centralized PVF procurement management at the corporate level
rather than at individual local units. While these developments
are partly due to significant consolidation among our customer
base, sole or primary sourcing arrangements allow customers to
focus on their core operations and provide economic benefits by
generating immediate savings for the customer through
administrative cost and working capital reductions while
providing for increased volumes, more stable revenue streams and
longer term visibility for us. We believe we are well positioned
to obtain these arrangements due to our (1) geographically
diverse and strategically located branch network,
(2) experience, technical expertise and reputation for
premier customer service operating across all segments of the
energy industry, (3) breadth of available product lines and
value added services, and (4) existing deep relationships
with customers and suppliers.
We also have exclusive and non-exclusive MRO contracts and new
project contracts in place. Our customers are increasing their
maintenance and capital spending, which is being driven by aging
infrastructure, their increased utilization of existing
facilities and the decreasing quality of energy feedstocks. Our
customers benefit from MRO agreements through lower inventory
investment and the reduction of transaction costs associated
with the elimination of the bid submission process, and our
company benefits from the recurring revenue stream that occurs
with an MRO contract in place. We believe there are additional
opportunities to utilize MRO arrangements for servicing the
requirements of our customers and we are actively pursuing such
agreements.
Continued Focus on Operational
Efficiency.
We strive for continued
operational excellence. Our branch managers and regional
management corporate leadership team continually examine
98
branch profitability, working capital management, and return on
managed assets and utilize this information to optimize
national, regional and local strategies, reduce operating costs
and maximize cash flow generation. As part of this effort,
management incentives are centered on meeting EBITDA and return
on assets targets.
In order to improve efficiencies and profitability, we work to
leverage operational best practices, optimize our vendor
relationships, purchasing, and inventory levels and source
inventory internationally when appropriate. As part of this
strategy, we have integrated our heritage purchasing functions
and believe we have developed strong relationships with vendors
that value both our national footprint and volume purchasing
capabilities. Because of this, we are often considered the
preferred distribution channel. As we continue to consolidate
our vendor relationships, we plan to devote additional resources
to assist our customers in identifying products that improve
their processes, day-to-day operations and overall operating
efficiencies. We believe that offering these value added
services maximizes our value to our customers and helps
differentiate us from competitors.
Products
Through our over 250 strategic locations in North America, we
distribute over 100,000 products from over 10,000 suppliers
primarily used in specialized applications in the energy
infrastructure market. Our products are used in the
construction, maintenance, repair and overhaul of equipment used
in extreme operating conditions such as high pressure, high/low
temperature, high corrosive and high abrasive environments.
The breadth and depth of our product offerings and our extensive
North American presence allow us to provide high levels of
service to our customers. Due to our national inventory
coverage, we are able to fulfill more orders more quickly,
including those with lower volume and specialty items, than we
would be able to if we operated on a smaller scale
and/or
only
at a local or regional level. Approximately two-thirds of our
pro forma sales for the twelve months ended December 31,
2007 consisted of sales of carbon, stainless and alloy pipe,
valves and specialty products. Sales of oilfield and industrial
supplies, fittings, gas products and other products comprised
the remainder. Before giving pro forma effect to the Red Man
Transaction, approximately three quarters of our sales for the
twelve months ended December 31, 2007 consisted of
sales of carbon, stainless and alloy pipe, valves and specialty
products, while sales of oilfield and industrial supplies,
fittings, gas products and other products comprised the
remainder. Key product groups are described below:
Carbon and Alloy Pipe.
Carbon pipes are
typically used in high-yield, high-stress, abrasive applications
such as gathering and transmission of oil, natural gas and
phosphates. Steel alloy pipes are composed of iron, carbon, and
one or more other elements such as chromium, cobalt or nickel.
Alloy products are principally used in high-pressure, extreme
temperature and high-corrosion applications such as in heating
and desulphurization in the processing and refining industries
and in steam generation units in the power industry.
Valves and Specialty Products.
Products
offered include ball, butterfly, gate, globe, check, needle and
plug valves which are manufactured from cast steel,
stainless/alloy steel, forged steel, carbon steel or cast and
ductile iron. Valves are generally used in oilfield and
industrial applications to control direction, velocity and
pressure of fluids and gases within transmission networks.
Specialty products include corrosion resistant components and
steam products used in various process applications in
refineries and petrochemical plants.
Oilfield and Industrial
Supplies.
Products include high density
polyethylene pipe, valves, well heads, pumping units, rods and
other related oilfield and production equipment.
Carbon Fittings.
Products include
carbon weld fittings, flanges and accessory items used primarily
to connect piping and valve systems for the transmission of
various liquids and gases.
99
Gas Products.
Products include risers,
meters, polyethylene pipe and fittings and various other gas
carrying materials that are used primarily in the distribution
of natural gas to residential and commercial customers.
Stainless Pipe and Fittings.
Products
include stainless, alloy and corrosion resistant pipe, tubing,
fittings and flanges that are used primarily in chemical process
applications.
Services
We provide our customers, including our customers with MRO
contracts, with a comprehensive array of services including
multiple daily deliveries, zone stores management, valve
tagging, truck stocking and significant system interfaces that
directly tie the customer into our proprietary information
systems. Our proprietary information systems allow us to
interface with our customers IT systems, thereby providing
a seamless and integrated supply service. Such services
strengthen our position with our customers as we become more
integrated into the customers business and supply chain
and are able to market a total transaction cost
concept rather than individual product prices.
Our comprehensive information systems platform, which provides
for customer and supplier electronic integrations, information
sharing, and
e-commerce
applications, further strengthens our ability to provide high
levels of service to our customers. Our highly specialized
implementation group focuses on the integration of our
information systems and implementation of improved business
processes with those of a new customer during the initiation
phase. By maintaining a specialized team, we are able to utilize
best practices to implement our systems and processes, thereby
providing solutions to customers in a more organized, efficient
and effective manner. This approach is valuable to large,
multi-location customers who have demanding service requirements.
As major integrated and large independent energy companies have
implemented efficiency initiatives to focus on their core
business, many of these companies have begun outsourcing their
procurement and inventory management requirements. In response
to these initiatives and to satisfy customer service
requirements, we offer integrated supply services to customers
who wish to outsource all or a part of the administrative burden
associated with sourcing PVF and other related products, and we
also have employees
on-site
at
many customer locations. Our integrated supply group offers
procurement-related services, physical warehousing services,
product quality assurance and inventory ownership and analysis
services.
Customers
Our principal customers are companies active in the upstream,
midstream and downstream sectors of the energy industry as well
as in other industrial and energy sectors. Due to the demanding
operating conditions in the energy industry and high costs
associated with equipment failure, customers prefer highly
reliable products and vendors with established qualifications
and experience. As our PVF products typically represent a
fraction of the total cost of the project, our customers place a
premium on service given the high cost to them of maintenance or
new project delays. We strive to build long-term relationships
with our customers by maintaining our reputation as a supplier
of high-quality, efficient and reliable products and value-added
services and solutions.
We have a diverse customer base with over 10,000 active
customers. We are not dependent on any one customer or group of
customers. A majority of our customers are offered terms of net,
30 days (due within 30 days of the customers
receipt of the invoice). Customers generally have a right to
return our products. However, returns have been immaterial to
our total sales. For the twelve months ended December 31,
2007, our top ten customers represented less than 30% of our pro
forma sales. For the twelve months ended December 31, 2007,
before giving pro forma effect to the Red Man Transaction, our
top ten customers accounted for approximately 30% of our sales.
For many of our largest customers, we are often their sole or
primary
100
provider by end market or geography, their largest or second
largest supplier in aggregate, or in certain instances the sole
provider for their upstream, midstream and downstream
procurement needs. We believe that many customers for which we
are not the end market exclusive or comprehensive North American
sole source PVF provider will continue to reduce their number of
suppliers in an effort to reduce costs and administrative
burdens and focus on their core operations. As such, we believe
these customers will seek to select PVF distributors with the
most extensive product offering and broadest geographic
presence. Furthermore, we believe our business will strengthen
as companies in the energy industry continue to consolidate and
the larger, resulting companies look to larger distributors such
as ourselves as their sole or primary source PVF provider.
Suppliers
We source our products from more than 10,000 suppliers. Our
suppliers benefit from access to our diversified customer base
and, by consolidating customer orders, we benefit from stronger
purchasing power and preferred vendor programs. During the
twelve months ended December 31, 2007 on a pro forma basis,
we purchased approximately $1 billion of products from our
top 10 suppliers, representing approximately 32% of our
total purchases. Before giving pro forma effect to the Red Man
Transaction, during the twelve months ended December 31,
2007 we purchased approximately $431 million of products
from our top ten suppliers, representing approximately 30.7% of
our purchases. Our largest supplier accounted for approximately
9% of our total purchases in 2007 on a pro forma basis and
accounted for approximately 7% of our total purchases in 2007
before giving pro forma effect to the Red Man Transaction.
We source a significant majority of our products directly from
the manufacturer.
We believe our customers and suppliers recognize us as an
industry leader for the formal processes we use to evaluate the
performance of our vendors as well as the products they furnish
to our company. This assessment process is referred to as the
MRM Supplier Registration Process, which involves employing
individuals, certified by the International Registry of
Certificated Auditors, who specialize in conducting
on-site
assessments of our manufacturers as well as monitoring and
evaluating the quality of goods produced. The result of this
process is the MRM ASL. Products from the manufacturers on this
list are supplied across many of the end markets we support.
Given that many of our largest customers, especially those in
the refinery and chemical industries, maintain their own formal
AML listing, we are recognized as an important source of
information sharing with our key customers regarding the results
of our
on-site
assessment. For this reason, together with managements
commitment to promote high quality products that bring the best
overall value to our customers, we often become the preferred
provider of AML products to these customers. Many of our
customers regularly collaborate with us regarding specific
manufacturer performance, our own experience with vendors
products and the results of our
on-site
supplier assessments. The emphasis placed on the MRM ASL by both
our customers and suppliers helps secure our central and
critical position in the global PVF supply chain.
We utilize a variety of freight carriers in addition to our
corporate fleet to ensure timely and efficient delivery of our
product. Our strategy is to build volume with selected
core common carriers in order to obtain a pricing
advantage and to align responsibility for customer service.
Placing freight regularly with over 50 different carriers
provides us with a substantial pool of qualified carriers to
draw from as market conditions change.
Sales and
Marketing
We distribute our products to a wide variety of end-users. Our
broad distribution network and customer base allow us to
capitalize on our extensive inventory base. Local relationships,
depth of inventory, service and timely delivery are critical to
the sales process in the PVF distribution industry. Our
marketing efforts are customer and product driven, and provide a
system that is more responsive to changing customer and product
needs than a traditional, fully centralized structure.
101
Our sales model applies a two-pronged approach to address both
the regional and national markets. Regional sales teams, led by
eight senior vice presidents with an average tenure of
26 years at McJunkin Red Man or its predecessors, are based
in our core geographic regions and the national accounts sales
team is focused on specific customer types, including large
national customers and gas utility customers, supported by
groups with specific expertise, including integrated supply and
implementation. Our overall sales force is internally divided
into outside and inside sales forces.
Our 342 (as of December 31, 2007) outside sales
representatives develop relationships with prospective and
existing customers in an effort to better understand their needs
and to increase the number of our products specified or approved
by a given customer. Outside sales representatives may be branch
outside sales representatives, focused on customer relationships
in specific geographies, or technical outside sales
representatives, who focus on specific products and provide
detailed technical support to customers.
In order to address the needs of our customer base, our inside
sales force of 762 individuals (as of December 31,
2007) is responsible for processing orders generated by new
and existing customers as well as by our outside sales force.
The inside sales force prepares packages based on specific
customer needs, interfaces with manufacturers to determine
product availability, ensures on-time delivery and establishes
pricing of materials and services based on guidelines and
predetermined metrics set by management.
Information
Systems
Our technology approach allows for extensive integration and
customization with our clients. We believe that this is
accretive to the customers value proposition and increases
customer loyalty. Thus, our customized information systems
enable on-line real-time access to appropriate resources and are
an integral part of our competitive advantage, particularly
among larger customers whose own information systems we
integrate with seamlessly.
Third party and web-based applications are incorporated in our
platform to further enhance the IT offering. Customer and
supplier electronic integrations, information sharing, and
e-commerce
applications help support and secure long-standing relationships
and foster additional business with our customers. Scanning and
customized bar-coding systems increase efficiency. Our corporate
Intranet also includes web-based applications such as its Sales
History Analysis Reporting Program (SHARP), a Wizard
Document and Report Library and a Document Imaging application
that includes more than 5 million documents and reports. As
of December 31, 2007, we had a staff of approximately 60 IT
professionals.
We currently operate two primary information systems inherited
from the combination of McJunkin and Red Man. Management has
thoroughly evaluated both systems for functionality, degree of
customer and internal integration, controls, accounting and
reporting capability, acquisition implementation, scalability,
reliability, speed and Sarbanes-Oxley upgradeability.
Information systems have been a critical focus and a three-step
integration plan has been put in place with the final transition
to an enhanced hybrid information system platform combining
certain elements of the heritage McJunkin and Red Man systems
expected to be fully completed in 2009. This plan enables the
company to leverage the benefits of both systems while reducing
the risk associated with any major system change.
Upon completion of our information systems integration
initiative, our branches will be linked by our wide area
networks into an existing integrated, scalable, enterprise
server-based system allowing online, real-time access to all
business resources including customer order processing,
purchasing and material request, distributing requirements
planning, warehousing and receiving, inventory control and all
accounting and financial functions. Prior to project completion,
we are merging geographically overlapping locations and
migrating these and certain other locations to the chosen
information systems platform. We have already successfully
transitioned 10 locations in this manner. This serves
102
as both a validation of our approach and a confirmation of our
conversion process, a key to minimizing information systems risk
and any disruption to the business and customer base.
Employees
As of June 26, 2008, we had approximately
3,484 employees worldwide. Thirty employees belong to
the International Brotherhood of Teamsters and are covered by
collective bargaining agreements. We believe we have good
relationships with our employees and have not had any major
issues such as strikes or business interruptions during the past
several years.
Properties
We operate a modified hub and spoke model that is centered
around our 6 distribution centers in North America with more
than 250 locations which have inventory and local employees.
Additionally, in order to maintain strong customer
relationships, we hold inventory at approximately 700
on-site
customer locations.
The company maintains two corporate headquarters, the precedent
McJunkin headquarters in Charleston, WV, which focuses on
downstream, gas utilities (midstream), and Appalachian upstream
activities, and the precedent Red Man headquarters in Tulsa, OK,
which focuses on upstream and pipeline (midstream) activities.
We also maintain a main corporate office for our Canadian
operations in Calgary, Alberta.
Competition
We are the largest PVF distributor to the energy industry in
North America based on sales. The broad PVF distribution
industry is fragmented and includes large, nationally recognized
distributors, major regional distributors and many smaller local
distributors, with the potential for further consolidation. The
principal methods of competition include offering prompt local
service, fulfilment capability, breadth of product and service
offerings, price and total costs to the customer. Our
competitors include national recognized distributors, such as
Wilson Industries, Inc. (a subsidiary of Smith International,
Inc.) and National Oilwell Varco, Inc., several large regional
or product-specific competitors, and many local, family-owned
PVF distributors.
Environmental
Matters
We are subject to a variety of federal, state, local, foreign
and provincial environmental, health and safety laws and
regulations, including those governing the discharge of
pollutants into the air or water, the management, storage and
disposal of hazardous substances and wastes, the responsibility
to investigate and cleanup contamination and occupational health
and safety. Fines and penalties may be imposed for
non-compliance with applicable environmental, health and safety
requirements and the failure to have or to comply with the terms
and conditions of required permits. Historically, the costs to
comply with environmental and health and safety requirements
have not been material. We are not aware of any pending
environmental compliance or remediation matters that, in the
opinion of management, are reasonably likely to have a material
effect on our business, financial position or results of
operations. However, the failure by us to comply with applicable
environmental, health and safety requirements could result in
fines, penalties, enforcement actions, third party claims for
property damage and personal injury, requirements to clean up
property or to pay for the costs of cleanup, or regulatory or
judicial orders requiring corrective measures, including the
installation of pollution control equipment or remedial actions.
Under certain laws and regulations, such as the federal
Superfund law, the obligation to investigate and remediate
contamination at a facility may be imposed on current and former
owners or operators or on persons who may have sent waste to
that facility for disposal. Liability under these
103
laws and regulations may be without regard to fault or to the
legality of the activities giving rise to the contamination.
Although we are not aware of any active litigation against us
under the federal Superfund law or its state equivalents,
contamination has been identified at several of our current and
former facilities, and we have incurred and will continue to
incur costs to investigate and remediate these conditions.
Moreover, we may incur liabilities in connection with
environmental conditions currently unknown to us relating to our
prior, existing or future sites or operations or those of
predecessor companies whose liabilities we may have assumed or
acquired.
In addition, environmental, health and safety laws and
regulations applicable to our business and the business of our
customers, including laws regulating the energy industry, and
the interpretation or enforcement of these laws and regulations,
are constantly evolving and it is impossible to predict
accurately the effect that changes in these laws and
regulations, or their interpretation or enforcement, may have
upon our business, financial condition or results of operations.
In particular, legislation and regulations limiting emissions of
greenhouse gases, including carbon dioxide associated with the
burning of fossil fuels, are at various stages of consideration
and implementation, and if fully implemented, could negatively
impact the market for our products and, consequently, our
business. Should environmental laws and regulations, or their
interpretation or enforcement, become more stringent, our costs
could increase, which may have a material adverse effect on our
business, financial condition and results of operations.
Legal
Proceedings
From time to time, we have been subject to various claims and
involved in legal proceedings incidental to the nature of our
businesses. We maintain insurance coverage to reduce financial
risk associated with certain of these claims and proceedings. It
is not possible to predict the outcome of these claims and
proceedings. However, in our opinion, there are no material
pending legal proceedings that are likely to have a material
effect on our business, financial condition or results of
operations, although it is possible that the resolution of
certain actual or threatened claims or proceedings could have a
material adverse effect on our business, financial condition or
results of operation in the period of resolution.
We are a defendant in lawsuits involving approximately 835
plaintiffs as of September 24, 2008 alleging, among other
things, personal injury, including mesothelioma and other
cancers, arising from exposure to
asbestos-containing
materials included in products distributed by us in the past.
The complaints in these lawsuits typically name many other
defendants. In the majority of these lawsuits, little or no
information is known regarding the nature of the
plaintiffs alleged injuries or their connection with the
products we distributed. As of June 2008, lawsuits involving
approximately 11,240 claims have been brought against us. Of
these claims, approximately 10,414 have been resolved (7,140
have been dismissed, 33 have been settled and 3,241 were
resolved prior to 1995 as part of two mass settlements with
payments not allocated to individual claims). No asbestos
lawsuit has resulted in a judgment against us to date. In 2008,
we along with outside accounting and financial consultants,
conducted an analysis of pending and probable asbestos-related
claims to determine the adequacy of our accrual for these
claims. This analysis consisted of developing per claim
settlement estimates for each category of claim by alleged
disease type based on our historical settlement experience.
These estimates were applied to each of our pending individual
claims. Liability with respect to mass filings was estimated by
determining the number of individual plaintiffs included in the
mass filings likely to have claims resulting in settlements
based on our historical experience with mass filings. Finally,
likely claims expected to be asserted against us over the next
fifteen years were predicted based on public health estimates of
future incidences of certain asbestos-related diseases in the
general U.S. population and per claim settlement estimates
were applied to those estimated claims. Based on our analysis
and the existence of certain insurance coverage, we do not
believe that the outcome of our pending and probable cases will
have a material impact on us. The potential liability associated
with asbestos lawsuits, however, is subject to many
uncertainties, including negative developments in the cases
pending against us, the current or future insolvency of co-
104
defendants, adverse changes in relevant laws or the
interpretation thereof, and the extent to which insurance will
be available to pay for defense costs, judgments or settlements.
Further, we anticipate that additional claims will be filed
against us in the future, but are unable to predict the number,
timing and magnitude of such future claims with any certainty.
Therefore, we cannot assure you that the pending or future
asbestos litigation will not ultimately have a material adverse
effect on our business, results of operations and financial
condition.
105
MANAGEMENT
Executive
Officers and Directors
The following table sets forth the names, ages (as of
June 26, 2008) and positions of each person who is an
executive officer or director of McJunkin Red Man Holding
Corporation and who will be an executive officer or director of
McJunkin Red Man Holding Corporation upon completion of this
offering.
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Andrew Lane
|
|
48
|
|
Chief Executive Officer and Director
|
James F. Underhill
|
|
53
|
|
Executive Vice President and Chief Financial Officer
|
Dee Paige
|
|
55
|
|
Executive Vice President of Canadian Operations and Business
Development
|
Stephen D. Wehrle
|
|
55
|
|
Executive Vice President Branch Sales and Operations
|
Jeffrey Lang
|
|
52
|
|
Executive Vice President Branch Sales and Operations
|
Randy K. Adams
|
|
58
|
|
Senior Corporate Vice President Sales & Marketing
(Upstream)
|
Rory M. Isaac
|
|
58
|
|
Senior Corporate Vice President Sales & Marketing
(Downstream/Gas Utilities)
|
Gary A. Ittner
|
|
56
|
|
Senior Corporate Vice President of Supply Chain Management
(based in Charleston)
|
Dennis Niver
|
|
60
|
|
Senior Corporate Vice President of Supply Chain Management
(based in Tulsa)
|
Ken Hayes
|
|
52
|
|
Senior Corporate Vice President of Standard and Line Pipe
|
Stephen W. Lake
|
|
44
|
|
Senior Corporate Vice President, General Counsel and Corporate
Secretary
|
David Fox, III
|
|
59
|
|
Senior Regional Vice President of the Appalachian Region
|
Craig Ketchum
|
|
51
|
|
Chairman of the Board of Directors
|
Rhys J. Best
|
|
61
|
|
Director
|
Henry Cornell
|
|
52
|
|
Director
|
Christopher A.S. Crampton
|
|
30
|
|
Director
|
John F. Daly
|
|
42
|
|
Director
|
Harry K. Hornish, Jr.
|
|
63
|
|
Director
|
Sam B. Rovit
|
|
50
|
|
Director
|
H.B. Wehrle, III
|
|
56
|
|
Director
|
Andrew Lane
has served as the chief executive
officer of our company since September 2008. He has also served
as a director of our company since September 2008. From December
2004 to December 2007, he served as executive vice president and
chief operating officer of Halliburton Company, where he was
responsible for Halliburtons overall operational
performance, managed over 50,000 employees worldwide and
oversaw several mergers and acquisitions integrations. Prior to
that, he held a variety of leadership roles within Halliburton,
serving as president and chief executive officer of Kellogg
Brown & Root, Inc. from July 2004 to November 2004, as
senior vice president, global operations of Halliburton Energy
Services Group from April 2004 to July 2004, as president of the
Landmark Division of Halliburton Energy Services Group from May
2003 to March 2004, and as president and chief executive officer
of Landmark Graphics Corporation from April 2002 to April 2003.
He was also chief operating officer of Landmark Graphics from
January 2002 to March 2002 and vice president, production
enhancement PSL, completion products PSL and tools/testing/TCP
of Halliburton Energy Services Group from January 2000 to
December 2001. Mr. Lane also served as a
106
director of KBR, Inc. from June 2006 to April 2007. He began
his career in the oil and gas industry as a field engineer for
Gulf Oil Corporation in 1982, and later worked as a production
engineer in Gulf Oils Pipeline Design and Permits Group.
Mr. Lane received a B.S. in mechanical engineering from
Southern Methodist University. He is a member of the executive
board of the Southern Methodist University School of Engineering.
James F. Underhill
has served as executive vice
president and chief financial officer of our company and of
McJunkin Red Man Corporation, our subsidiary, since November
2007. At McJunkin, he served as chief financial officer from May
2006 through October 2007, as senior vice president of
accounting and information services from 1994 to May 2006, and
vice president and controller from 1987 to 1994. Prior to 1987,
Mr. Underhill served as controller, assistant controller,
and corporate accounting manager. Mr. Underhill joined
McJunkin in 1980 and has since overseen McJunkins
accounting, information systems, and mergers and acquisitions
areas. He has been involved in numerous implementations of
electronic customer solutions and has had primary responsibility
for the acquisition and integration of more than 30 businesses.
Mr. Underhill was also project manager for the design,
development, and implementation of McJunkins FOCUS
operating system. He received a B.A. in accounting and economics
from Lehigh University in 1977 and is a certified public
accountant. Prior to joining McJunkin, Mr. Underhill worked
in the New York City office of the accounting firm of Main
Hurdman.
Dee Paige
has served as executive vice president
with responsibilities for Canadian operations and business
development at our company and at McJunkin Red Man Corporation,
our subsidiary, since November 2007. Mr. Paige joined Red
Man in 1982 and worked as controller until 1986, when he was
named vice-president finance. He was named chief
financial officer/treasurer of Red Man in 1995. He also served
on Red Mans board of directors. Mr. Paige received
his undergraduate degree and masters degree in accounting
from Oklahoma State University. Mr. Paige is a certified
public accountant.
Stephen D. Wehrle
has served as executive vice
president branch sales and operations at our company
and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. Mr. Wehrle began working at McJunkin in
1974 as an inside sales representative. He became senior vice
president of sales at McJunkin in 1987 and became executive vice
president of sales at McJunkin in 2004. Mr. Wehrle
graduated from the University of Colorado with a bachelor of
arts degree. He currently serves on the advisory board for the
University of Charleston Graduate School of Business and is a
director of the Chemical Alliance Zone in Charleston, West
Virginia, the Clay Center for the Arts and Sciences, the Library
Foundation of Kanawha Valley, Thomas Memorial Hospital, and the
West Virginia Hospital Association. He is also director emeritus
of Childrens Home Society of West Virginia. Stephen D.
Wehrle is the brother of H.B. Wehrle, III, one of our
directors.
Jeff Lang
has served as executive vice
president branch sales and operations at our company
since August 2008 and at McJunkin Red Man Corporation, our
subsidiary, since November 2007. Mr. Lang has over
25 years experience in distribution, operations and sales.
He served as senior vice president of branch sales and
operations at Red Man from March 2006 through October 2007.
Prior to joining Red Man in March 2006, he served as director of
Ingersoll Rands North American Sales and Service business
from January 2002 to March 2006. Mr. Lang worked at
Ingersoll Rands headquarters in various leadership and
management capacities. He also led Ingersoll Rands North
American Independent Distributor business from May 1999 to
December 2002. Mr. Lang received his undergraduate degree
from Ohio University and received an MBA from Averett College.
Randy Adams
has served as senior corporate vice
president sales & marketing (focusing on
upstream and midstream markets) at our company since August 2008
and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. Mr. Adams career in the PVF
distribution industry began in 1980 with Vinson Supply Co.,
which was acquired by Red Man in 1995. He has served in many
roles at Red Man, including as branch manager from 1995 to 1997,
manager alliances and marketing from 1997 to 2000,
director
e-commerce &
alliances from 2000 to 2002, and
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vice-president
sales and marketing from 2002 to 2007. His current roles and
responsibilities include retention and growth of existing MRO
contracts and proactive growth in domestic and international oil
and gas markets. In addition to sales responsibilities, he also
manages the pricing strategy and marketing programs.
Mr. Adams received his business administration degree in
marketing from the University of North Texas.
Rory M. Isaac
has served as senior corporate vice
president sales & marketing (focusing on
downstream, industrials and gas utilities operations) at our
company since August 2008 and at McJunkin Red Man Corporation,
our subsidiary, since November 2007. He served as senior
corporate vice president national accounts at
McJunkin from 1995 to 2000 and as senior corporate vice
president national accounts, utilities and marketing
at McJunkin from 2000 to 2007. Mr. Isaac joined McJunkin in
1981. He has extensive experience in sales, customer relations
and management and has served at McJunkin as a branch manager,
regional manager and regional vice president. In 1995 he began
working in the corporate office of McJunkin in Charleston, West
Virginia as senior vice president for national accounts, where
he was responsible for managing and growing McJunkins
national accounts customer base and directing business
development efforts into integrated supply markets. In 1999 he
took on the additional responsibility of growing McJunkins
market share in key initiative areas including gas products and
marketing McJunkins capabilities. Prior to joining
McJunkin, Mr. Isaac worked at Consolidated Services, Inc.
and Charleston Supply Company. Mr. Isaac attended the
Citadel.
Gary A. Ittner
has served as senior corporate vice
president of supply chain management at our company since August
2008 and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. He has specific responsibility for the
procurement of all industrial valves, automation, fittings and
alloy tubular products. Prior to November 2007, he served as
senior corporate vice president of supply management at McJunkin
(which became McJunkin Red Man Corporation after the Red Man
Transaction in October 2007) since March 2001. Before
joining the Supply Management Group, Mr. Ittner worked in
various field positions including branch manager, regional
manager, and senior regional vice president. He is a past
chairman of the executive committee of the American Supply
Associations Industrial Piping Division. Mr. Ittner
began working at McJunkin in 1971 following his freshman year at
the University of Cincinnati and joined the company full-time
following his graduation in 1974.
Dennis Niver
has served as senior corporate vice
president of supply chain management at our company since August
2008 and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. He joined Red Man in 1977 with founder Lew
Ketchum, helping to grow the company as it emerged as a major
player in its industry. He served as purchasing manager at Red
Man before he was named vice-president purchasing in
1989. He served as vice-president purchasing and
alliances at Red Man from 1993 through October 2007.
Mr. Niver received his education from the University of
Tulsa. He currently serves as chairman of the IPD executive
committee for the American Supply Association, as well as the
supply chain management committee for the Petroleum Equipment
Suppliers Association.
Ken Hayes
has served as senior corporate vice
president of standard and line pipe at our company since August
2008 and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. He leads and directs all activities associated
with the performance of the standard and line pipe product line.
Mr. Hayes has had 29 years of experience in the
industrial, oilfield and tubular distribution business. His
primary focus for the past 19 years has been on the carbon
steel standard and line pipe product line. He previously served
as director of standard and line pipe at Red Man from April 1999
through October 2007. He initially joined Red Man in 1979 as
division manager and served in sales in various locations.
Mr. Hayes received his bachelor of science degree in
business management from New Mexico State University.
Stephen W. Lake
has served as senior corporate
vice president, general counsel and corporate secretary of our
company and of McJunkin Red Man Corporation, our subsidiary,
since June 2008.
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Prior to that date he was senior vice president
general counsel of McJunkin Red Man Corporation since joining
McJunkin Red Man Corporation in January 2008. Previously,
Mr. Lake was a shareholder at the law firm
Gable & Gotwals in Tulsa, Oklahoma from
January 1, 1998 through January 6, 2008, where he
practiced in the areas of mergers and acquisitions and
securities law. He was a member of the board of directors of
Gable & Gotwals from January 1, 2005 through
January 6, 2008 and an associate of that firm from
September 1991 until becoming a shareholder in January 1998.
Mr. Lake graduated from Vanderbilt University in 1987 with
honors in economics and graduated first in his class from the
University of Oklahoma law school in 1991. He was
editor-in-chief
of the Oklahoma Law Review from
1990-1991.
David Fox, III
has served as senior regional
vice president of the Appalachian region at our company since
August 2008 and at McJunkin Red Man Corporation, our subsidiary,
since February 2007. He served as executive vice president of
McJunkin Appalachian from 1989 to June 2008. Mr. Fox joined
McJunkin in 1989 when Appalachian Pipe merged with
McJunkins oil and gas division to form McJunkin
Appalachian. Mr. Fox founded Appalachian Pipe in 1984,
together with his brother Stephen G. Fox and Steven G. Park, as
a successor corporation to Branchland Pipe & Supply.
Branchland Pipe & Supply was started by
Mr. Foxs grandfather, David Fox, in 1919.
Mr. Fox has spent his entire career in the oil and gas
distribution industry in the Appalachian area. Mr. Fox
graduated from Marshall University with a bachelors degree
in business administration.
Craig Ketchum
has served as the chairman of our
board of directors since September 2008 and as a member of our
board of directors since October 2007. He was the president
and chief executive officer of our company and of McJunkin Red
Man Corporation, our subsidiary, from May 2008 to September
2008. Prior to that, he served as co-president and co-chief
executive officer of McJunkin Red Man Corporation since the
business combination between McJunkin and Red Man in
October 31, 2007. He has served at Red Man in various
capacities since 1979, including store operations and sales,
working at Red Man locations in Ardmore, Oklahoma, Tulsa,
Oklahoma, Denver, Colorado, and Dallas, Texas. He was named vice
president sales at Red Man in 1991, executive vice
president of Red Man in 1994 and president and chief executive
officer in 1995. He also served on Red Mans board of
directors. During his tenure as Red Mans leader, Red Man
sales increased significantly and he led Red Mans
acquisition of a majority voting interest in Midfield Supply
ULC, a successful Canadian oilfield distributor, as well as
other strategic acquisitions that provided opportunities for Red
Man to expand its product offering and geographic presence. In
2007 he led the key team players in the successful business
combination between McJunkin and Red Man. As president and chief
executive officer of our company, his expanded leadership
responsibilities in 2007 and 2008 included serving on our board
of directors, planning and formulating strategies for our
combined company, leading our combined senior management team,
communicating corporate strategy and vision to all employees,
and blending cultures and organizational structures.
Mr. Ketchum graduated from the University of Central
Oklahoma with a business degree and joined Red Man in 1979. He
has served as chairman of the Petroleum Equipment Suppliers
Association. He currently serves on the board of the
Metropolitan Tulsa Chamber of Commerce and is active in the
Young Presidents Organization.
Rhys J. Best
has been a member of our board of
directors since December 1, 2007. From 1999 until June
2004, Mr. Best was chairman, president and chief executive
officer of Lone Star Technologies, Inc., a company engaged in
producing and marketing casing, tubing, line pipe and couplings
for the oil and gas, industrial, automotive, and power
generation industries. From June 2004 until Lone Star was
acquired by the United States Steel Corporation in June 2007,
Mr. Best was chairman and chief executive officer of Lone
Star. Mr. Best retired in June 2007. Before joining Lone
Star in 1989, Mr. Best held several leadership positions in
the banking industry. In 1985 he was named president of First
City Bank Dallas, which, at that time, was the second largest
bank in the First City system. Earlier, he had worked at
Manufacturers Hanover Corporation of New York and Interfirst
Bank of Dallas. Mr. Best graduated from the University of
North Texas with a Bachelor of Business Administration Degree
and earned an M.B.A. from Southern Methodist University. He is a
109
member of the board of directors of Cabot Oil & Gas
Corporation, an independent natural gas producer, Trinity
Industries, which owns a group of businesses providing products
and services to the industrial, energy, transportation, and
construction sectors, and Austin Industries, Inc., a
Dallas-based general construction company. He is also a member
of the board of directors of Crosstex Energy GP, LLC, the
general partner of the general partner of Crosstex Energy, L.P.,
an independent midstream energy services company. He is also
involved in a number of industry-related and civic
organizations, including the Petroleum Equipment Suppliers
Association (for which he has previously served as chairman) and
the Maguire Energy Institute of Southern Methodist University.
He serves on the board of advisors of the College of Business
Administration at the University of North Texas.
Henry Cornell
has been a member of our board of
directors since November 29, 2006. Mr. Cornell is a
managing director in the Principal Investment Area of Goldman,
Sachs & Co., which he joined in 1984. He is a member
of the Investment Committee of the Principal Investment Area of
Goldman, Sachs & Co. Mr. Cornell also serves on
the board of directors of The First Marblehead Corporation and
Knight Inc. Mr. Cornell received a B.A. from Grinnell College
and a J.D. from New York Law School.
Christopher A.S. Crampton
has been a member of our
board of directors since January 31, 2007. He is currently
a vice president in the Principal Investment Area of Goldman,
Sachs & Co., which he joined in 2003. From 2000 to
2003, he worked in the investment banking division of Deutsche
Banc Alex. Brown. He is a graduate of Princeton University.
John F. Daly
has been a member of our board of
directors since January 31, 2007. Mr. Daly is a
managing director in the Principal Investment Area of Goldman
Sachs, where he has worked since 2000. In 1998 and from 1999 to
2000, he was a member of the Investment Banking Division of
Goldman Sachs. From 1991 to 1997, Mr. Daly was a Senior
Instructor of Mechanical & Aerospace Engineering at
Case Western Reserve University. He earned a B.S. and M.S. in
Engineering from Case Western Reserve University and an M.B.A.
from the Wharton School of Business. Mr. Daly currently
serves as a director of Cooper-Standard Automotive Inc. and
Hawker Beechcraft, Inc.
Harry K. Hornish, Jr.
has been a member of
our board of directors since October 31, 2007. From October
2002 to November 2005, he was the president and chief executive
officer of National Waterworks, Inc., a distributor of products
used to build, repair and maintain water and wastewater
transmission systems. Mr. Hornish retired in November 2005.
Prior to joining National Waterworks, Mr. Hornish was the
president and chief operating officer of U.S. Filter
Distribution Group, Inc. since February 1998 and also served as
the executive vice president of U.S. Filter Distribution
from its inception in 1996 until February 1998. Prior to serving
at U.S. Filter Distribution Group, Mr. Hornish was the
president and chief executive officer of The Utility Supply
Group, Inc., which was acquired by U.S. Filter Distribution
Group in 1996 after it was spun off from CertainTeed Corporation
in 1994. Mr. Hornish was employed at CertainTeed
Corporation from 1987 to 1994, where he held executive positions
in both the Building Materials and the Utility Supply divisions.
His early career included several sales, marketing, and senior
management positions with the distribution division of Owens
Corning Fiberglas. He is currently a member of the board of
directors of Underground Solutions, Inc., a provider of
infrastructure technologies for water and sewer applications,
and Generac Corp., a manufacturer of standby and prime power
generators. Mr. Hornish received a B.A. in political
science from Marshall University.
Sam B. Rovit
has been a member of our board of
directors since June 2008. Mr. Rovit was also a member of
the board of directors of McJunkin Corporation from 2001 until
January 2007. Mr. Rovit is a partner at Bain Corporate
Renewal Group, a unit of Bain & Company which provides
turnaround services. Mr. Rovit joined the Bain Corporate
Renewal Group in January 2008 and was a partner at
Bain & Company from 1989 to June 2005. From July 2005
to June 2007, he was the president and CEO of Swift &
Co., a meat processing company. Mr. Rovit earned an M.B.A.
from Harvard Business School and a Master of Arts in law and
diplomacy from the Fletcher School of Law and Diplomacy at
110
Tufts University where he studied military strategy and
international business. He received a bachelors degree in
Public Policy from Duke University.
H.B. Wehrle, III
has been a member of our
board of directors since January 31, 2007. He served as our
president and chief executive officer from January 31, 2007
to October 30, 2007. From October 31, 2007 to May
2008, Mr. Wehrle served as co-president and co-chief
executive officer of McJunkin Red Man Corporation, and from May
2008 until September 2008 he served as chairman of our board of
directors. Mr. Wehrle began his career with McJunkin
Corporation in 1973 in sales. He subsequently served as
treasurer and was later promoted to executive vice president. He
was elected president of McJunkin Corporation in 1987.
Mr. Wehrle graduated from Princeton University and received
an M.B.A. from Georgia State University. He is affiliated with
the American Supply Association and the Young Presidents
Organization. He serves on the boards of the Central
WV Regional Airport Authority, the Mid-Atlantic Technology,
Research and Innovation Center and the National Institute for
Chemical Studies in Charleston, West Virginia. He also serves on
the board of the Mountain Company in Parkersburg, West Virginia.
H.B. Wehrle, III is the brother of Stephen D. Wehrle, our
executive vice president branch sales and operations.
Each of our directors, except for Andrew Lane, is also a
director of PVF Holdings LLC, the selling stockholder in this
offering. Mr. Wehrle, one of our directors, is chairman of PVF
Holdings LLC.
Board of
Directors
Our board of directors consists of nine members. The current
directors are included above. Our directors are elected annually
to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified.
Prior to the completion of this offering, our board will
establish an audit committee and a compensation committee. Our
board of directors has determined that we are a controlled
company under the rules of the New York Stock Exchange
and, as a result, will qualify for, and may rely on, exemptions
from certain corporate governance requirements of the New York
Stock Exchange. Pursuant to the controlled company
exception to the board of directors and committee composition
requirements, we will be exempt from the rules that require that
(a) our board of directors be comprised of a majority of
independent directors, (b) our compensation
committee be comprised solely of independent
directors and (c) we establish a nominating and
corporate governance committee comprised solely of
independent directors as defined under the rules of
the New York Stock Exchange. The controlled company
exception does not modify the independence requirements for the
audit committee, and we intend to comply with the audit
committee requirements of the Sarbanes-Oxley Act and the New
York Stock Exchange, which require that our audit committee be
composed of at least one independent director at the closing of
this offering, a majority of independent directors within
90 days of this offering and all independent directors
within a year of this offering.
Audit Committee.
Our audit committee
will be comprised
of , ,
and . will
be chairman of the audit committee. Our board of directors has
determined
that
qualifies as an audit committee financial expert.
The audit committees responsibilities will be to assist
the board of directors in monitoring our financial reporting
process, accounting functions and internal controls; to oversee
the qualifications, independence, appointment, retention,
compensation and performance of our independent registered
public accounting firm; to recommend to the board of directors
the engagement of our independent accountants; to review with
the independent accountants the plans and results of the
auditing engagement; and to oversee
whistle-blowing
procedures and certain other compliance matters.
Compensation Committee.
Our
compensation committee will be comprised
of , ,
and . will
be chairman of the compensation committee. The principal
responsibilities of the compensation committee will be to
establish policies and periodically determine matters involving
executive compensation, recommend changes in employee benefit
programs, grant
111
or recommend the grant of stock options and stock awards and
provide counsel regarding key personnel selection. See
Executive Compensation Compensation
Discussion and Analysis.
Executive
Compensation
Compensation
Discussion and Analysis
Introduction
Prior to this offering, the company has been privately owned. On
January 31, 2007, the Goldman Sachs Funds acquired a
controlling interest in McJunkin. In October 2007, McJunkin and
Red Man entered into a business combination transaction to form
the combined company, McJunkin Red Man Corporation. The Goldman
Sachs Funds are part of Goldman Sachs Principal Investment
Area, one of the worlds largest private equity and
mezzanine investors. The overriding objective of our owners and
management prior to this offering has been to increase the
economic value and size of the company during the period of
ownership. Our compensation philosophy has been primarily
designed to support achieving that objective. In addition,
compensation decisions during 2007 and 2008 have been made with
an eye toward successfully integrating the compensation programs
of McJunkin and Red Man.
To date, the compensation committee of the board of directors of
PVF Holdings LLC (our controlling stockholder, with over 98% of
our common stock prior to this offering) has overseen
companywide compensation practices, reviewed, developed and
administered executive compensation programs and made
recommendations to the board of directors of PVF Holdings LLC on
compensation matters. Harry K. Hornish, Peter C.
Boylan, III and John F. Daly serve as members of this
committee. In addition, the compensation committee of the board
of directors of the company, which, during fiscal year 2007 was
also composed of Messrs. Boylan, Hornish and Daly, has
overseen and made recommendations to the board of directors of
the company on compensation matters specific to the company.
With respect to compensation matters, in general, each
compensation committee makes recommendations to its
corresponding full board of directors, and each board of
directors has final decision-making authority. However, with
respect to certain compensation policies or plans, the boards of
directors of PVF Holdings LLC and the company may delegate to
their respective compensation committees the authority to make
decisions. In August 2008, the board of directors of the company
delegated the authority to its compensation committee to
administer the companys stock option and restricted stock
plans.
Each compensation committee has established an advisory group
that develops recommendations and proposals. Each advisory group
consists of Craig Ketchum (the chairman of our board of
directors), H.B. Wehrle, III (a member of our board of
directors), James F. Underhill (our chief financial officer),
David Lewis (our senior vice president of human resources),
Diana Morris (our vice president of investor relations, payroll
and benefits) and Russ Hoos (our vice president of human
resources). Andrew Lane, our current chief executive officer,
will serve as chairman of these advisory groups. The advisory
group will continue to advise the compensation committee of the
company following this offering. The compensation committees of
PVF Holdings LLC and the company hold meetings on the same days
on which meetings of the boards of directors are held and at
other times as needed.
The compensation committee of PVF Holdings LLC has historically:
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Reviewed both performance and compensation to ensure that the
company maintains its ability to attract and retain superior
executives in key positions and that the compensation provided
to those employees is competitive with the compensation paid to
similarly situated executives at our peer companies;
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Reviewed and authorized the company to enter into employment,
severance and other compensation agreements with senior
executives;
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Administered the McJunkin Red Man Corporation Variable
Compensation Plan (a general bonus plan), the Red Man
Pipe & Supply Co. Retirement Savings Plan, the
McJunkin Corporation Profit-Sharing and Savings Plan and Trust
and the McJunkin Red Man
Non-Qualified
Deferred Compensation Plan;
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Performed such duties and responsibilities as may be assigned by
our board of directors under the terms of any other executive
compensation plan
and/or
with
respect to the issuance and management of profits units and
common units in PVF Holdings LLC; and
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Reviewed and established perquisites and employee benefits
policies.
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Following this offering, the compensation committee of the
company will generally take over the duties of the compensation
committee of PVF Holdings LLC. For purposes of this Compensation
Discussion and Analysis, board of directors and
compensation committee refer to the board of
directors and the compensation committee of PVF Holdings LLC
unless otherwise specified. We do not expect our overall
compensation philosophy to materially change as a result of the
compensation committee of the company taking over these
compensation-related duties.
Compensation
Philosophy and Objectives
Our compensation committee believes that our executive
compensation program should be structured to reward the
achievement of specific annual, long-term and strategic
performance goals of the company. The executive compensation
philosophy of the compensation committee is threefold:
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To align the interests of executive officers with those of our
shareholders, thereby providing long-term economic benefit to
the companys shareholders;
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To provide competitive financial incentives in the form of
salary, bonus and benefits, with the goal of attracting and
retaining talented executive officers; and
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To maintain a compensation program whereby executive officers
who demonstrate exceptional performance will have the
opportunity to realize appropriate economic rewards.
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Following this offering, our executive compensation program will
continue to be structured to ensure an appropriate balance
between compensation and the companys financial
performance and shareholder returns, as well as between
short-term and long-term performance.
Setting
Executive Compensation
Role of the
Compensation Committee
The compensation committee has established annual and long-term
cash and equity programs to motivate our executive officers to
achieve the business goals established by the company. In
addition to considering our philosophy and objectives, the
compensation committee considered the pre-acquisition
compensation packages of executive officers of McJunkin and Red
Man and their interests in PVF Holdings LLC through equity
rollovers and co-investments in establishing our compensation
program. Based on these factors, the compensation committee
devised a compensation program designed to keep our executive
officers highly incentivized.
Role of Executive
Officers
During 2007, H.B. Wehrle, III and Craig Ketchum (each of
whom served as chief executive officer), consulted with the
compensation committee regularly with respect to executive
compensation. Messrs. H.B. Wehrle and Ketchum made
recommendations to the compensation committee regarding the
total compensation packages for executive officers (except with
respect to their own compensation as chief executive officers),
including the amount and form of compensation. These
recommendations were presented to the compensation committee for
review, input and approval, and the compensation committee
either accepted or rejected such recommendations. The
compensation packages of
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Messrs. H.B. Wehrle and Ketchum were negotiated in
connection with the GS Acquisition and Red Man Transaction,
respectively. The compensation package of our current chief
executive officer, Andrew Lane, was negotiated as part of the
companys offer of employment to Mr. Lane.
Role of
Compensation Consultant
Due to the nature of our ownership, the compensation committee
did not engage compensation consultants in connection with the
determination of executive compensation in 2007. However, the
company recently engaged Hewitt Associates, an outside global
human resources consulting firm, to review our compensation
program, including executive compensation. Hewitt Associates is
expected to produce a report late this year in which the
companys compensation program is compared to the
compensation programs of a group of peer companies. To ensure
that our compensation program remains competitive with those of
our peers, we plan to continue to evaluate our program in
connection with our review of the Hewitt Associates report and
other relevant considerations.
Components of
Executive Compensation
The individuals who served as our chief executive officer or
chief financial officer in fiscal year 2007 and our next three
most highly compensated executive officers serving as of
December 31, 2007 were H.B. Wehrle, III, Craig Ketchum,
James F. Underhill, David Fox, III, Dee Paige and Stephen D.
Wehrle. In this prospectus, we refer to these individuals as our
named executive officers. For the fiscal year ended
December 31, 2007, the principal components of compensation
for our named executive officers were:
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Base salary
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Short-term incentive compensation
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Long-term equity incentive compensation
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Retirement and other benefits
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Perquisites and other personal benefits
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Base
Salary
The company provides named executive officers and other
employees with base salary to compensate them for services
rendered during the fiscal year. Base salary for each named
executive officer is determined based on his position and
responsibility and on available market data. During its annual
review of base salaries for executives, the compensation
committee primarily considers each executive officers
individual performance and an internal review of the
executives compensation, both individually and as compared
to that of other executive officers.
Short-term
Incentive Compensation
McJunkin Red Man Corporation maintains an annual cash bonus
plan, the Variable Compensation Plan. Messrs. H.B. Wehrle,
Underhill, Fox and S. Wehrle participated in this plan in fiscal
year 2007 starting on February 1, 2007 following the GS
Acquisition. Messrs. Ketchum and Paige began participating
in this plan in fiscal year 2008. Each of the named executive
officers has a target annual incentive bonus equal to 100% of
annual base salary. The determination of awards pursuant to the
plan depends on the achievement of two corporate performance
objectives, one with respect to adjusted earnings before
interest, taxes, depreciation and amortization (Adjusted
EBITDA) and the other with respect to return on net assets
(RONA), the achievement of which constitutes
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80% and 20% of annual awards, respectively. For fiscal year
2007, the Adjusted EBITDA and RONA goals for the heritage
McJunkin Corporation under the Variable Compensation Plan were
as follows:
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Adjusted
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Percent of Target
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Performance Level
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EBITDA
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RONA
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Award Payout
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Threshold
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$
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146,639,160
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34.87
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%
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5
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%
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Target
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$
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181,036,000
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43.05
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%
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100
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%
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Maximum
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$
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181,036,000
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43.05
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%
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100
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%
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These annual performance goals were determined by a budgeting
process that involved an examination of the companys
markets, customers and general outlook and the setting of growth
targets based on these factors. The fiscal year 2007 performance
goals related solely to the performance of McJunkin, and
excluded the performance of Red Man. Starting in fiscal year
2008, the performance goals will relate to the performance of
the entire organization, not solely to that of McJunkin. No
awards are payable under the plan unless at least 81% of the
annual goal has been achieved. At 81% achievement, there is a
payout of 5% of each participants target annual incentive
bonus; this payout increases in 5% increments for each
additional percent of achievement up to full achievement of the
annual goal. Upon full achievement of the annual goal, 100% of
the target annual incentive bonus is paid, which is the maximum
award possible under the plan. Performance measures are
evaluated on an annual basis in connection with awards to the
named executive officers.
As a result of McJunkin meeting its fiscal year 2007 performance
goals, the named executive officers who participated in the plan
during 2007 were paid 100% of their target annual incentive
bonuses (with the exception of Mr. Fox, who earned 97.4% of
his target Variable Compensation Plan award for this period),
pro-rated to reflect participation for eleven months of the
year. The amounts paid under this plan for performance in fiscal
year 2007 are as follows: $632,500 for Mr. H.B. Wehrle,
$412,500 for Mr. Underhill, $513,643 for Mr. Fox and
$531,667 for Mr. S. Wehrle. As part of an agreement reached
with Messrs. Ketchum and Paige in connection with the Red
Man Transaction, they will be eligible to receive awards under
the Variable Compensation Plan starting in 2008.
During Red Mans fiscal year ending on October 31,
2007, Messrs. Ketchum and Paige participated in the Red Man
bonus plan. The Red Man bonus pool for fiscal 2007, when Red Man
was a standalone company before the Red Man Transaction, was
determined by senior management of Red Man based on Red
Mans overall profitability, including pre-tax
profitability and pre-LIFO (last-in,
first-out)
profitability, and was not determined based on a formulaic
method. After the bonus pool was determined, senior management
made a discretionary allocation to business unit leaders of the
organization, based on senior managements assessment as to
each business units contribution to overall profitability.
Business unit leaders, in turn, made discretionary awards to the
employees in their units. The amounts awarded to
Messrs. Ketchum and Paige for fiscal year 2007 under this
plan were determined by senior management in their discretion.
These awards are set forth in the bonus column of the Summary
Compensation Table below. On November 1, 2007 following the
Red Man Transaction, executive vice presidents, senior vice
presidents and other senior officers of Red Man (including
Messrs. Ketchum and Paige) were integrated into the
Variable Compensation Plan starting in fiscal year 2008. Certain
employees of Red Man continue to participate in the Red Man
bonus plan.
In addition to amounts earned by Messrs. H.B. Wehrle,
Underhill, Fox and S. Wehrle pursuant to the Variable
Compensation Plan during fiscal year 2007, they also earned
amounts pursuant to the pre-GS Acquisition McJunkin incentive
plan for performance during January 2007. These amounts are as
follows: $187,000 for Mr. H.B. Wehrle, $73,900 for
Mr. Underhill, $127,264 for Mr. Fox and $177,650 for
Mr. S. Wehrle. The McJunkin incentive plan is a formulaic
plan, pursuant to which such amounts were earned based on the
operating profitability of McJunkin. Senior vice presidents,
vice presidents and other senior officers of McJunkin were
integrated into the Variable Compensation Plan on
February 1, 2007 following the GS Acquisition. Certain
employees of McJunkin continue to participate in the McJunkin
incentive plan.
115
Mr. H.B. Wehrle will no longer participate in the Variable
Compensation Plan as of October 1, 2008, the date his
employment agreement is scheduled to terminate pursuant to the
letter agreement dated as of September 24, 2008 between
Mr. H.B. Wehrle, PVF Holdings LLC and McJunkin Red Man
Corporation (the Letter Agreement).
Long-term Equity
Incentive Compensation
Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S.
Wehrle have been awarded profits units, and Mr. Fox has
been awarded restricted common units, each in respect of PVF
Holdings LLC, the terms of which are described in
Articles III and VII of the Limited Liability Company
Agreement of McJ Holdings LLC (currently known as PVF Holdings
LLC) (the PVF LLC Agreement). The profits units and
restricted common units granted to the named executive officers
have been granted pursuant to their employment agreements.
Although Mr. H.B. Wehrles employment agreement is
scheduled to terminate on October 1, 2008, his profits
units will continue to be governed pursuant to the terms of the
Letter Agreement and the PVF LLC Agreement. Prior to this
offering, PVF Holdings LLC owned over 98% of our common stock.
The named executive officers were not required to make any
capital contribution in exchange for their profits units and
restricted common units, which were awarded as compensation.
Profits units have no voting rights, whereas restricted common
units have voting rights with respect to that class of
interests. PVF Holdings LLC may from time to time distribute its
available cash to holders of common units and profits units.
Distributions are made, first, to holders of common units
(including restricted common units), pro rata in proportion to
the number of such units outstanding at the time of
distribution, until each holder has received an amount equal to
such holders aggregate capital contributions and, second,
to holders of all units (including profits units) pro rata in
proportion to the number of units outstanding at the time of
such distribution. Distributions in respect of restricted common
units, however, are held by the company until such restricted
common units become vested and are no longer subject to
forfeiture. Please see the table titled Outstanding Equity
Awards at 2007 Fiscal Year-End below for the number of
profits units and restricted common units held by the named
executive officers as of December 31, 2007.
Pursuant to the PVF LLC Agreement, profits units and restricted
common units generally become vested in one-third increments on
each of the third, fourth and fifth anniversaries of the date of
grant. In the event of a termination of employment other than
for Cause (as defined in the PVF LLC Agreement), the
named executive officers will forfeit all unvested profits units
and restricted common units. All profits units and restricted
common units, whether vested or unvested, will be forfeited upon
a termination of the named executive officers employment
for Cause. In the event of a termination by reason of death or
Disability (as defined in the PVF LLC Agreement), all unvested
profits units and restricted common units will be vested and
nonforfeitable. The PVF LLC Agreement also specifies that
profits units and restricted common units may be subject to more
favorable vesting schedules if approved by the board of
directors of PVF Holdings LLC.
The employment agreement of Mr. S. Wehrle provides for an
alternative vesting schedule for his profits units, with such
profits units vesting in equal installments on the fourth and
fifth anniversaries of the date of grant, which, for Mr. S.
Wehrle, was January 31, 2007. Profits units held by
Mr. S. Wehrle remain subject to the forfeiture provisions
set forth in the PVF LLC Agreement with respect to a termination
of employment other than for cause or by reason of death or
Disability (as described in the previous paragraph). The vesting
schedules of profits units held by Messrs. Underhill and
Paige and restricted common units held by Mr. Fox are
governed by the PVF LLC Agreement with respect to a termination
due to death or Disability, but each of their employment
agreements provides that in the event of the termination of
Mr. Underhills, Mr. Paiges or
Mr. Foxs employment by McJunkin Red Man Corporation
without Cause (as defined in the employment
agreement) or by Mr. Underhill, Mr. Paige or
Mr. Fox with Good Reason (as defined in the
employment agreement), all of the profits units held by
Messrs. Underhill and Paige and the restricted common units
held by Mr. Fox will vest and no longer be subject to
forfeiture. Messrs. Underhill and Paige will forfeit all
vested and unvested
116
profits units held by them in the event of a termination for
Cause by McJunkin Red Man Corporation. With respect to
restricted common units held by Mr. Fox, in the event that
Mr. Fox is terminated for Cause (as defined in
the employment agreement), Mr. Fox will not forfeit his
restricted common units that are vested at the time of
termination, but PVF Holdings LLC will have the opportunity to
purchase vested restricted common units held by Mr. Fox at
Fair Market Value (as defined in the PVF LLC
Agreement). In the event of a termination by reason of death or
Disability, profits units and restricted common units held by
Messrs. Underhill, Paige and Fox become vested in
accordance with the PVF LLC Agreement. Profits units held by
Messrs. H.B. Wehrle and Ketchum are fully vested and not
subject to forfeiture under any circumstances, pursuant to
Mr. H.B. Wehrles Letter Agreement and
Mr. Ketchums employment agreement.
Profits units and restricted common units have been granted to
the named executive officers in connection with the GS
Acquisition and the Red Man Transaction. The number of profits
units and restricted common units awarded to the named executive
officers has been determined based on various factors, including
a consideration of what size award is required to adequately
incentivize the executives (as part of the executives
overall compensation package), the extent to which the
executives have invested in the company and, most notably,
negotiations between executives and the company as part of the
overall negotiations relating to the GS Acquisition and the Red
Man Transaction.
Each of the named executive officers also holds common units in
PVF Holdings LLC. On January 31, 2007, Messrs. H.B.
Wehrle and S. Wehrle contributed shares of McJunkin and McJunkin
Appalachian to PVF Holdings LLC in exchange for common units in
PVF Holdings LLC and Mr. Fox contributed shares of
McJunkin Appalachian to PVF Holdings LLC in exchange for common
units in PVF Holdings LLC, which common units were subsequently
transferred to a trust established by Mr. Fox. Also on
January 31, 2007, Mr. Underhill purchased common units in PVF
Holdings LLC. On October 31, 2007, Mr. Ketchum
(through an LLC) contributed shares of Red Man to PVF Holdings
LLC in exchange for common units in PVF Holdings LLC. In
addition, Messrs. H.B. Wehrle, Underhill and S. Wehrle
purchased common units in PVF Holdings LLC on October 31,
2007. Mr. Paige purchased common units in PVF Holdings LLC
on November 29, 2007. Common units held by the named
executive officers were not awarded as part of their
compensation. Please see the section titled Certain
Relationships and Related Party Transactions
Transactions with Executive Officers and Directors
Investments in PVF Holdings LLC below for a more detailed
description of the common units and the number of common units
held by each named executive officer.
The company also maintains a restricted stock plan and two stock
option plans (one each for participants in the United States and
Canada). Pursuant to these plans, awards of restricted stock and
stock options may be granted to key employees, directors and
consultants of the company. Generally, shares of restricted
stock become vested in four installments on the second, third,
fourth and fifth anniversaries of the date of grant and stock
options become vested in three installments on the third, fourth
and fifth anniversaries of the date of grant, each conditioned
on continued employment and subject to accelerated vesting under
certain circumstances. The named executive officers have not
been granted any restricted stock or stock option awards due to
their receipt of profits units and restricted common units in
PVF Holdings LLC as part of their compensation packages and
their participation in equity rollovers and co-investments.
In connection with the hiring of our new chief executive
officer, Andrew Lane, on September 10, 2008, Mr. Lane
purchased $3 million of our common stock and was granted
stock options in respect of $31 million of our common
stock. Mr. Lanes options will vest in equal
installments on the second, third, fourth and fifth
anniversaries of the date of grant, each conditioned on
continued employment and subject to accelerated vesting in the
event of certain terminations of employment or the occurrence of
a change in control (as defined in the employment agreement).
117
Retirement and
Other Benefits
On December 31, 2007, the company adopted the McJunkin Red
Man Corporation Deferred Compensation Plan. Under the terms of
the plan, select members of management and highly compensated
employees may defer receipt of a specified amount or percentage
of cash compensation, including annual bonuses. The plan was
adopted in part to compensate certain participants for benefits
forgone in connection with the GS Acquisition. Each of the named
executive officers currently participates in the plan with the
exception of Mr. Paige. Mr. H.B. Wehrle will no longer
be eligible to receive company contributions pursuant to this
plan upon the termination of his employment agreement on
October 1, 2008. McJunkin Red Man Corporation makes
predetermined annual contributions to each participants
account, less any discretionary matching contributions made on
behalf of the participant by the company to a defined
contribution plan for such calendar year.
If a participants account balance as of the beginning of a
calendar year is less than $100,000, such balance will be
credited quarterly with interest at the Prime Rate
(as defined in the plan) plus 1%. If a participants
account balance at the beginning of a calendar year is $100,000
or greater, the participant may choose between being credited
quarterly with interest at the Prime Rate plus 1% or having his
or her account deemed converted into a number of phantom common
units of PVF Holdings LLC. If no investment election is made, a
participants account will be credited quarterly with
interest at the Prime Rate plus 1%. Mr. H.B. Wehrle, the
only named executive officer with a balance in excess of
$100,000 as of December 31, 2007, did not make this
election. As of December 31, 2007, all existing
participants were fully vested in their entire accounts,
including contributions by McJunkin Red Man Corporation. People
who become participants after December 31, 2007 will be
fully vested in their elective deferral amounts and shall become
vested in contributions by McJunkin Red Man Corporation as
determined by the administrator of the plan. For additional
information, please see the table titled Nonqualified
Deferred Compensation for 2007 below.
Participants receive the vested balance of their accounts, in
cash, upon a Separation from Service (as defined in
Section 409A (Section 409A) of the
Internal Revenue Code (the Code)). Such amount is
paid in three annual installments (with interest) commencing on
January 1 of the second calendar year following the calendar
year in which the Separation from Service occurs. In the event
of a participants death or Permanent
Disability (as defined in the plan), or upon a
Change in Control (as defined in the plan) of
McJunkin Red Man Corporation, the full amount of a
participants account, vested and unvested, shall be paid
within 30 days following such event, to the
participants beneficiary in the case of death, or to the
participant, in the case of Permanent Disability or a Change in
Control. Notwithstanding the foregoing regarding the timing of
payments, distributions to specified employees (as
defined in Section 409A of the Code) may be required to be
delayed in accordance with Section 409A of the Code.
Perquisites and
Other Forms of Compensation
The company provides named executive officers with perquisites
and other personal benefits that the company and the
compensation committee believe are reasonable and consistent
with its overall compensation program. The compensation
committee reviews the perquisites and personal benefits provided
to named executive officers to ensure the reasonableness of such
programs. In addition to participation in the plans and programs
described above, the named executive officers are provided use
of company automobiles, club memberships and, in some cases,
reimbursement of reasonable relocation expenses.
Each of the named executive officers has entered into an
employment agreement with McJ Holding LLC (currently known as
PVF Holdings LLC) and McJunkin Corporation (currently known
as McJunkin Red Man Corporation) that contain provisions
regarding severance payments and benefits. These agreements are
designed to promote stability and continuity of senior
management at the company. Mr. H.B. Wehrles
employment agreement is scheduled to terminate on
October 1, 2008 in accordance with the Letter Agreement,
which does not provide for severance payments or benefits
118
under any circumstances. Additional information regarding
payment under these severance provisions is provided below, in
the section titled Potential Payments Made Upon
Termination or a Change in Control.
Terminated
Arrangements
In connection with the GS Acquisition, McJunkin terminated
certain of its benefit plans, namely the McJunkin Supplemental
Executive Savings Plan and Trust and deferred compensation
arrangements entered into by McJunkin with certain executives.
The McJunkin Supplemental Executive Savings Plan and Trust was a
non-qualified deferred compensation plan designed to provide
executives with supplemental retirement benefits in addition to
the benefits provided under McJunkins qualified retirement
plan, which were limited by applicable law. The deferred
compensation arrangements were arrangements between McJunkin and
certain executives that provided for supplemental retirement
benefits, which were calculated as a percentage of five year
average earnings. Each of these plans was terminated on
January 31, 2007 in connection with the GS Acquisition.
Participants have received full distribution of benefits under
each of these plans.
Tax and
Accounting Implications
Deductibility of
Executive Compensation
Upon completion of the initial public offering,
Section 162(m) of the Code will limit the deductibility of
compensation in excess of $1 million paid out to any of our
executive officers unless specific and detailed criteria are
satisfied. We believe that it is in the companys best
interest to deduct compensation paid to our executive officers.
We will consider the anticipated tax treatment to the company
and our executive officers in the review and determination of
compensation payments and incentives. We believe that the
compensation that historically has been paid and that will be
paid will meet the criteria and will be deductible. It will be
the intent of the company to preserve the deductibility of
compensation payments. No assurance, however, can be given that
compensation will be fully deductible under Section 162(m)
of the Code.
Nonqualified
Deferred Compensation
All deferred compensation arrangements have been structured in a
manner intended to comply with Section 409A of the Code.
Compensation
Committee Report
The compensation committee reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with management and, based on such review and discussions, the
compensation committee recommended to the companys board
of directors that the Compensation Discussion and Analysis be
included in this Registration Statement.
The Compensation Committee
Harry K. Hornish
John F. Daly
119
Summary
Compensation Table for 2007
The following table sets forth certain information with respect
to compensation earned during the fiscal year ended
December 31, 2007 for all individuals who served as our
chief executive officer and our chief financial officer during
fiscal year 2007, and our next three most highly compensated
executive officers serving as of December 31, 2007. In this
prospectus, we refer to these individuals as our named executive
officers.
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Non-Equity
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Stock
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Incentive Plan
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All Other
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Name and Principal Position
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Year
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Salary(1)
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Bonus
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Awards(2)
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Compensation(3)
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Compensation
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Total
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H.B. Wehrle, III,
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2007
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$
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650,101
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$
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213,500
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$
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819,500
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$
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242,862
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(5)
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$
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1,925,963
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President and
Chief Executive Officer(4)
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Craig Ketchum,
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2007
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$
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347,823
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$
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1,100,000
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(7)
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$
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4,467
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$
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43,686
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(8)
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$
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1,495,976
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President and
Chief Executive Officer(6)
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James F. Underhill,
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2007
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$
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445,933
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$
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687,500
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(9)
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$
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334,483
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$
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486,400
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$
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127,230
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(10)
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$
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2,081,546
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Executive Vice President and
Chief Financial Officer
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David Fox, III,
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2007
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$
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559,004
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$
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373,027
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$
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640,907
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$
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2,638,930
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(11)
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$
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4,211,868
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Senior Regional Vice President
of the Appalachian Region
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Dee Paige,
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2007
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$
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239,763
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$
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1,200,000
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(12)
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$
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6,700
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$
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449,507
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(13)
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$
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1,895,970
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Executive Vice President of Canadian Operations and Business
Development
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Stephen D. Wehrle,
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2007
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$
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548,387
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$
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106,750
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$
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709,317
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$
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208,349
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(14)
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$
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1,572,803
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Executive Vice President,
Branch Sales and Operations
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(1)
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For Messrs. H.B. Wehrle,
Underhill, Fox and S. Wehrle, these amounts represent the base
salary paid to them by McJunkin for service during 2007, both
prior to and following the GS Acquisition. Messrs. Ketchum
and Paige became employed by McJunkin Red Man Corporation on
October 31, 2007 in connection with the Red Man
Transaction. For Messrs. Ketchum and Paige, these amounts
represent the base salary paid to them for service during 2007,
by Red Man prior to the Red Man Transaction and by McJunkin Red
Man Corporation thereafter.
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(2)
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These numbers reflect the amount
recognized for financial statement reporting purposes in
accordance with FAS 123R for the eleven months ended
December 31, 2007 with respect to profits units in PVF
Holdings LLC held by Messrs. H.B. Wehrle, Ketchum,
Underhill, Paige and S. Wehrle and restricted common units in
PVF Holdings LLC held by Mr. Fox. A discussion of the
assumptions underlying the valuation of these profits units is
provided in Note 9 to our audited financial statements for
the eleven months ending December 31, 2007, included
elsewhere in this prospectus.
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(3)
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These amounts represent cash awards
earned pursuant to the Variable Compensation Plan in respect of
performance during the 2007 fiscal year. As a result of McJunkin
meeting its fiscal year 2007 performance goals, the named
executive officers who participated in the plan in 2007 were
paid 100% of their target annual incentive bonuses (with the
exception of Mr. Fox, who earned 97.4% of his target
Variable Compensation Plan award for this period), pro-rated to
reflect participation during eleven months of the year. Amounts
paid under the Variable Compensation Plan for 2007 performance
are as follows: $632,500 for
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120
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Mr. H.B. Wehrle, $412,500 for
Mr. Underhill, $513,643 for Mr. Fox and $531,667 for
Mr. S. Wehrle. Messrs. Ketchum and Paige will be
eligible to earn awards under the Variable Compensation Plan
starting in fiscal year 2008. Please refer to the Compensation
Discussion and Analysis and the narrative following the
Grants of Plan-Based Awards in Fiscal Year 2007
table for a discussion of the 2007 performance goals. Amounts in
this column also include amounts earned under the
pre-GS-Acquisition McJunkin bonus plan for performance during
the month of January 2007, in the amounts as follows: $187,000
for Mr. H.B. Wehrle, $73,900 for Mr. Underhill,
$127,264 for Mr. Fox and $177,650 for Mr. S. Wehrle.
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(4)
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Mr. H.B. Wehrle was sole
president and chief executive officer of McJunkin during 2007
until October 30, 2007 and co-president and co-chief
executive officer with Mr. Ketchum from October 31,
2007 until May 6, 2008. On May 7, 2008,
Mr. Ketchum became sole president and chief executive
officer.
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(5)
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This amount includes (i) a
contribution by McJunkin Red Man Corporation of $110,000 to
Mr. H.B. Wehrles nonqualified deferred compensation
plan account; (ii) a $49,293 contribution made by McJunkin
Red Man Corporation with respect to January 2007 contributions
due under the McJunkin Supplemental Executive Savings Plan and
Trust, which was terminated in connection with the GS
Acquisition; (iii) a $21,224 contribution made by McJunkin
Red Man Corporation with respect to January 2007 contributions
due under a pre-GS Acquisition McJunkin deferred compensation
arrangement, which was terminated in connection with the GS
Acquisition; (iv) with respect to the McJunkin Corporation
Profit-Sharing and Savings Plan, $35,000 representing profit
sharing and salary deferral matching contributions made by
McJunkin Red Man Corporation; (v) $19,620 attributable to a
company-provided automobile; and (vi) $7,725 with respect
to country club dues paid by McJunkin Red Man Corporation on
behalf of Mr. H.B. Wehrle.
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(6)
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Mr. Ketchum became
co-president and co-chief executive officer of McJunkin Red Man
Corporation on October 31, 2007 in connection with the Red
Man Transaction. Mr. Ketchum served as sole president and
chief executive officer from May 7, 2008 until
September 9, 2008. On September 10, 2008 Mr. Ketchum
became chairman of our board of directors when Andrew Lane was
hired to serve as our chief executive officer.
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(7)
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This amount represents the annual
bonus paid to Mr. Ketchum pursuant to the Red Man bonus
plan for performance during the fiscal year ended
October 31, 2007.
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(8)
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This amount includes (i) a
contribution by McJunkin Red Man Corporation of $20,000 to
Mr. Ketchums nonqualified deferred compensation plan
account; (ii) with respect to the Red Man Pipe &
Supply Co. Retirement Savings Plan, $10,338 representing a
salary deferral match contribution; (iii) $5,600
attributable to a company-provided automobile, a portion of
which was paid by Red Man prior to the Red Man Transaction and a
portion of which was paid by McJunkin Red Man Corporation
following the Red Man Transaction; and (iv) $7,748 with
respect to country club dues paid on behalf of Mr. Ketchum,
a portion of which was paid by Red Man prior to the Red Man
Transaction and a portion of which was paid by McJunkin Red Man
Corporation following the Red Man Transaction.
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(9)
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In connection with the consummation
of the GS Acquisition, Mr. Underhill received a $750,000
transaction bonus, to be paid in installments, and conditioned
on Mr. Underhills continued service through each
respective payment date. This amount represents the portion of
Mr. Underhills transaction bonus earned in 2007.
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(10)
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This amount includes (i) a
contribution by McJunkin Red Man Corporation of $64,167 to
Mr. Underhills nonqualified deferred compensation
plan account; (ii) a $10,861 contribution made by McJunkin
Red Man Corporation with respect to January 2007 contributions
due under the McJunkin Supplemental Executive Savings Plan and
Trust, which was terminated in connection with the GS
Acquisition; (iii) with respect to the McJunkin Corporation
Profit-Sharing and Savings Plan, $35,000 representing profit
sharing and salary deferral matching contributions made by
McJunkin Red Man Corporation; (iv) $12,948 attributable to
a company-provided automobile; and (v) $4,254 with respect
to country club dues paid by McJunkin Red Man Corporation on
behalf of Mr. Underhill.
|
|
(11)
|
|
This amount includes (i) a
payment of $2,480,000 to Mr. Fox in connection with the GS
Acquisition as a
gross-up
for
taxes in respect of restricted common units in PVF Holdings LLC
granted to Mr. Fox; (ii) a contribution by McJunkin
Red Man Corporation of $91,666 to Mr. Foxs
nonqualified deferred compensation plan account; (iii) a
$15,705 contribution made by McJunkin Red Man Corporation with
respect to January 2007 contributions due under the McJunkin
Supplemental Executive Savings Plan and Trust, which was
terminated in connection with the GS Acquisition; (iv) with
respect to the McJunkin Corporation Profit-
|
121
|
|
|
|
|
Sharing and Savings Plan, $35,000
representing profit sharing and salary deferral matching
contributions made by McJunkin Red Man Corporation;
(v) $12,948 attributable to a company-provided automobile;
and (vi) $3,611 with respect to country club dues paid by
McJunkin Red Man Corporation on behalf of Mr. Fox.
|
|
(12)
|
|
This amount represents (i) a
$500,000 payment to Mr. Paige pursuant to the Red Man bonus
plan for performance during the fiscal year ended
October 31, 2007 and (ii) a $700,000 transaction bonus
paid to Mr. Paige by Red Man in connection with the Red Man
Transaction.
|
|
(13)
|
|
This amount includes (i) a
payment of $436,867 by PVF Holdings LLC to Mr. Paige on
January 12, 2008 in partial settlement of phantom shares in
Red Man surrendered by Mr. Paige plus interest, to which
Mr. Paige became entitled as a result of services performed
in 2007; (ii) with respect to the Red Man Pipe &
Supply Co. Retirement Savings Plan, $7,831 representing a salary
deferral match contribution; and (iii) $4,809 with respect
to country club dues paid on behalf of Mr. Paige, a portion
of which was paid by Red Man prior to the Red Man Transaction
and a portion of which was paid by McJunkin Red Man Corporation
following the Red Man Transaction.
|
|
(14)
|
|
This amount includes (i) a
contribution by McJunkin Red Man Corporation of $82,500 to
Mr. S. Wehrles nonqualified deferred compensation
plan account; (ii) a $46,433 contribution made by McJunkin
Red Man Corporation with respect to January 2007 contributions
due under the McJunkin Supplemental Executive Savings Plan and
Trust, which was terminated in connection with the GS
Acquisition; (iii) a $17,459 contribution made by McJunkin
Red Man Corporation with respect to January 2007 contributions
due under a pre-GS Acquisition McJunkin deferred compensation
arrangement, which was terminated in connection with the GS
Acquisition; (iv) with respect to the McJunkin Corporation
Profit-Sharing and Savings Plan, $35,000 representing profit
sharing and salary deferral matching contributions, made by
McJunkin Red Man Corporation; (v) $22,736 attributable to a
company-provided automobile; and (vi) $4,221 with respect
to country club dues paid by McJunkin Red Man Corporation on
behalf of Mr. S. Wehrle.
|
Grants of
Plan-Based Awards in Fiscal Year 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards:
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Fair Value
|
|
|
|
|
Estimated Future Payouts Under Non-
|
|
Shares of
|
|
of Stock
|
|
|
Grant
|
|
Equity Incentive Plan Awards
|
|
Stocks or
|
|
and Option
|
Name
|
|
Date(1)
|
|
Threshold(2)
|
|
Target(3)
|
|
Maximum(3)
|
|
Units (#)(4)
|
|
Awards(5)
|
|
H.B. Wehrle, III
|
|
|
1/31/07
|
|
|
$
|
31,625
|
|
|
$
|
632,500
|
|
|
$
|
632,500
|
|
|
|
381.3098
|
|
|
$
|
1,164,543
|
|
Craig Ketchum(6)
|
|
|
10/31/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
381.3098
|
|
|
$
|
1,164,543
|
|
James F. Underhill
|
|
|
1/31/07
|
|
|
$
|
20,625
|
|
|
$
|
412,500
|
|
|
$
|
412,500
|
|
|
|
597.3853
|
|
|
$
|
1,824,451
|
|
David Fox, III
|
|
|
1/31/07
|
|
|
$
|
26,354
|
|
|
$
|
527,083
|
|
|
$
|
527,083
|
|
|
|
640.6004
|
|
|
$
|
2,034,694
|
|
Dee Paige(6)
|
|
|
10/31/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
571.9647
|
|
|
$
|
1,746,815
|
|
Stephen D. Wehrle
|
|
|
1/31/07
|
|
|
$
|
26,583
|
|
|
$
|
531,667
|
|
|
$
|
531,667
|
|
|
|
190.6549
|
|
|
$
|
582,272
|
|
|
|
|
(1)
|
|
These are the grant dates for the
awards set forth in the sixth column of this table.
|
|
(2)
|
|
Under the Variable Compensation
Plan, no awards are payable unless there is at least 81%
achievement of the annual performance goals, which are comprised
of Adjusted EBITDA and RONA, during the relevant fiscal year. At
81% achievement, there is a payout of 5% of participants
target annual incentive bonus. The named executive officers,
except for Messrs. Ketchum and Paige, began participating
in the Variable Compensation Plan on February 1, 2007. As a
result, the amounts in this column reflect 5% of each named
executive officers target annual incentive bonus that
would have been paid upon 81% achievement of the performance
goals, pro-rated to reflect participation during eleven months
of the year. If the named executive officers had participated in
the Variable Compensation Plan during the entire 2007 year,
threshold payouts would have been as follows: $34,500 for
Mr. H.B. Wehrle, $22,500 for Mr. Underhill, $28,750
for Mr. Fox and $29,000 for Mr. S. Wehrle.
|
|
(3)
|
|
Payout under the Variable
Compensation Plan increases in 5% increments for each additional
percent of achievement beyond 81% up to full achievement of the
annual goal. Upon full achievement of the annual goal, 100% of
the target annual incentive bonus is paid, which is the maximum
award possible under the plan. In 2007, 100% of the performance
goals were attained (for all named executive officers other than
Mr. Fox). The amounts in these columns reflect 100% of the
named executive officers target annual incentive
|
122
|
|
|
|
|
bonuses for 2007, pro-rated to
reflect participation for eleven months of the year. These
amounts are also the maximum payouts possible under the Variable
Compensation Plan for 2007. If the named executive officers had
participated in the Variable Compensation Plan during the entire
2007 year, target and maximum payouts would have been as
follows: $690,000 for Mr. H.B. Wehrle, $450,000 for
Mr. Underhill, $575,000 for Mr. Fox and $580,000 for
Mr. S. Wehrle. Please refer to the Compensation Discussion
and Analysis and the narrative following the Grants of
Plan-Based Awards in Fiscal Year 2007 for a discussion of
the specific 2007 performance goals.
|
|
|
|
(4)
|
|
For Messrs. H.B. Wehrle,
Ketchum, Underhill, Paige and S. Wehrle, these amounts reflect
the number of profits units in PVF Holdings LLC granted under
the PVF LLC Agreement during 2007. For Mr. Fox, this amount
reflects the number of restricted common units in PVF Holdings
LLC granted under the PVF LLC Agreement during 2007. Pursuant to
the PVF LLC Agreement, profits units and restricted common units
generally become vested in equal increments on each of the
third, fourth and fifth anniversaries of the date of grant
subject to accelerated vesting under certain circumstances, but
may be subject to more favorable vesting schedules if approved
by the board of directors of PVF Holdings LLC. The employment
agreements for Mr. S. Wehrle provides that his profits
units become vested in equal increments on each of the fourth
and fifth anniversaries of the date of grant. Profits units held
by Messrs. Underhill and Paige and restricted common units
held by Mr. Fox become vested in accordance with the terms
of the PVF LLC Agreement, but each of their employment
agreements provides that if, at any time, Mr. Underhill,
Mr. Paige or Mr. Fox terminates his employment with
Good Reason (as defined in the employment agreement) or McJunkin
Red Man Corporation terminates Mr. Underhills,
Mr. Paiges or Mr. Foxs employment without
Cause (as defined in the employment agreement), all profits
units and restricted common units held by them shall become
vested. With respect to restricted common units held by
Mr. Fox, in the event that Mr. Fox is terminated for
Cause (as defined in the employment agreement),
Mr. Fox will not forfeit his restricted common units that
are vested at the time of termination, but PVF Holdings LLC will
have the opportunity to purchase vested restricted common units
held by Mr. Fox at Fair Market Value (as
defined in the PVF LLC Agreement). Profits units held by
Messrs. H.B. Wehrle and Ketchum are fully vested and not
subject to forfeiture under any circumstances, pursuant to
Mr. H.B. Wehrles Letter Agreement and
Mr. Ketchums employment agreement.
|
|
|
|
(5)
|
|
These amounts represent the grant
date fair value, computed in accordance with FAS 123R, of
profits units (for Messrs. H.B. Wehrle, Ketchum, Underhill,
Paige and S. Wehrle) and restricted common units (for
Mr. Fox) in PVF Holdings LLC granted to the named executive
officers in 2007. A discussion of the assumptions underlying the
valuation is provided in Note 9 to our audited financial
statements for the eleven months ending December 31, 2007,
included elsewhere in this prospectus.
|
|
(6)
|
|
Messrs. Ketchum and Paige will
be eligible to receive awards under the Variable Compensation
Plan beginning in fiscal year 2008.
|
Employment
Agreements
Named Executive
Officers
Each of the named executive officers entered into an employment
agreement with McJ Holding LLC (currently known as PVF Holdings
LLC) and McJunkin Corporation (currently known as McJunkin
Red Man Corporation) or McJunkin Red Man Holding Corporation.
Mr. Ketchum entered into an amended and restated employment
agreement with McJunkin Red Man Holding Corporation on
September 26, 2008. The employment agreements among McJ
Holding LLC, McJunkin Corporation and Mr. Underhill,
Mr. Fox and Mr. S. Wehrle were entered into on
December 4, 2006 with an effective date of January 31,
2007. The employment agreement among McJ Holding LLC, McJunkin
Corporation and Mr. Paige was entered into and became
effective on October 31, 2007. The employment agreement
among McJ Holding LLC, McJunkin Corporation and Mr. H.B. Wehrle
was entered into on December 4, 2006, became effective on
January 31, 2007, and is scheduled to terminate on
October 1, 2008 pursuant to the Letter Agreement. The
description of the employment agreements in the following
paragraph includes a description of Mr. H.B. Wehrles
employment agreement in order to assist in understanding the
information presented in the Summary Compensation Table and
Grants of Plan-Based Awards Table.
Each of the employment agreements has a term of three years and
provides for an initial annual base salary to be reviewed
annually and which may be adjusted upward at the discretion of
the board
123
of directors of McJunkin Red Man Corporation (or a committee
thereof). Messrs. H.B. Wehrles and Ketchums
initial base salaries are each $690,000,
Mr. Underhills is $450,000, Mr. Foxs is
$575,000, Mr. Paiges is $338,750 and Mr. S.
Wehrles is $580,000. The employment agreements also
provide for an annual cash bonus to be based upon such
individual
and/or
company performance criteria to be established for each
respective fiscal year by the board of directors of McJunkin Red
Man Corporation in consultation with the chief executive
officer. The target annual cash bonus for each named executive
officer is equal to 100% of their respective base salaries in
effect at the beginning of the relevant fiscal year.
Participation in the Variable Compensation Plan began on
February 1, 2007 for Messrs. H.B. Wehrle, Underhill,
Fox and S. Wehrle and will begin in fiscal year 2008 for
Messrs. Ketchum and Paige.
The employment agreements provide for certain severance payments
and benefits following a termination of employment under certain
circumstances. These benefits are described below in the section
titled Potential Payments Upon Termination or Change in
Control.
Andrew
Lane
On September 10, 2008, we entered into an employment
agreement with Andrew Lane as our new chief executive officer
and as a member of our board of directors. The employment
agreement has a term of five years, which will automatically be
extended on the fifth anniversary of September 10, 2008,
the effective date of the agreement, and each subsequent
anniversary thereof for one year unless ninety days written
notice of non-extension is given by Mr. Lane or us to the
other party. The employment agreement provides for an initial
base salary of $700,000 to be reviewed annually and which may be
adjusted upward at the discretion of the board of directors (or
a committee thereof), and an annual cash bonus to be based upon
such individual
and/or
company performance criteria to be established for each
respective fiscal year by our board of directors, with a target
annual bonus of 100% of Mr. Lanes base salary in
effect at the beginning of such fiscal year. As provided for in
the employment agreement, Mr. Lane purchased
$3 million of our common stock and was granted options in
respect of $31 million of our common stock.
If Mr. Lanes employment is terminated during the term
by us other than for cause or disability (as each is defined in
the employment agreement), or by Mr. Lane for good reason
(as defined in the employment agreement), Mr. Lane shall be
entitled to: (i) compensation and benefits accrued but
unpaid as of the termination date (the Accrued
Amounts), (ii) a pro-rata bonus for the year in which
termination occurs (Pro-Rata Bonus), (iii) a
payment equal to
1
/
12
of base salary and
1
/
12
target annual bonus each month for eighteen months following
termination, (iv) continuation of medical benefits for
eighteen months on the same terms as senior executives of the
company and (v) pro-rata vesting of Mr. Lanes
outstanding stock options, in accordance with the terms of the
employment agreement (Pro-Rata Option Vesting). All
of the foregoing benefits shall be subject to (i) the
execution of a general release, (ii) compliance with
restrictive covenants and (iii) any required delay of
payment under Section 409A of the Internal Revenue Code. If
Mr. Lanes employment is terminated during the term by
reason of his death or disability, Mr. Lane (or his estate,
if applicable), will receive (i) the Accrued Amounts,
(ii) a Pro-Rata Bonus and (iii) Pro-Rata Option
Vesting. Mr. Lane is subject to covenants prohibiting
competition, solicitation of customers and employees and
interference with business relationships during his employment
and for eighteen months thereafter, and is also subject to
perpetual restrictive covenants regarding confidentiality,
non-disparagement and proprietary rights.
H.B.
Wehrle, III
On September 24, 2008, Mr. H.B. Wehrle, PVF Holdings
LLC and McJunkin Red Man Corporation entered into the Letter
Agreement, pursuant to which Mr. H.B. Wehrles
employment agreement will terminate by mutual agreement on
October 1, 2008. Pursuant to the Letter Agreement,
Mr. H.B. Wehrle will be paid an amount equal to
approximately $2,281,396, which represents the value of all
amounts to which he would have become entitled during the
remaining term of his employment agreement. Also pursuant to the
Letter Agreement, Mr. H.B. Wehrle will continue to hold
124
his profits units in accordance with the terms of the Letter
Agreement and the PVF LLC Agreement. Also on September 24,
2008, Mr. H.B. Wehrle executed a release of claims in favor
of the company and its affiliates.
Profits Units and
Restricted Common Units
Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S.
Wehrle have been awarded profits units and Mr. Fox has been
awarded restricted common units, each in respect of PVF Holdings
LLC, the terms of which are described in Articles III and
VII of the PVF LLC Agreement. Profits units have no voting
rights, whereas restricted common units have voting rights with
respect to that class of interests. PVF Holdings LLC may from
time to time distribute its available cash to holders of common
units and profits units. Distributions are made, first, to
holders of common units (including restricted common units), pro
rata in proportion to the number of such units outstanding at
the time of distribution, until each holder has received an
amount equal to such holders aggregate capital
contributions and, second, to holders of all units (including
profits units) pro rata in proportion to the number of units
outstanding at the time of such distribution. Distributions in
respect of restricted common units, however, are held by the
company until such time as such restricted common units become
vested and are no longer subject to forfeiture.
Pursuant to the PVF LLC Agreement, profits units and restricted
common units generally become vested in equal increments on each
of the third, fourth and fifth anniversaries of the date of
grant. In the event of a termination of employment other than
for Cause (as defined in the PVF LLC Agreement), the
named executive officers will forfeit all unvested profits units
and restricted common units. All profits units and restricted
common units, whether vested or unvested, will be forfeited upon
a termination of the named executive officers employment
for Cause. In the event of a termination by reason of death or
Disability, all unvested profits units and restricted common
units would become vested. The PVF LLC Agreement also specifies
that profits units and restricted common units may be subject to
more favorable vesting schedules if approved by the board of
directors of PVF Holdings LLC.
The employment agreement of Mr. S. Wehrle provides for an
alternative vesting schedules for their profits units, which
will become vested in equal installments on the fourth and fifth
anniversaries of the date of grant, which was January 31,
2007. Profits units held by S. Wehrle remain subject to the
forfeiture provisions set forth in the PVF LLC Agreement with
respect to a termination of employment other than for cause or
by reason of death or Disability (as described in the previous
paragraph). The vesting schedules of profits units held by
Messrs. Underhill and Paige and restricted common units
held by Mr. Fox are governed by the PVF LLC Agreement, but
each of their employment agreements provides that in the event
of a termination of Mr. Underhills,
Mr. Paiges or Mr. Foxs employment by
McJunkin Red Man Corporation without Cause (as
defined in the employment agreement) or by Mr. Underhill,
Mr. Paige or Mr. Fox with Good Reason (as
defined in the employment agreement), all of the profits units
and restricted common units held by them will vest and no longer
be subject to forfeiture. Messrs. Underhill and Paige will
forfeit all vested and unvested profits units held by them in
the event of a termination for Cause by McJunkin Red Man
Corporation. With respect to restricted common units held by
Mr. Fox, in the event that Mr. Fox is terminated for
Cause (as defined in the employment agreement),
Mr. Fox will not forfeit his restricted common units that
are vested at the time of termination, but PVF Holdings LLC will
have the opportunity to purchase vested restricted common units
held by Mr. Fox at Fair Market Value (as
defined in the PVF LLC Agreement). In the event of a termination
by reason of death or Disability, profits units and restricted
common units held by Messrs. Underhill, Paige and Fox become
vested in accordance with the PVF LLC Agreement. Profits units
held by Messrs. H.B. Wehrle and Ketchum are fully vested
and not subject to forfeiture under any circumstances, pursuant
to Mr. H.B. Wehrles Letter Agreement and
Mr. Ketchums employment agreement.
125
Variable
Compensation Plan
McJunkin Red Man Corporation maintains an annual cash bonus
plan, the Variable Compensation Plan. Each of the named
executive officers participates in this plan and has a target
annual incentive bonus equal to 100% of his annual base salary.
The determination of awards pursuant to the plan depends upon
the achievement of two corporate performance measures, Adjusted
EBITDA and RONA, the achievement of which constitutes 80% and
20% of annual awards, respectively. These performance measures
are evaluated on an annual basis in connection with awards to
the named executive officers. No awards are payable under the
plan unless at least 81% of the annual goal has been achieved.
At 81% achievement, there is a payout of 5% of each
participants target annual incentive bonus; this payout
increases in 5% increments for each additional percent of
achievement up to full achievement of the annual goal. Upon full
achievement of the annual goal, 100% of the target annual
incentive bonus is paid, which is the maximum award possible
under the plan.
Starting on February 1, 2007, following the GS Acquisition,
Messrs. H.B. Wehrle, Underhill, Fox and S. Wehrle
participated in this plan. Messrs. Ketchum and Paige, who
joined the company on October 31, 2007, will be eligible to
receive awards under the plan starting in fiscal year 2008.
During the 2007 fiscal year, the performance goals were Adjusted
EBITDA of $181,036,000 and RONA of 43.05%. These 2007
performance goals related solely to the performance of McJunkin
Red Man Corporation, and excludes the performance of Red Man
Pipe & Supply Co. As a result of McJunkin meeting its
performance goals, the named executive officers who participated
in the plan during 2007 were paid 100% of their target annual
incentive bonus (with the exception of Mr. Fox, who earned
97.4% of his target Variable Compensation Plan award for this
period), pro-rated to reflect participation for eleven months of
the year. Amounts earned by the named executive officers under
this plan in 2007 were as follows: $632,500 for Mr. H.B.
Wehrle, $412,5000 for Mr. Underhill, $513,643 for
Mr. Fox and $531,667 for Mr. S. Wehrle. Mr. H.B.
Wehrle will no longer participate in the Variable Compensation
Plan upon the termination of his employment agreement on
October 1, 2008.
Outstanding
Equity Awards at 2007 Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Number of Shares
|
|
Market Value of Shares
|
|
|
or Units of Stock That
|
|
or Units of Stock That
|
Name
|
|
Have Not Vested
(#)(1)
|
|
Have Not Vested(2)
|
|
H.B. Wehrle, III
|
|
|
381.3098
|
|
|
$
|
0
|
|
Craig Ketchum
|
|
|
381.3098
|
|
|
$
|
0
|
|
James F. Underhill
|
|
|
597.3853
|
|
|
$
|
0
|
|
David Fox, III
|
|
|
640.6004
|
|
|
$
|
0
|
|
Dee Paige
|
|
|
571.9647
|
|
|
$
|
0
|
|
Stephen D. Wehrle
|
|
|
190.6549
|
|
|
$
|
0
|
|
|
|
|
(1)
|
|
Reflects profits units granted to Messrs. H.B. Wehrle,
Ketchum, Underhill, Paige and S. Wehrle in 2007 and restricted
common units granted to Mr. Fox in 2007, each in respect of
PVF Holdings LLC pursuant to the PVF LLC Agreement. Pursuant to
the PVF LLC Agreement, profits units and restricted common units
generally become vested in equal increments on each of the
third, fourth and fifth anniversaries of the date of grant, but
may be subject to more favorable vesting schedules if approved
by the board of directors of PVF Holdings LLC. The employment
agreement for Mr. S. Wehrle provides that his profits units
become vested in equal increments on each of the fourth and
fifth anniversaries of the date of grant subject to accelerated
vesting under certain circumstances. Profits units held by
Messrs. Underhill and Paige and restricted common units
held by Mr. Fox become vested in accordance with the PVF
LLC Agreement, but each of their employment agreements provides
that if, at any time, Mr. Underhill, Mr. Paige or
Mr. Fox terminate their employment with Good
Reason (as defined in the employment agreement) or
McJunkin
|
126
|
|
|
|
|
Red Man Corporation terminates Mr. Underhills,
Mr. Paiges or Mr. Foxs employment without
Cause (as defined in the employment agreement), all
profits units and restricted common units held by them shall
become vested. With respect to restricted common units held by
Mr. Fox, in the event that Mr. Fox is terminated for
Cause (as defined in the employment agreement),
Mr. Fox will not forfeit his restricted common units that
are vested at the time of termination, but PVF Holdings LLC
would have the opportunity to purchase vested restricted common
units held by Mr. Fox at Fair Market Value (as
defined in the PVF LLC Agreement). The date of grant for
Messrs. H.B. Wehrle, Underhill, Fox and S. Wehrle was
January 31, 2007 and for Messrs. Ketchum and Paige was
October 31, 2007. Profits units held by Messrs. H.B.
Wehrle and Ketchum are fully vested and not subject to
forfeiture under any circumstances, pursuant to
Mr. H.B. Wehrles Letter Agreement and
Mr. Ketchums employment agreement.
|
|
|
|
(2)
|
|
The market value of unvested profits units and restricted common
units in PVF Holdings LLC on December 31, 2007 was $0.
|
Nonqualified
Deferred Compensation for 2007
|
|
|
|
|
|
|
|
|
|
|
Registrant
|
|
Aggregate
|
|
|
Contributions in
|
|
Balance
|
Name
|
|
Last FY(1)
|
|
at Last FYE
|
|
H.B. Wehrle, III
|
|
$
|
110,000
|
|
|
$
|
110,000
|
|
Craig Ketchum
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
James F. Underhill
|
|
$
|
64,167
|
|
|
$
|
64,167
|
|
David Fox, III
|
|
$
|
91,666
|
|
|
$
|
91,666
|
|
Dee Paige
|
|
$
|
0
|
|
|
$
|
0
|
|
Stephen D. Wehrle
|
|
$
|
82,500
|
|
|
$
|
82,500
|
|
|
|
|
(1)
|
|
These amounts are included in the All Other Compensation column
of the Summary Compensation Table.
|
McJunkin Red Man Corporation maintains the McJunkin Red Man
Corporation Deferred Compensation Plan, in which all named
executive officers participate with the exception of
Mr. Paige. Mr. H.B. Wehrle will no longer be eligible
to receive company contributions pursuant to this plan upon the
termination of his employment agreement on October 1, 2008.
Under the terms of the plan, select members of management and
highly compensated employees may defer receipt of a specified
amount or percentage of their cash compensation, including
annual bonuses. In addition, McJunkin Red Man Corporation makes
annual contributions to participants accounts. This plan
was adopted by McJunkin Red Man Corporation on December 31,
2007, on which date company contributions to accounts held by
the named executive officers set forth above were made by
McJunkin Red Man Corporation. There were no executive officer
contributions, earnings, withdrawals or distributions with
respect to these accounts during 2007.
If a participants account balance as of the beginning of a
calendar year is less than $100,000, such balance will be
credited quarterly with interest at the Prime Rate
(as defined in the plan) plus 1%. If a participants
account balance at the beginning of a calendar year is $100,000
or greater, the participant may elect between being credited
quarterly with interest at the Prime Rate plus 1% or having his
or her account deemed converted into a number of phantom common
units of PVF Holding LLC. If no investment election is made, a
participants account will credited quarterly with interest
at the Prime Rate plus 1%. Mr. H.B. Wehrle, the only named
executive officer with a balance in excess of $100,000 as of
December 31, 2007, did not make this election.
The named executive officers are currently fully vested in their
accounts, including company contributions. Participants receive
the vested balance of their accounts, in cash, upon a
Separation from Service (as defined in
Section 409A). Such amount is paid in three annual
installments (with interest) commencing on January 1 of the
second calendar year following the calendar year in which
127
the Separation from Service occurs. In the event of a
participants death or Permanent Disability (as
defined in the plan), or upon a Change in Control
(as defined in the plan) of McJunkin Red Man Corporation, the
full amount of a participants account, vested and
unvested, shall be paid within 30 days following such
event, to the participants beneficiary, in the case of
death, or to the participant, in the case of Permanent
Disability or a Change in Control. Notwithstanding the foregoing
regarding the timing of payments, distributions to
specified employees (as defined in Section 409A
of the Code) may be required to be delayed in accordance with
Section 409A of the Code.
Director
Compensation for 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
or Paid
|
|
Option
|
|
All Other
|
|
|
Name
|
|
in Cash
|
|
Awards(1)
|
|
Compensation
|
|
Total
|
|
Harry K. Hornish
|
|
$
|
112,500
|
|
|
|
|
|
|
$
|
4,901
|
(2)
|
|
$
|
117,401
|
|
Peter C. Boylan, III
|
|
$
|
16,667
|
|
|
$
|
3,257
|
(3)(4)
|
|
|
|
|
|
$
|
19,924
|
|
Rhys Best
|
|
$
|
8,333
|
|
|
$
|
1,584
|
(5)(6)
|
|
|
|
|
|
$
|
9,917
|
|
H.B. Wehrle, III(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig Ketchum(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Cornell(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher A.S. Crampton(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Daly(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Fox, III(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kent Ketchum(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. Gaines Wehrle(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The aggregate number of shares of our common stock subject to
option awards outstanding on December 31, 2007
was for
each of Messrs. Boylan and Best (taking into account the
stock split).
|
|
(2)
|
|
Mr. Hornish participates in the company medical and dental
plans that are offered to employees. The company pays all costs
of this coverage for Mr. Hornish. This amount represents
the annual cost to the company of providing such coverage,
pro-rated to reflect Mr. Hornishs coverage for two
months of the 2007 year. Starting in 2008, Mr. Hornish will
receive an annual fee of $100,000 for his service on our board
of directors. In addition, starting in 2008, Mr. Hornish will no
longer be eligible to participate in the company health and
dental plans available to employees.
|
|
(3)
|
|
Mr. Boylan was awarded stock options in respect
of shares
on December 24, 2007 (taking into account the stock split).
The amount in the table reflects the dollar amount recognized
for financial statement reporting purposes in accordance with
FAS 123R for the eleven months ended December 31,
2007. A discussion of the assumptions underlying the valuation
is provided in Note 9 to our audited financial statements
for the eleven months ending December 31, 2007, included
elsewhere in this prospectus.
|
|
(4)
|
|
The grant date fair value of Mr. Boylans option
award, computed in accordance with FAS 123R, was $1,281
using the Black Scholes method. A discussion of the assumptions
underlying the valuation is provided in Note 9 to our
audited financial statements for the eleven months ending
December 31, 2007, included elsewhere in this prospectus.
|
|
(5)
|
|
Mr. Best was awarded stock options in respect
of shares
on December 24, 2007 (taking into account the stock split).
The amount in the table reflects the dollar amount recognized
for financial statement reporting purposes in accordance with
FAS 123R for the fiscal year ended December 31, 2007.
A discussion of the assumptions underlying the valuation is
provided in Note 9 to our audited financial statements for
the eleven months ending December 31, 2007, included
elsewhere in this prospectus.
|
|
(6)
|
|
The grant date fair value of Mr. Bests option award,
computed in accordance with FAS 123R, was $1,226 using the
Black Scholes method. A discussion of the assumptions underlying
the valuation
|
128
|
|
|
|
|
is provided in Note 9 to our audited financial statements
for the eleven months ending December 31, 2007, included
elsewhere in this prospectus.
|
|
(7)
|
|
Each of these directors served on our board of directors during
2007, but did not receive any compensation for such service.
Mr. Cornell has served on our board of directors since
November 29, 2006. Messrs. Crampton and Daly have
served on our board of directors since January 31, 2007.
Craig Ketchum has served on our board of directors since
October 31, 2007. Kent Ketchum served on our board of
directors from October 31, 2007 until August 2008.
Mr. Fox and Mr. Wehrle served on our board from
January 31, 2007 until August 2008.
|
Mr. Hornish was appointed to the board of directors of McJunkin
Red Man Corporation on March 20, 2007 and to our board of
directors on October 31, 2007. The amounts for Mr. Hornish
in the above table were earned by him for his service on the
board of directors of McJunkin Red Man Corporation and on the
board of directors of the company during 2007 following each
respective appointment date. Mr. Boylan was appointed to our
board of directors as of October 31, 2007 and Mr. Best
was appointed to our board of directors as of December 1,
2007. As a result, the cash fees received by Messrs. Boylan
& Best during fiscal year 2007 are also for a partial year
of service. For their service as directors in 2007,
Mr. Hornish was entitled to receive an annual fee of
$150,000 and Messrs. Boylan and Best were entitled to
receive an annual fee of $100,000. Starting in 2008,
Mr. Hornish will receive an annual fee of $100,000 for his
service on our board of directors. In addition, starting in
2008, Mr. Hornish will no longer be eligible to participate
in the company health and dental plans available to our
employees. On December 24, 2007, each of Messrs. Best
and Boylan was granted an option to
purchase
of our common shares, with an original exercise price of
$ (taking into account the stock
split). The exercise price was subsequently reduced to
$ (taking into account the stock
split) in connection with our recapitalization in May 2008.
Messrs. Hornish, Boylan and Best were the only directors to
receive compensation for services performed in 2007. All
directors are also reimbursed for travel expenses and other
out-of-pocket costs incurred in connection with their attendance
at meetings.
On June 16, 2008, Sam Rovit was appointed to serve on our
board of directors, for which he will be paid an annual cash fee
of $100,000 in respect of his services. Also in connection with
Mr. Rovits appointment, he was granted an option to
purchase
of our common shares at an exercise price of
$ (taking into account the stock
split).
All option grants made to directors were made pursuant to the
McJ Holding Stock Option Plan and generally vest in equal
increments on each of the third, fourth and fifth anniversaries
of the date of grant, conditioned on continued service and
subject to accelerated vesting under certain circumstances.
Potential
Payments upon Termination or Change in Control
Each of the named executive officers would be entitled to
certain payments and benefits following a termination of
employment under certain circumstances and upon a change in
control. These benefits are summarized below. The amounts of
potential post-employment payments and benefits in the table
following the narrative below assume that termination of
employment took place on December 31, 2007.
The narrative and table below describe our obligations to
Messrs. Ketchum, Underhill, Fox, Paige and S. Wehrle
pursuant to their employment agreements and to Mr. H.B.
Wehrle pursuant to the Letter Agreement, as well as our
obligations to the named executive officers pursuant to other
compensatory arrangements.
Voluntary
Separation
In the event of the voluntary separation of each named executive
officer except for Messrs. H.B. Wehrle and Ketchum,
all unvested profits units and restricted common units in PVF
Holdings LLC held by such officer (which, as of
December 31, 2007, included all profits units and
129
restricted common units held by each named executive officer)
would be forfeited pursuant to the PVF LLC Agreement. Pursuant
to the Letter Agreement and Mr. Ketchums employment
agreement, profits units held by H.B. Wehrle and Mr.
Ketchum would be vested and nonforfeitable. The fully vested
accounts in the McJunkin Red Man Corporation Nonqualified
Deferred Compensation Plan held by each named executive officer
would become payable (subject to the requirements of
Section 409A of the Code). Each named executive officer
would also be paid the value of any accrued but unused vacation
time as of December 31, 2007.
Termination
Not for Cause and Termination for Good Reason
The employment agreements to which Messrs. Ketchum,
Underhill, Fox, Paige and S. Wehrle are parties provide
that if McJunkin Red Man Corporation terminates the named
executive officers employment other than for
Cause or Disability (as such terms are
defined in the employment agreement) or if the named executive
officer terminates his employment for Good Reason
(as such term is defined in the employment agreement), then the
named executive officer would be entitled to (i) all
accrued, but unpaid, obligations (including, but not limited to,
salary, bonus, expense reimbursement or vacation pay),
(ii) continuation of base salary for a period of
12 months at the rate in effect immediately prior to
termination, (iii) continuation of medical benefits for
12 months or until such earlier time as he becomes eligible
for medical benefits from a subsequent employer on the same
terms as active senior executives of McJunkin Red Man
Corporation and (iv) a pro-rata annual bonus for the fiscal
year in which termination occurs, based on actual performance
through the end of the fiscal year. However, because
Messrs. Ketchum and Paige did not participate in the
Variable Compensation Plan during fiscal year 2007, they would
not be entitled to a pro-rata annual bonus assuming a
termination date of December 31, 2007. The termination
payments and the provision of benefits described in this
paragraph are subject to the execution of a release and
compliance with restrictive covenants prohibiting competition,
solicitation of employees and interference with business
relationships during the restriction period applicable to each
named executive officer. The restriction period for each of
Messrs. Ketchum, Fox and S. Wehrle is the greater of
(i) five years following the effective date of the
employment agreement and (ii) the duration of employment
and 24 months following termination of employment, and the
restriction period for Messrs. Underhill and Paige is the
duration of employment and 12 months following termination
of employment.
Pursuant to the Letter Agreement, Mr. H.B. Wehrle is not
entitled to any severance payments or benefits in the event that
his service as chairman of the board of directors of PVF
Holdings LLC or as a member of our board of directors is
terminated under any circumstances. In addition, the Letter
Agreement does not contemplate severance in the event of a
termination of Mr. H.B. Wehrles service for good
reason. As a result, Mr. H.B. Wehrle would not be entitled
to base salary continuation, a pro-rata bonus or medical benefit
continuation in the event of his termination under these
circumstances. Mr. H.B. Wehrle is subject to restrictive
covenants during his service as a director and for the period
that ends on the later of (i) January 31, 2012 or
(ii) twenty-four (24) months following the date that
he ceases to serve either as chairman of the board of directors
of PVF Holdings LLC or as a member of the board of directors of
the company.
In addition, Messrs. H.B. Wehrle, Ketchum, Underhill, Paige
and S. Wehrle hold profits units and Mr. Fox holds
restricted common units, each in respect of PVF Holdings LLC.
The vesting schedules of these profits units and restricted
common units are described in the narrative following the
Grants of Plan-Based Awards in Fiscal Year 2007
table. As of December 31, 2007, all profits units and
restricted common units held by the named executive officers
were unvested. In the event of the termination of a named
executive officers employment by the company other than
for Cause or by a named executive officer for Good Reason, all
unvested profits units held by the named executive officers
would be forfeited, with the exception of the profits units held
by Messrs. Underhill and Paige, which would be fully vested
and nonforfeitable. Profits units held by Messrs. H.B.
Wehrle and Ketchum would be fully vested and not subject to
forfeiture. Under these circumstances Mr. Foxs
restricted common units would also become fully vested and
nonforfeitable.
130
The fully vested account in the McJunkin Red Man Corporation
Nonqualified Deferred Compensation Plan held by each named
executive officer would become payable (subject to the
requirements of Section 409A) upon a termination by the
company of such named executive officers employment other
than for Cause or a termination of employment by such named
executive officer for Good Reason.
Each named executive officer would also be paid the value of any
accrued but unused vacation time as of December 31, 2007.
In determining the appropriate payment and benefit levels, the
compensation committee considers what level of compensation is
required to attract and motivate executive officers. In making
decisions regarding executive officer compensation, the
compensation committee considers the overall economic value of
the compensation packages for executive officers, which includes
a consideration of the payments and benefits to which an
executive officer would be entitled in the event of certain
qualifying terminations or a change in control.
Termination by
the Company for Cause
Pursuant to the PVF LLC Agreement, upon a termination of
employment by the company for Cause, profits units held by
Messrs. Ketchum, Underhill, Paige and S. Wehrle, whether or
not vested, would be forfeited immediately for no consideration.
Pursuant to the Letter Agreement, and Mr. Ketchums
employment agreement, profits units held by Messrs. H.B. Wehrle
and Ketchum would be fully vested and nonforfeitable. Unvested
restricted common units held by Mr. Fox would also be
forfeited immediately for no consideration in the event of
Mr. Foxs termination by the company for Cause.
However, restricted common units held by Mr. Fox that are
vested at the date of his termination (none of
Mr. Foxs restricted common units were vested as of
December 31, 2007) would not be forfeited, but would
be subject to a right of repurchase by McJunkin Red Man
Corporation. As described in the narrative following the
Nonqualified Deferred Compensation table, the fully
vested accounts in the McJunkin Red Man Corporation Nonqualified
Deferred Compensation Plan held by each named executive officer
would become payable (subject to the requirements of
Section 409A). Each named executive officer would also be
paid the value of any accrued but unused vacation time as of
December 31, 2007.
Termination
due to Death or Disability
Pursuant to the employment agreements to which
Messrs. Ketchum, Underhill, Paige, Fox and S. Wehrle
are parties, upon a termination of employment due to the death
or disability, they (or their beneficiaries) would be entitled
to receive a pro-rata portion of the annual bonus for the fiscal
year in which termination occurs, based on actual performance
through the end of the fiscal year. However, because
Messrs. Ketchum and Paige did not participate in the
Variable Compensation Plan during fiscal year 2007, they would
not be entitled to a pro-rata annual bonus assuming a
termination date of December 31, 2007.
Pursuant to the Letter Agreement, Mr. H.B. Wehrle would not
be entitled to a pro-rata annual bonus for the fiscal year in
which his termination occurs because his participation in the
Variable Compensation Plan will end upon the termination of his
employment agreement. Pursuant to the PVF LLC Agreement, all
unvested profits units held by Messrs. H.B. Wehrle,
Ketchum, Underhill, Paige and S. Wehrle (which, as of
December 31, 2007, included all of their profits units)
would be fully vested and nonforfeitable in the event of a
termination due to death or Disability (as defined
in the PVF LLC Agreement). Mr. Foxs restricted common
units would also become fully vested. In the event of
termination due to death or Permanent Disability (as
such term is defined in the McJunkin Red Man Nonqualified
Deferred Compensation Plan), the full amount of each named
executive officers account, whether or not vested, would
be payable. Each named executive officer (or their
beneficiaries) would also be paid the value of any accrued but
unused vacation time as of December 31, 2007.
131
Change in
Control
The PVF LLC Agreement provides that in the event of a
Transaction (as defined in the PVF LLC Agreement), profits units
and restricted common units would be fully vested and
nonforfeitable. This accelerated vesting of the profits units
and restricted common units was negotiated as part of the PVF
LLC Agreement in connection with overall negotiations relating
to the GS Acquisition. The PVF LLC Agreement defines
Transaction as (i) any event which results in
the GSCP Members (as defined in the PVF LLC Agreement) and its
or their Affiliates (as defined in the PVF LLC Agreement)
ceasing to directly or indirectly beneficially own, in the
aggregate, at least 35% of the equity interests of McJunkin Red
Man Corporation that they beneficially owned directly or
indirectly as of January 31, 2007; or (ii) in a single
transaction or a series of related transactions, the occurrence
of the following event: a majority of the outstanding voting
power of PVF Holdings LLC, McJunkin Red Man Holding Corporation
or McJunkin Red Man Corporation, or substantially all of the
assets of McJunkin Red Man Corporation, shall have been acquired
or otherwise become beneficially owned, directly or indirectly,
by any Person (as defined in the PVF LLC Agreement) (other than
any Member (as defined in the PVF LLC Agreement) on the
effective date of the PVF LLC Agreement or any of its or their
Affiliates, or PVF Holdings LLC or any of its Affiliates) or any
two or more Persons (other than any Member on the date of the
PVF LLC Agreement or any of its or their Affiliates, or the
McJunkin Red Man Corporation or any of its Affiliates) acting as
a partnership, limited partnership, syndicate or other group,
entity or association acting in concert for the purpose of
voting, acquiring, holding or disposing of the voting power of
PVF Holdings LLC, McJunkin Red Man Holding Corporation or
McJunkin Red Man Corporation; it being understood that, for this
purpose, the acquisition or beneficial ownership of voting
securities by the public shall not be an acquisition or
constitute beneficial ownership by any Person or Persons acting
in concert. The table below assumes that a Transaction as so
defined has occurred.
Pursuant to the McJunkin Red Man Corporation Nonqualified
Deferred Compensation Plan, the full amount of a
participants account becomes vested to the extent not
already vested upon a Change in Control and shall be paid within
thirty days of such Change in Control. The plan defines
Change in Control as, in a single transaction or a
series of related transactions, the occurrence of the following
event: a majority of the outstanding voting power of PVF
Holdings LLC, McJunkin Red Man Holding Corporation or McJunkin
Red Man Corporation, or substantially all of the assets of
McJunkin Red Man Corporation, shall have been acquired or
otherwise become beneficially owned, directly or indirectly, by
any Person (as defined in the plan) (other than any Member (as
defined in the PVF LLC Agreement) or any of its or their
affiliates, or PVF Holdings LLC or any of its affiliates) or any
two or more Persons (other than any Member or any of its or
their affiliates, or PVF Holdings LLC or any of its affiliates)
acting as a partnership, limited partnership, syndicate or other
group, entity or association acting in concert for the purpose
of voting, acquiring, holding or disposing of the voting power
of PVF Holdings LLC, McJunkin Red Man Holding Corporation or
McJunkin Red Man Corporation; it being understood that, for this
purpose, the acquisition or beneficial ownership of voting
securities by the public shall not be an acquisition or
constitute beneficial ownership by any Person or Persons acting
in concert. The table below assumes that a Change in Control as
so defined has occurred. The accelerated vesting of accounts
under the McJunkin Red Man Corporation Nonqualified Deferred
Compensation Plan in the event of a change in control does not
provide an extra benefit to the named
132
executive officers because each of their accounts was fully
vested as of the effective date of the plan, which was
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
Base
|
|
|
|
Medical
|
|
|
|
Compensation
|
|
|
|
|
Accrued
|
|
Salary
|
|
Pro Rata
|
|
Benefit
|
|
Profits
|
|
Account
|
|
|
Name
|
|
Obligations(1)
|
|
Continuation
|
|
Bonus(2)
|
|
Continuation
|
|
Units(3)
|
|
Balance
|
|
Total
|
|
H.B. Wehrle, III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary Separation
|
|
$
|
79,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
110,000
|
|
|
$
|
189,617
|
|
Not for Cause Termination
|
|
$
|
79,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
110,000
|
|
|
$
|
189,617
|
|
Termination for Good Reason
|
|
$
|
79,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
110,000
|
|
|
$
|
189,617
|
|
Involuntary for Cause Termination
|
|
$
|
79,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
110,000
|
|
|
$
|
189,617
|
|
Death
|
|
$
|
79,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
110,000
|
|
|
$
|
189,617
|
|
Disability
|
|
$
|
79,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
110,000
|
|
|
$
|
189,617
|
|
Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
110,000
|
|
|
$
|
110,000
|
|
|
|
Craig Ketchum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary Separation
|
|
$
|
66,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
20,000
|
|
|
$
|
86,346
|
|
Not for Cause Termination
|
|
$
|
66,346
|
|
|
$
|
690,000
|
|
|
$
|
0
|
|
|
$
|
7,360
|
|
|
$
|
0
|
|
|
$
|
20,000
|
|
|
$
|
783,706
|
|
Termination for Good Reason
|
|
$
|
66,346
|
|
|
$
|
690,000
|
|
|
$
|
0
|
|
|
$
|
7,360
|
|
|
$
|
0
|
|
|
$
|
20,000
|
|
|
$
|
783,706
|
|
Involuntary for Cause Termination
|
|
$
|
66,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
20,000
|
|
|
$
|
86,346
|
|
Death
|
|
$
|
66,346
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
20,000
|
|
|
$
|
86,346
|
|
Disability
|
|
$
|
66,346
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
20,000
|
|
|
$
|
86,346
|
|
Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
|
|
James F. Underhill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary Separation
|
|
$
|
43,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
64,167
|
|
|
$
|
107,437
|
|
Not for Cause Termination
|
|
$
|
43,270
|
|
|
$
|
450,000
|
|
|
$
|
412,500
|
|
|
$
|
7,360
|
|
|
$
|
0
|
|
|
$
|
64,167
|
|
|
$
|
977,297
|
|
Termination for Good Reason
|
|
$
|
43,270
|
|
|
$
|
450,000
|
|
|
$
|
412,500
|
|
|
$
|
7,360
|
|
|
$
|
0
|
|
|
$
|
64,167
|
|
|
$
|
977,297
|
|
Involuntary for Cause Termination
|
|
$
|
43,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
64,167
|
|
|
$
|
107,437
|
|
Death
|
|
$
|
43,270
|
|
|
|
|
|
|
$
|
412,500
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
64,167
|
|
|
$
|
519,937
|
|
Disability
|
|
$
|
43,270
|
|
|
|
|
|
|
$
|
412,500
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
64,167
|
|
|
$
|
519,937
|
|
Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
64,167
|
|
|
$
|
64,167
|
|
|
|
David Fox, III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary Separation
|
|
$
|
66,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
91,666
|
|
|
$
|
158,013
|
|
Not for Cause Termination
|
|
$
|
66,347
|
|
|
$
|
575,000
|
|
|
$
|
513,643
|
|
|
$
|
7,360
|
|
|
$
|
0
|
|
|
$
|
91,666
|
|
|
$
|
1,254,016
|
|
Termination for Good Reason
|
|
$
|
66,347
|
|
|
$
|
575,000
|
|
|
$
|
513,643
|
|
|
$
|
7,360
|
|
|
$
|
0
|
|
|
$
|
91,666
|
|
|
$
|
1,254,016
|
|
Involuntary for Cause Termination
|
|
$
|
66,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
91,666
|
|
|
$
|
158,013
|
|
Death
|
|
$
|
66,347
|
|
|
|
|
|
|
$
|
513,643
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
91,666
|
|
|
$
|
671,656
|
|
Disability
|
|
$
|
66,347
|
|
|
|
|
|
|
$
|
513,643
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
91,666
|
|
|
$
|
671,656
|
|
Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
91,666
|
|
|
$
|
91,666
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
Base
|
|
|
|
Medical
|
|
|
|
Compensation
|
|
|
|
|
Accrued
|
|
Salary
|
|
Pro Rata
|
|
Benefit
|
|
Profits
|
|
Account
|
|
|
Name
|
|
Obligations(1)
|
|
Continuation
|
|
Bonus(2)
|
|
Continuation
|
|
Units(3)
|
|
Balance
|
|
Total
|
|
Dee Paige
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary Separation
|
|
$
|
32,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
32,572
|
|
Not for Cause Termination
|
|
$
|
32,572
|
|
|
$
|
338,750
|
|
|
$
|
0
|
|
|
$
|
7,360
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
378,682
|
|
Termination for Good Reason
|
|
$
|
32,572
|
|
|
$
|
338,750
|
|
|
$
|
0
|
|
|
$
|
7,360
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
378,682
|
|
Involuntary for Cause Termination
|
|
$
|
32,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
32,572
|
|
Death
|
|
$
|
32,572
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
32,572
|
|
Disability
|
|
$
|
32,572
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
32,572
|
|
Change in Control
|
|
$
|
32,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
32,572
|
|
|
|
Stephen D. Wehrle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary Separation
|
|
$
|
66,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,500
|
|
|
$
|
149,424
|
|
Not for Cause Termination
|
|
$
|
66,924
|
|
|
$
|
580,000
|
|
|
$
|
531,667
|
|
|
$
|
7,360
|
|
|
|
|
|
|
$
|
82,500
|
|
|
$
|
1,268,451
|
|
Termination for Good Reason
|
|
$
|
66,924
|
|
|
$
|
580,000
|
|
|
$
|
531,667
|
|
|
$
|
7,360
|
|
|
|
|
|
|
$
|
82,500
|
|
|
$
|
1,268,451
|
|
Involuntary for Cause Termination
|
|
$
|
66,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,500
|
|
|
$
|
149,424
|
|
Death
|
|
$
|
66,924
|
|
|
|
|
|
|
$
|
531,667
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
82,500
|
|
|
$
|
681,091
|
|
Disability
|
|
$
|
66,924
|
|
|
|
|
|
|
$
|
531,667
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
82,500
|
|
|
$
|
681,091
|
|
Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
82,500
|
|
|
$
|
82,500
|
|
|
|
|
(1)
|
|
These amounts represent accrued but
unused vacation time as of December 31, 2007.
|
|
(2)
|
|
Each of the named executive
officers has an annual target bonus of 100% of annual base
salary at the beginning of the relevant fiscal year. Except for
Messrs. Ketchum and Paige, who will be eligible to earn
awards starting in fiscal year 2008, the named executive
officers participated in the Variable Compensation Plan starting
on February 1, 2007. The Adjusted EBITDA and RONA
performance goals for the Variable Compensation Plan were
satisfied in fiscal year 2007. As a result, assuming a
termination as of December 31, 2007, pursuant to the terms
of their employment agreements, Messrs. H.B. Wehrle,
Underhill, Fox and S. Wehrle would be entitled to receive their
target annual incentive bonus, pro-rated to reflect
participation during eleven months of the year.
|
|
(3)
|
|
In the event of a Transaction (as
defined in the PVF LLC Agreement) or a termination by reason of
death or Disability, the profits units and restricted common
units in PVF Holdings LLC held by the named executive officers
would become fully vested.
|
134
Compensation
Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2007, our
compensation committee was comprised of Peter C.
Boylan, III, John F. Daly, and Harry K. Hornish Jr.
In connection with the Red Man Transaction, Red Man paid a fee
of $4 million to Boylan Partners LLC. On December 17,
2007, Mr. Boylan made an investment of $1 million in
PVF Holdings LLC in exchange for 254.2065 common units in PVF
Holdings LLC. Mr. Boylan made his investment in PVF
Holdings LLC through a limited liability company which he
controls. In May 2008, Mr. Boylans limited liability
company holding common units in PVF Holdings LLC received a
dividend of $389,653.01 in connection with our May 2008
recapitalization. See Certain Relationships and Related
Party Transactions Transactions with Executive
Officers and Directors May 2008 Dividend.
Mr. Daly is a managing director in the Principal Investment
Area of Goldman, Sachs & Co. For a description of the
companys transactions with Goldman, Sachs & Co.
and certain of its affiliates, see Certain Relationships
and Related Party Transactions Transactions with the
Goldman Sachs Funds.
On April 13, 2007, Harry K. Hornish, Jr. made an
investment of $1.5 million in PVF Holdings LLC in exchange
for 381.3098 common units in PVF Holdings LLC. The investment
consisted of $500,000 in cash and a $1 million promissory
note issued to PVF Holdings LLC. The $500,000 in cash and
$1 million promissory note were subsequently contributed to
McJunkin Red Man Holding Corporation by PVF Holdings LLC. In
connection with our May 2008 dividend, the amount of the note
was reduced to $498,467.01. Mr. Hornish repaid the note in
full on August 7, 2008. See Certain Relationships and
Related Party Transactions Transactions with
Executive Officers and Directors.
135
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table presents information regarding beneficial
ownership of our common stock by:
|
|
|
|
|
each of our directors;
|
|
|
|
each of our named executive officers;
|
|
|
|
each stockholder known by us to beneficially hold five percent
or more of our common stock;
|
|
|
|
each selling stockholder; and
|
|
|
|
all of our executive officers and directors as a group.
|
Beneficial ownership is determined under the rules of the SEC
and generally includes voting or investment power with respect
to securities. Unless indicated below, to our knowledge, the
persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of the date of
this prospectus are deemed to be outstanding and to be
beneficially owned by the person holding such options for the
purpose of computing the percentage ownership of that person but
are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Except as otherwise
indicated, the business address for each of our beneficial
owners is
c/o McJunkin
Red Man Holding Corporation, 8023 East 63rd Place, Tulsa,
Oklahoma 74133.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
Shares Beneficially
|
|
|
Owned Prior to the Offering
|
|
Number of
|
|
Owned After the Offering
|
Name and Address
|
|
Number
|
|
Percent
|
|
Shares Offered
|
|
Number
|
|
Percent
|
|
PVF Holdings LLC(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Goldman Sachs Group, Inc.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85 Broad Street
New York, New York 10004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Lane(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James F. Underhill(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Fox, III(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dee Paige(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen D. Wehrle(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig Ketchum(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhys J. Best(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Cornell(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher A.S. Crampton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Daly(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry K. Hornish, Jr.(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sam B. Rovit(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H.B. Wehrle, III(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers, as a group
(20 persons)(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PVF Holdings LLC has granted the
underwriters the option to purchase from it an aggregate
of
additional shares. If the option to purchase additional shares
were exercised in full, after the offering PVF Holdings LLC and
The Goldman Sachs Group, Inc. would
own shares,
or %, of our common stock, and all
of our directors and executive officers, as a group, would
own shares,
or %, of our common stock.
|
|
*
|
|
Less than 1%.
|
|
(1)
|
|
PVF Holdings LLC directly
owns shares
of common stock. GS Capital Partners V Fund, L.P., GS Capital
Partners V Offshore Fund, L.P., GS Capital Partners V
GmbH & Co. KG, GS Capital Partners V Institutional,
L.P., GS Capital Partners VI Fund, L.P., GS Capital Partners VI
Offshore Fund, L.P., GS Capital Partners VI Parallel, L.P., and
GS Capital Partners VI GmbH & Co. KG (collectively,
the Goldman Sachs
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Funds) are members of PVF
Holdings LLC and own common units of PVF Holdings LLC. The
Goldman Sachs Funds common units in PVF Holdings LLC
correspond
to shares
of common stock. The Goldman Sachs Group, Inc., and Goldman,
Sachs & Co. may be deemed to beneficially own
indirectly, in the aggregate, all of the common stock owned by
PVF Holdings LLC because (i) affiliates of Goldman,
Sachs & Co. and The Goldman Sachs Group, Inc. are the
general partner, managing general partner, managing partner,
managing member or member of the Goldman Sachs Funds and
(ii) the Goldman Sachs Funds control PVF Holdings LLC and
have the power to vote or dispose of all of the common stock of
the Company owned by PVF Holdings LLC. Goldman,
Sachs & Co. is a direct and indirect wholly owned
subsidiary of The Goldman Sachs Group, Inc. Goldman,
Sachs & Co. is the investment manager of certain of
the Goldman Sachs Funds. Shares of common stock that may be
deemed to be beneficially owned by the Goldman Sachs Funds that
correspond to the Goldman Sachs Funds common units of PVF
Holdings LLC consist of:
(1)
shares of common stock deemed to be beneficially owned by GS
Capital Partners V Fund, L.P. and its general partner, GSCP V
Advisors, L.L.C.,
(2)
shares of common stock deemed to be beneficially owned by GS
Capital Partners V Offshore Fund, L.P. and its general partner,
GSCP V Offshore Advisors, L.L.C.,
(3)
shares of common stock deemed to be beneficially owned by GS
Capital Partners V Institutional, L.P. and its general partner,
GS Advisors V, L.L.C.,
(4)
shares of common stock deemed to be beneficially owned by GS
Capital Partners V GmbH & Co. KG and its managing
limited partner, GS Advisors V, L.L.C.,
(5)
shares of common stock deemed to be beneficially owned by GS
Capital Partners VI Fund, L.P. and its general partner, GSCP VI
Advisors, L.L.C.,
(6)
shares of common stock deemed to be beneficially owned by GS
Capital Partners VI Offshore Fund, L.P. and its general partner,
GSCP VI Offshore Advisors, L.L.C.,
(7)
shares of common stock deemed to be beneficially owned by GS
Capital Partners VI Parallel, L.P. and its general partner, GS
Advisors VI, L.L.C., and
(8)
shares of common stock deemed to be beneficially owned by GS
Capital Partners VI GmbH & Co. KG and its managing
limited partner, GS Advisors VI, L.L.C. Henry Cornell and John
F. Daly are managing directors of Goldman, Sachs & Co.
Mr. Cornell, Mr. Daly, The Goldman Sachs Group, Inc.
and Goldman, Sachs & Co. each disclaims beneficial
ownership of the shares of common stock owned directly or
indirectly by PVF Holdings LLC and the Goldman Sachs Funds,
except to the extent of their pecuniary interest therein, if any.
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(2)
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Mr. Lane
owns shares
directly. Mr. Lane also owns options to
purchase shares
of our common stock at an exercise price
of .
The date of grant for Mr. Lanes options was
September 10, 2008. These options will generally vest in
one-fourth annual increments on the second, third, fourth and
fifth anniversaries of the date of grant.
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(3)
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Mr. Underhill owns no shares
of common stock directly. Mr. Underhill
owns shares
indirectly through his ownership of common units in PVF Holdings
LLC. Mr. Underhill does not have the power to vote or
dispose of shares of common stock that correspond to his
ownership of common units in PVF Holdings LLC and thus does not
have beneficial ownership of such shares. Mr. Underhill
also owns profits units in PVF Holdings LLC. These profits units
do not give Mr. Underhill beneficial ownership of any
shares of our common stock because they do not give
Mr. Underhill the power to vote or dispose of any such
shares.
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(4)
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Mr. Fox owns no shares of
common stock directly. Mr. Fox has transferred all of his
common units (including his restricted common units) in PVF
Holdings LLC, corresponding
to shares
of our common stock, to a trust for the benefit of members of
his family. Neither Mr. Fox nor the trust has the power to
vote or dispose of the common units of PVF Holdings LLC held by
the trust, which correspond
to shares
of our common stock, and therefore neither Mr. Fox nor the
trust has beneficial ownership of these shares of our common
stock.
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(5)
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Mr. Paige owns no shares of
common stock directly. Mr. Paige
owns shares
indirectly through his ownership of common units in PVF Holdings
LLC. Mr. Paige does not have the power to vote or dispose
of shares of common stock that correspond to his ownership of
common units in PVF Holdings LLC and thus does not have
beneficial ownership of such shares. Mr. Paige also owns
profits units in PVF Holdings LLC. These profits units do not
give Mr. Paige beneficial ownership of any shares of our
common stock because they do not give Mr. Paige the power
to vote or dispose of any such shares.
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(6)
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Mr. Wehrle owns no shares of
common stock directly. Mr. Wehrle
owns shares
indirectly through his ownership of common units in PVF Holdings
LLC. Mr. Wehrle does not have the power to vote or dispose
of shares of common stock that correspond to his ownership of
common units in PVF Holdings LLC and thus does not have
beneficial ownership of such shares. Mr. Wehrle also owns
profits units in PVF
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Holdings LLC. These profits units
do not give Mr. Wehrle beneficial ownership of any shares
of our common stock because they do not give Mr. Wehrle the
power to vote or dispose of any such shares.
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(7)
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Mr. Ketchum owns no shares of
common stock directly. Mr. Ketchum owns common units in PVF
Holdings LLC both directly and through a limited liability
company which correspond
to shares
of common stock owned by PVF Holdings LLC. Mr. Ketchum does
not have the power to vote or dispose of shares of common stock
that correspond to his ownership or his limited liability
companys ownership of common units in PVF Holdings LLC and
thus does not have beneficial ownership of such shares.
Mr. Ketchum also owns profits units in PVF Holdings LLC.
These profits units do not give Mr. Ketchum beneficial
ownership of any shares of our common stock because they do not
give Mr. Ketchum the power to vote or dispose of any such
shares.
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(8)
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Mr. Best owns no shares of
common stock directly. Mr. Best
owns shares
indirectly due to his limited liability companys ownership
of common units in PVF Holdings LLC. Mr. Best does not have
the power to vote or dispose of shares of common stock that
correspond to such limited liability companys ownership of
common units in PVF Holdings LLC and thus does not have
beneficial ownership of such shares. Mr. Best also owns
options to
purchase shares
of our common stock at an exercise price of
$ .
The date of grant for these options was December 24, 2007.
These options will generally vest in one-third annual increments
on the third, fourth and fifth anniversaries of the date of
grant.
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(9)
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Mr. Hornish owns no shares of
common stock directly. Mr. Hornish
owns shares
indirectly through his ownership of common units in PVF Holdings
LLC. Mr. Hornish does not have the power to vote or dispose
of shares of common stock that correspond to his ownership of
common units in PVF Holdings LLC and thus does not have
beneficial ownership of such shares.
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(10)
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Mr. Rovit owns no shares of
common stock directly. Mr. Rovit
owns shares
indirectly through his ownership of common units in PVF Holdings
LLC. Mr. Rovit does not have the power to vote or dispose
of shares of common stock that correspond to his ownership of
common units in PVF Holdings LLC and thus does not have
beneficial ownership of such shares. Mr. Rovit also owns
options to
purchase shares
of our common stock at an exercise price of
$ .
The date of grant for these options was June 27, 2008.
These options will generally vest in one-third annual increments
on the third, fourth and fifth anniversaries of the date of
grant.
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(11)
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Mr. Wehrle owns no shares of
common stock directly. Mr. Wehrle
owns shares
indirectly through his ownership of common units in PVF Holdings
LLC. Mr. Wehrle does not have the power to vote or dispose
of shares of common stock that correspond to his ownership of
common units in PVF Holdings LLC and thus does not have
beneficial ownership of such shares. Mr. Wehrle also owns
profits units in PVF Holdings LLC. These profits units do not
give Mr. Wehrle beneficial ownership of any shares of our
common stock because they do not give Mr. Wehrle the power
to vote or dispose of any such shares.
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(12)
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The number of shares of common
stock owned by all directors and executive officers, as a group,
reflects (i) all shares of common stock directly owned by
PVF Holdings LLC, with respect to which Henry Cornell and John
F. Daly may be deemed to share beneficial ownership, and
(ii) shares
of our common stock held by Andrew Lane, our chief executive
officer and a director of our company.
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The following table sets forth, as of June 26, 2008, the
number of common units and profits units of PVF Holdings LLC
held by each of our directors, executive officers and beneficial
owners of more than five percent of our common stock. The table
also sets forth the amount of proceeds that each of these unit
holders will receive from this offering upon PVF Holdings
LLCs distribution of the net proceeds of this offering to
its unit holders and the percentage of proceeds to be received
in proportion to all unit holders. Pursuant to the amended and
restated limited liability company agreement of PVF Holdings
LLC, distributions of the net proceeds of this offering will be
allocated as follows: first, to the holders of common units pro
rata in proportion to the number of common units outstanding at
the time of such distribution, until each common unit holder has
received an amount equal to such holders aggregate capital
contributions made to PVF Holdings LLC in exchange for
138
common units; and second, to the holders of all units (including
profits units), pro rata in proportion to the number of units
(including profits units) outstanding at the time of such
distribution.
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Percentage of
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Common
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Profits
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Proceeds from
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Proceeds from this
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Units Owned
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Units Owned
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this Offering to
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Offering Received
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Name of
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Directly or
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Directly or
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be Distributed to
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in Proportion to
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Beneficial Owner
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Indirectly
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Indirectly
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the Unit Holder
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All Unit Holders
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The Goldman Sachs Funds
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Craig Ketchum
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James F. Underhill
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David Fox, III(1)
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Dee Paige
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Stephen D. Wehrle
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Jeffrey Lang
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Randy K. Adams
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Rory M. Isaac
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Gary A. Ittner
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Dennis Niver
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Ken Hayes
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Stephen W. Lake
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Rhys J. Best
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Henry Cornell
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Christopher A.S. Crampton
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John F. Daly
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Harry K. Hornish, Jr.
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Sam B. Rovit
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H.B. Wehrle, III
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The Goldman Sachs Funds and all of our directors and executive
officers, as a group
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Other holders of common units of PVF Holdings LLC, as a group
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Total
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100
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%
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(1)
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Of the proceeds received on account of common units issued to
Mr. Fox,
$
will be received on account of restricted common units. No
proceeds will be distributed by PVF Holdings LLC on account of
these restricted common units until they vest.
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139
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
This section describes related party transactions between
McJunkin Red Man Holding Corporation and its directors,
executive officers and 5% stockholders and their immediate
family members.
Transactions with
the Goldman Sachs Funds
Prior to this offering, certain affiliates of The Goldman Sachs
Group, Inc., including GS Capital Partners V Fund, L.P., GS
Capital Partners VI Fund, L.P. and related entities, or the
Goldman Sachs Funds, were the majority owners of PVF Holdings
LLC, our direct parent company. Following the consummation of
this offering, PVF Holdings LLC will remain the majority owner
of our company and the Goldman Sachs Funds will continue to be
the majority owners of PVF Holdings LLC.
McJunkin
Acquisition
On December 4, 2006, the entity now known as McJunkin Red
Man Corporation entered into a definitive agreement to be
acquired by the entity now known as McJunkin Red Man Holding
Corporation, an indirect subsidiary of the Goldman Sachs Funds
(the GS Acquisition). Shareholders of McJunkin Red
Man Corporation received consideration in the form of cash or a
combination of cash and common units in PVF Holdings LLC (as
described in further detail below). On January 31, 2007,
the GS Acquisition closed and a direct wholly owned subsidiary
of McJunkin Red Man Holding Corporation merged with and into
McJunkin Red Man Corporation, with McJunkin Red Man Corporation
surviving the merger and becoming a direct subsidiary of
McJunkin Red Man Holding Corporation. Immediately prior to the
closing of the merger, certain shareholders of McJunkin Red Man
Corporation and McJunkin Appalachian Oilfield Supply Company
(McJunkin Appalachian, which entity was a subsidiary
of McJunkin Red Man Corporation, but has since been merged out
of existence) contributed their shares of McJunkin Red Man
Corporation and McJunkin Appalachian, as applicable, to the
entity now known as PVF Holdings LLC in exchange for common
units in PVF Holdings LLC. We refer to these common unit holders
as the McJunkin Rollover Equity Holders.
The acquisition of McJunkin Red Man Corporation was financed by
a $225.6 million capital contribution by certain Goldman
Sachs Funds in PVF Holdings LLC, investments in PVF Holdings LLC
by the McJunkin Rollover Equity Holders valued at
$166.5 million (including restricted common units valued at
$7 million), $575.0 million in term loans and
$75.0 million in revolver borrowings.
In connection with the GS Acquisition, McJunkin Red Man
Corporation paid (i) a $10 million sponsor fee to an
affiliate of the Goldman Sachs Funds, (ii) a
$2.5 million investment banking advisory fee to an
affiliate of the Goldman Sachs Funds, and (iii) an
$8.5 million debt financing fee to an affiliate of the
Goldman Sachs Funds.
Red Man
Transaction
West Oklahoma PVF Company, our indirect subsidiary, entered into
a Stock Purchase Agreement on July 6, 2007 with Red Man
Pipe & Supply Co. (Red Man), PVF Holdings
LLC, Craig Ketchum, and the holders of 100% of the outstanding
common stock of Red Man, pursuant to which West Oklahoma PVF
Company acquired all of the outstanding capital stock of Red Man
in a business combination transaction (the Red Man
Transaction). Shareholders of Red Man received
consideration in the form of cash or a combination of cash and
common units in PVF Holdings LLC (as described in further detail
below). The Red Man Transaction was consummated on
October 31, 2007.
The Goldman Sachs Funds made a capital contribution of
$574.3 million in PVF Holdings LLC for purposes of
financing the Red Man Transaction. Additionally, prior to making
such capital contribution, the Goldman Sachs Funds offered to
each of the McJunkin Rollover Equity Holders the option of
making an additional equity investment in PVF Holdings LLC in an
amount required to
140
preserve such holders pro rata interest in PVF Holdings
LLC relative to the other equity holders in PVF Holdings LLC
prior to the Red Man Transaction. The McJunkin Rollover Equity
Holders were also given the option to redeem their interests in
PVF Holdings LLC at a fixed price per unit, or to continue to
hold their interests without any additional subscriptions or
redemptions. Certain McJunkin Rollover Equity Holders chose to
exercise their option to make an additional equity investment in
PVF Holdings LLC and consequently contributed $83.9 million
to PVF Holdings LLC in exchange for common units of PVF Holdings
LLC for purposes of financing the Red Man Transaction.
Immediately prior to the closing of the Red Man Transaction,
certain shareholders of Red Man (the Red Man Rollover
Equity Holders) contributed their shares of Red Man to PVF
Holdings LLC in exchange for common units in PVF Holdings LLC.
The Red Man Transaction was also financed by $322.5 million
in revolving loans under McJunkin Red Man Corporations
revolving credit facility. Immediately following the closing of
the Red Man Transaction, an immediate family member of Craig
Ketchum remitted to McJunkin Red Man Corporation the amount of
$517,366.12 to fund McJunkin Red Man Corporations
payment of withholding taxes on such immediate family
members account, relating to the transfer to such
immediate family member of certain assets that were excluded
from the Red Man Transaction.
In connection with the Red Man Transaction, McJunkin Red Man
Corporation paid certain affiliates of the Goldman Sachs Funds a
$10 million merger and acquisition advisory fee and a
$2 million investment banking advisory fee. McJunkin Red
Man Corporation also paid a $4 million advisory fee to
Boylan Partners LLC, which is owned by Peter Boylan.
May 2008
Dividend
On May 22, 2008, McJunkin Red Man Corporation borrowed
$25 million in revolving loans under its revolving credit
facility and distributed the proceeds of the loans to McJunkin
Red Man Holding Corporation. On the same date, McJunkin Red Man
Holding Corporation borrowed $450 million in term loans
under its term loan facility and distributed the proceeds of the
term loans, together with the proceeds of the revolving loans,
to its stockholders, including PVF Holdings LLC. PVF Holdings
LLC used the proceeds from the dividend to fund distributions to
members of PVF Holdings LLC in May 2008. The Goldman Sachs Funds
received $311,722,411.39 in such distribution.
Credit
Facilities
Goldman Sachs Credit Partners L.P., an affiliate of Goldman,
Sachs & Co., or Goldman Sachs, is one of the lenders
under our Revolving Credit Facility, Term Loan Facility and
Junior Term Loan Facility. Goldman Sachs Credit Partners is also
a co-lead arranger and joint bookrunner under each of these
facilities and is also the syndication agent under the Term Loan
Facility and the Junior Term Loan Facility. Goldman Sachs Credit
Partners was also a lender, co-lead arranger, joint bookrunner
and syndication agent under the revolving credit facility that
we entered into in January 2007. The January 2007 revolving
credit facility was entered into in connection with the
financing of the GS Acquisition and, at that time, we paid this
Goldman Sachs affiliate an $8.5 million financing fee. The
January 2007 revolving credit facility was terminated in October
2007 in connection with our entering into the Revolving Credit
Facility and the Red Man Transaction. In conjunction with
entering into the Revolving Credit Facility and the Term Loan
Facility in October 2007, we paid a $4.9 million financing
fee to Goldman Sachs Credit Partners. We also paid a
$4.4 million fee to Goldman Sachs Capital Partners in May
2008 in connection with the Junior Term Loan Facility and a fee
of $0.5 million to Goldman Sachs Credit Partners in June
2008 in connection with the $50 million upsizing of our
Revolving Credit Facility. See Description of Our
Indebtedness.
Transactions with
Prideco
In November/December 2007, and continuing in 2008, Red Man, a
subsidiary of McJunkin Red Man Corporation, has leased and
continues to lease certain equipment and buildings from Prideco,
141
LLC, an entity owned by Craig Ketchum (the chairman of our
board of directors and our former president and chief executive
officer) and certain of his immediate family members. Craig
Ketchum owns a 25% interest in Prideco, LLC. Red Man paid
Prideco, LLC an aggregate rental amount of $535,985 in
November/December 2007. Under four separate real property
leases, Red Man leases office and warehouse space for the
wholesale distribution of pipes, valves and fittings from
Prideco, LLC. The total rental amount for November/December 2007
under these leases was $21,100. The location of the leased
property, monthly rent in 2007, term, expiration date, square
footage of the leased premises and renewal option for each of
these leases are included in the table below:
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Monthly 2007
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Square
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Location
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Rent
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Term
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Expiration
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Feet
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Renewal Option
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Artesia, NM
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$
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2,000
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5 years
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May 31, 2013
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8,750
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One five-year
renewal option
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Lovington, NM
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$
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2,350
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3 years
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September 30, 2009
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6,000
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None
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Tulsa, OK
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$
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2,700
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3 years
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March 31, 2009
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7,500
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One three-year
renewal option
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Woodward, OK
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$
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3,500
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5 years
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July 31, 2012
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6,000
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None
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Additionally, under one master lease, Prideco, LLC leases
approximately 498 trucks, cars and sports utility vehicles to
Red Man. All of these vehicles are used in Red Mans
operations. Under the master lease, most vehicles are leased for
a term of 36 months. The total rental amount for
November/December 2007 under this lease was $514,885.
We believe the rental amounts under Red Mans leases with
Prideco, LLC are generally comparable to market rates negotiable
among unrelated third parties.
Transactions with
Hansford Associates Limited Partnership
McJunkin Red Man Corporation leases certain land and buildings
from Hansford Associates Limited Partnership, a limited
partnership in which H. B. Wehrle, III (a member of our
board of directors) and E. Gaines Wehrle (a former member of our
board of directors) and Stephen D. Wehrle (one of our executive
officers) and certain of their immediate family members are
limited partners. Together, these three persons and their
immediate family members have a 50% ownership interest in the
limited partnership. McJunkin Red Man Corporation (and its
predecessor) paid Hansford Associates Limited Partnership an
aggregate rental amount of $2,583,184 in 2007, $2,403,240 in
2006, and $2,343,240 in 2005.
Transactions with
Appalachian Leasing Company
McJunkin Red Man Corporation leases certain land and buildings
from Appalachian Leasing Company, an entity in which David
Fox, III, one of our executive officers, and certain of
Mr. Foxs immediate family members have an ownership
interest. Mr. Fox and his immediate family members have a
67.5% ownership interest in Appalachian Leasing Company.
McJunkin Red Man Corporation (and its predecessor) paid
Appalachian Leasing Company an aggregate rental amount of
$146,064 in 2007, $153,144 in 2006, and $154,344 in 2005. Under
two separate leases, McJunkin Red Man Corporation leases office
and warehouse space for the wholesale distribution of pipes,
valves and fittings from Appalachian Leasing Company. The
location of the leased property, monthly rent as of
142
September 2008, term, expiration date, square footage of the
leases premises and renewal option for each of these leases are
included in the table below:
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|
Monthly Rent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as of
|
|
|
|
|
|
|
|
Square
|
|
|
|
Location
|
|
September 2008
|
|
|
Term
|
|
|
Expiration
|
|
Feet
|
|
|
Renewal Option
|
|
Hurricane, WV
|
|
$
|
10,005.00
|
|
|
|
3 years
|
|
|
December 31, 2010
|
|
|
6,500
|
|
|
Four three-year
renewal options
|
Corbin, KY
|
|
$
|
3,752.50
|
|
|
|
3 years
|
|
|
May 31, 2009
|
|
|
8,000
|
|
|
None
|
We believe that the rental amounts under McJunkin Red Man
Corporations leases with Appalachian Leasing Company are
generally comparable to market rates negotiable among unrelated
third parties.
Transactions with
Executive Officers and Directors
Investments in
PVF Holdings LLC
Certain of our current and former executive officers and
directors are members of PVF Holdings LLC, our majority
stockholder. These executive officers and directors do not have
or share the right to vote or dispose of the shares of our
common stock held by PVF Holdings LLC and thus do not have
beneficial ownership of such shares. See Principal and
Selling Stockholders.
On January 31, 2007, in connection with the GS Acquisition,
certain of our current and former executive officers and
directors contributed shares of McJunkin Red Man Corporation and
McJunkin Appalachian to PVF Holdings LLC in exchange for common
units in PVF Holdings LLC. The number of shares of McJunkin Red
Man Corporation and McJunkin Appalachian contributed by each
such executive officer and director, the value of such
contribution, and the number of common units of PVF Holdings LLC
received in consideration for such contribution are indicated in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Shares of
|
|
Shares of
|
|
|
|
Common Units of
|
|
|
McJunkin
|
|
McJunkin
|
|
Value of
|
|
PVF Holdings LLC
|
|
|
Corporation
|
|
Appalachian
|
|
Shares
|
|
Received
|
Name
|
|
Contributed
|
|
Contributed
|
|
Contributed
|
|
in Exchange
|
|
H.B. Wehrle, III
|
|
|
310.0000
|
|
|
|
31.89
|
|
|
$
|
17,173,005.47
|
|
|
|
4,365.4898
|
|
David Fox, III(1)
|
|
|
0.0000
|
|
|
|
459.18
|
|
|
$
|
2,548,646.04
|
|
|
|
647.8824
|
|
E. Gaines Wehrle
|
|
|
218.9688
|
|
|
|
31.89
|
|
|
$
|
12,180,895.82
|
|
|
|
3,096.4630
|
|
Stephen D. Wehrle
|
|
|
215.8000
|
|
|
|
31.89
|
|
|
$
|
12,008,413.81
|
|
|
|
3,052.6170
|
|
Michael H. Wehrle
|
|
|
212.5521
|
|
|
|
31.89
|
|
|
$
|
11,829,133.40
|
|
|
|
3,007.0427
|
|
Martha G. Wehrle
|
|
|
26.4688
|
|
|
|
|
|
|
$
|
1,451,019.99
|
|
|
|
368.8587
|
|
Russell L. Isaacs
|
|
|
2.4063
|
|
|
|
|
|
|
$
|
131,910.91
|
|
|
|
33.5326
|
|
Other Wehrle Family Members(2)
|
|
|
850.4147
|
|
|
|
|
|
|
$
|
46,619,540.83
|
|
|
|
11,850.9908
|
|
|
|
|
(1)
|
|
Mr. Foxs common units in PVF Holdings LLC were
transferred to a trust established by Mr. Fox.
|
|
(2)
|
|
As used in this table, Other Wehrle Family Members
include the immediate family members of H.B. Wehrle, III,
E. Gaines Wehrle, Stephen D. Wehrle and Michael H. Wehrle.
|
On January 31, 2007, Mr. Fox was awarded 640.6004
restricted common units in PVF Holdings LLC. At the time these
units were awarded, they had a value of $2.52 million. Also
on January 31, 2007, certain of our executive officers and
directors received profits units in PVF Holdings LLC in
connection with the GS Acquisition. Each of Rory Isaac, Gary
Ittner and James F. Underhill received profits units as follows:
381.3098 profits units for Mr. Isaac, 381.3098 profits
units for Mr. Ittner, and 597.3853 profits units for
Mr. Underhill. Each of Messrs. Isaac, Ittner, and
Underhill also contributed
143
$857.14 in cash to PVF Holdings LLC in exchange for 0.2179
common units. H.B. Wehrle, III received 381.3098 profits
units and Stephen D. Wehrle received 190.6549 profits units on
January 31, 2007.
On April 13, 2007, Harry K. Hornish, Jr., a member of
our board of directors, made an investment of $1.5 million
in PVF Holdings LLC in exchange for 381.3098 common units. The
investment consisted of $500,000 in cash and a $1 million
promissory note issued to PVF Holdings LLC. The $500,000 in cash
and $1 million promissory note were subsequently
contributed to McJunkin Red Man Holding Corporation by PVF
Holdings LLC. In connection with the May 2008 dividend, the
amount of the note was reduced to $498,467.01. Mr. Hornish
repaid the note in full on August 7, 2008.
On October 31, 2007, in connection with the Red Man
Transaction, E. Gaines Wehrle, Martha G. Wehrle, Michael H.
Wehrle and Russell Isaacs, each a McJunkin Rollover Equity
Holder, exercised their option to purchase additional common
units in PVF Holdings LLC. See Transactions
with the Goldman Sachs Funds Red Man
Transaction above. Mr. E. Gaines Wehrle
purchased 1,669.9676 additional common units for a price of
$6,569,334.58. On April 30, 2008, Mr. Wehrle
transferred all of his common units to a trust that he
established. The trust received 4,766.4306 common units.
Ms. Martha G. Wehrle purchased an additional 198.9309
common units for a price of $782,556.17. Mr. Michael H.
Wehrle purchased 1,621.7420 additional common units for a price
of $6,379,623.97. Mr. Russell Isaacs purchased 56.0408
additional common units for a price of $220,453.93. In
connection with the Red Man Transaction, the immediate family
members of H.B. Wehrle, III, E. Gaines Wehrle, Stephen D.
Wehrle and Michael H. Wehrle exercised their option to purchase
10,555.4465 additional common units for a price of
$41,523,116.19.
Additionally, in October 2007, PVF Holdings LLC provided an
opportunity for select employees of PVF Holdings LLC and its
subsidiaries to purchase common units (McJunkin Management
Coinvest). Certain executive officers and directors
purchased common units in the McJunkin Management Coinvest on
October 31, 2007. The number of common units purchased and
the amount paid for such units is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
Amount Contributed
|
|
Number of Common Units
|
Name
|
|
to PVF Holdings LLC
|
|
of PVF Holdings LLC
Received
|
|
H.B. Wehrle, III
|
|
$
|
3,000,000.00
|
|
|
|
762.6195
|
|
Stephen D. Wehrle
|
|
$
|
5,000,000.00
|
|
|
|
1,271.0376
|
|
Rory Isaac
|
|
$
|
500,000.00
|
|
|
|
127.1033
|
|
Gary Ittner
|
|
$
|
100,000.00
|
|
|
|
25.4207
|
|
James F. Underhill
|
|
$
|
200,000.00
|
|
|
|
50.8413
|
|
As part of the Red Man Transaction, on October 31, 2007,
Craig Ketchum contributed 9,634 shares of Red Man to PVF
Holdings LLC. The value of the shares of Red Man contributed by
Mr. Ketchum was $44,135,969.59. As part of the
consideration payable to Mr. Ketchum in connection with the
Red Man Transaction, on October 31, 2007, April 10,
2008 and May 16, 2008, 10,510.7577, 674.2538 and 34.6394
common units of PVF Holdings LLC respectively were issued.
Mr. Ketchum holds the 11,219.6509 common units of PVF
Holdings LLC received in connection with the Red Man Transaction
through a limited liability company which he controls.
As part of the Red Man Transaction, on October 31, 2007,
Kent Ketchum contributed 3,745 shares of Red Man to PVF
Holdings LLC. As part of the consideration payable to Kent
Ketchum in connection with the Red Man Transaction, on
October 31, 2007, April 10, 2008 and May 16,
2008, 4,203.6296, 269.6583 and 13.8536 common units of PVF
Holdings LLC respectively were issued. Mr. Ketchum holds
the 4,487.1415 common units of PVF Holdings LLC received in
connection with the Red Man Transaction through a limited
liability company which he controls. In connection with the Red
Man Transaction, Craig Ketchum, Kent Ketchum, and their
immediate family members received 28,257.6087 common units of
PVF Holdings LLC in exchange for consideration with a value of
$111,160,050.30.
144
In November 2007, PVF Holdings LLC provided an opportunity for
select employees of PVF Holdings LLC and its subsidiaries to
purchase common units (Red Man Management Coinvest).
Certain executive officers and directors purchased common units
in the Red Man Management Coinvest. The number of common units
purchased, the date such units were issued and the amount paid
for such units is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Amount Contributed
|
|
Common Units of PVF
|
|
Date Units
|
Name
|
|
to PVF Holdings LLC
|
|
Holdings LLC Received
|
|
Were Issued
|
|
Randy Adams
|
|
$
|
15,735.24
|
|
|
|
4.0000
|
|
|
|
November 29, 2007
|
|
Ken Hayes
|
|
$
|
212,425.74
|
|
|
|
54.0000
|
|
|
|
November 29, 2007
|
|
Stephen W. Lake
|
|
$
|
200,000.00
|
|
|
|
50.8413
|
|
|
|
February 5, 2008
|
|
Jeffrey Lang
|
|
$
|
100,000.00
|
|
|
|
25.4207
|
|
|
|
December 14, 2007
|
|
Dee Paige
|
|
$
|
200,000.00
|
|
|
|
50.8413
|
|
|
|
November 29, 2007
|
|
On November 30, 2007, Rhys J. Best made an investment of
$500,000 in PVF Holdings LLC in exchange for 127.1033 common
units and on December 17, 2007, Peter C. Boylan, III
made an investment of $1 million in PVF Holdings LLC in
exchange for 254.2065 common units. Both of these directors made
their investments in PVF Holdings LLC through limited liability
companies which they control.
On December 21, 2007, the board of directors of PVF
Holdings LLC granted profits units to the following executive
officers and directors in the amounts indicated: Craig Ketchum
(381.3098 profits units), Kent Ketchum (190.6549 profits units),
Randy Adams (381.3098 profits units), Dee Paige (571.9647
profits units), Ken Hayes (127.1033 profits units), and Jeffrey
Lang (381.3098 profits units). In connection with the issuance
of profits units to Craig Ketchum and Kent Ketchum, on
May 14, 2008 each of these directors contributed $857.14 to
PVF Holdings LLC in exchange for 0.2179 common units each.
On January 7, 2008, 127.1033 profits units were issued to
Stephen W. Lake. In connection with this issuance, on
January 7, 2008 Mr. Lake contributed $857.14 to PVF
Holdings LLC in exchange for 0.2179 common units. On
January 9, 2008, 254.2065 profits units were issued to
Dennis Niver. In connection with this issuance, on
January 9, 2008 Mr. Niver contributed $857.14 to PVF
Holdings LLC in exchange for 0.2179 common units.
On July 7, 2008, Sam B. Rovit made an investment of
$300,000 in PVF Holdings LLC in exchange for 69.6675 common
units.
Investments in
McJunkin Red Man Holding Corporation
On September 10, 2008, Andrew Lane made an investment of
$3,000,000 in our company in exchange for 340.4379 shares
of our common stock.
McJunkin
Acquisition
Under the terms of the merger agreement for the GS Acquisition,
McJunkin Red Man Corporation was required to use its
commercially reasonable efforts promptly following the closing
of the merger to sell certain of its assets (the Non-Core
Assets) for cash and to distribute 95% of the net proceeds
of such sales, less 40% of taxable gains, to McJunkin Red Man
Corporations shareholders of record immediately prior to
the merger. The Non-Core Assets included (i) approximately
20% of the outstanding common stock of PrimeEnergy Corporation,
(ii) approximately 32% of the ownership interests of Vision
Exploration & Production Co., LLC, (iii) certain
real property located in Charleston, West Virginia, including a
building, (iv) an apartment located in New York, New York,
(v) a farm located in Union, West Virginia, and (vi) a
vacant lot located in Charleston, West Virginia. At
December 31, 2006, these assets had a net book value of
approximately $27.1 million. Of the Non-Core Assets, the
ownership interest of Vision Exploration &
145
Production Co., LLC, the apartment located in New York, New
York, and the farm located in Union, West Virginia have each
been sold, and in 2007 aggregate proceeds of $2.552 million
were distributed to those individuals and entities who were
shareholders of record of McJunkin Red Man Corporation
immediately prior to the merger. In connection with such sale of
Non-Core Assets, H.B. Wehrle, III (one of our directors)
received $180,751, E. Gaines Wehrle (a former director of our
company) received $198,972, Stephen D. Wehrle (one of our
executive officers) received $157,282, Michael H. Wehrle (a
former director of our company) received $193,141, Martha G.
Wehrle (a former director of our company) received $24,052 and
their immediate family members received $933,781 due to their
status as shareholders of record of McJunkin Red Man Corporation
immediately prior to the merger. Of the Non-Core Assets sold,
McJunkin Red Man Corporation sold its ownership interest in
Vision Exploration & Production Co., LLC to E. Gaines
Wehrle, a former director of our company, for $250,000. McJunkin
Red Man Corporation is currently in the process of selling the
remaining Non-Core Assets.
In connection with the GS Acquisition, on December 4, 2006
we entered into an indemnity agreement with certain former
shareholders of McJunkin Red Man Corporation, including H.B.
Wehrle, III and Stephen D. Wehrle. Under the indemnity
agreement, certain former shareholders of McJunkin Red Man
Corporation agreed to jointly and severally indemnify
(i) McJunkin Red Man Corporation, (ii) McJunkin Red
Man Holding Corporation and (iii) the wholly owned
subsidiary of McJunkin Red Man Holding Corporation which merged
with and into McJunkin Red Man Corporation in connection with
the GS Acquisition, and their respective shareholders, members,
partners, officers, directors, employees, attorneys,
accountants, affiliates, agents, other advisors and successors,
from and against all costs incurred by such indemnified parties
relating to the holding and disposition of the Non-Core Assets,
and the distribution of net proceeds with respect to such
disposition, to the extent the costs for each non-core asset
exceeds the net proceeds received in the sale of such non-core
asset.
Additionally, the indemnity agreement provided that from and
after the effective time of the merger that was consummated in
connection with the GS Acquisition, the indemnifying
shareholders would jointly and severally indemnify the
indemnified parties for (i) any amounts paid or payable by
McJunkin Red Man Corporation or any of its subsidiaries to any
of its officers, directors or employees in excess of $965,000 in
the nature of any stay-pay bonuses as a result of
the merger, other than payments to certain specific employees,
and (ii) any failure to properly withhold any amounts
required to be withheld by McJunkin Red Man Corporation or any
of its subsidiaries relating to stay-pay bonuses or any similar
such payments (which indemnity only applied to withholding
obligations that arose before the effective time of the merger
on January 31, 2007).
May 2008
Dividend
Certain members of our management team and certain current and
former members of our board of directors are members of PVF
Holdings LLC and therefore participated in PVF Holdings
LLCs cash distributions to its members in May 2008. See
Transactions with the Goldman Sachs
Funds May 2008 Dividend above. The table below
sets forth the proceeds of the distributions
146
received on account of the profits units and common units held
by our current and former executive officers and directors who
are members of PVF Holdings LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Distributions
|
|
Proceeds from Distributions
|
|
|
Name
|
|
Received on Common
Units
|
|
Received on Profits
Units
|
|
Total
|
|
Randy K. Adams
|
|
$
|
6,131.28
|
|
|
$
|
48,420.00
|
|
|
$
|
54,551.28
|
|
Rhys J. Best(1)
|
|
$
|
194,826.51
|
|
|
|
|
|
|
$
|
194,826.51
|
|
Peter C. Boylan, III(2)
|
|
$
|
389,653.01
|
|
|
|
|
|
|
$
|
389,653.01
|
|
David Fox, III(3)
|
|
$
|
1,975,013.20
|
|
|
|
|
|
|
$
|
1,975,013.20
|
|
Ken Hayes
|
|
$
|
82,772.33
|
|
|
$
|
16,140.00
|
|
|
$
|
98,912.33
|
|
Harry K. Hornish, Jr.
|
|
$
|
584,479.57
|
|
|
|
|
|
|
$
|
584,479.57
|
|
Rory M. Isaac
|
|
$
|
195,160.51
|
|
|
$
|
48,420.00
|
|
|
$
|
243,580.51
|
|
Russell L. Isaacs
|
|
$
|
137,300.00
|
|
|
|
|
|
|
$
|
137,300.00
|
|
Gary A. Ittner
|
|
$
|
39,299.30
|
|
|
$
|
48,420.00
|
|
|
$
|
87,719.30
|
|
Craig Ketchum(4)
|
|
$
|
17,198,047.58
|
|
|
$
|
48,420.00
|
|
|
$
|
17,246,467.58
|
|
Kent Ketchum(5)
|
|
$
|
6,878,317.54
|
|
|
$
|
24,210.00
|
|
|
$
|
6,902,527.54
|
|
Stephen W. Lake
|
|
$
|
78,264.59
|
|
|
$
|
16,140.00
|
|
|
$
|
94,404.59
|
|
Jeffrey Lang
|
|
$
|
38,965.30
|
|
|
$
|
48,420.00
|
|
|
$
|
87,385.30
|
|
Dennis Niver
|
|
$
|
333.99
|
|
|
$
|
32,280.00
|
|
|
$
|
32,613.99
|
|
Dee Paige
|
|
$
|
77,930.60
|
|
|
$
|
72,630.00
|
|
|
$
|
150,560.60
|
|
James F. Underhill
|
|
$
|
78,264.60
|
|
|
$
|
75,858.00
|
|
|
$
|
154,122.60
|
|
E. Gaines Wehrle(6)
|
|
$
|
7,306,083.68
|
|
|
|
|
|
|
$
|
7,306,083.68
|
|
H.B. Wehrle, III
|
|
$
|
7,860,472.35
|
|
|
$
|
48,420.00
|
|
|
$
|
7,908,892.35
|
|
Stephen D. Wehrle
|
|
$
|
6,627,379.72
|
|
|
$
|
24,210.00
|
|
|
$
|
6,651,589.72
|
|
Michael H. Wehrle
|
|
$
|
7,095,097.13
|
|
|
|
|
|
|
$
|
7,095,097.13
|
|
Martha G. Wehrle
|
|
$
|
870,319.63
|
|
|
|
|
|
|
$
|
870,319.63
|
|
Other Wehrle Family Members(7)
|
|
$
|
34,345,051.67
|
|
|
|
|
|
|
$
|
34,345,051.67
|
|
Other Ketchum Family Members(8)
|
|
$
|
19,238,151.48
|
|
|
|
|
|
|
$
|
19,238,151.48
|
|
All executive officers, directors and their immediate family
members
|
|
$
|
111,297,315.58
|
|
|
$
|
551,988.00
|
|
|
$
|
111,849,303.58
|
|
|
|
|
(1)
|
|
Mr. Best holds common units in
PVF Holdings LLC through a limited liability company which he
controls.
|
|
(2)
|
|
Mr. Boylan holds common units
in PVF Holdings LLC through a limited liability company which he
owns and controls.
|
|
(3)
|
|
The $1,975,013.20 that is indicated
as being distributed on account of Mr. Foxs common
units (including common units) was distributed to a trust
established by Mr. Fox. Of this sum, $993,087.61 was
distributed with respect to common units and $81,345.60 was paid
as a tax distribution with respect to restricted common units.
The balance of this sum ($900,579.99) relates to proceeds of the
dividend distributed with respect to restricted common units
which are being held by PVF Holdings LLC subject to vesting of
the restricted common units.
|
|
(4)
|
|
Craig Ketchum received
$17,197,713.60 in proceeds with respect to common units held by
a limited liability company which he controls. Craig Ketchum
received $333.99 in proceeds with respect to common units that
he holds directly.
|
|
(5)
|
|
Kent Ketchum received $6,877,983.55
in proceeds with respect to common units held by a limited
liability company which he controls. Kent Ketchum received
$333.99 in proceeds with respect to common units that he holds
directly.
|
|
(6)
|
|
The $7,306,083.68 that is indicated
as being distributed with respect to Mr. Wehrles
common units was distributed to a trust established by
Mr. Wehrle.
|
|
(7)
|
|
As used in this table, Other
Wehrle Family Members include the immediate family members
of H.B. Wehrle, III, E. Gaines Wehrle, Stephen D. Wehrle
and Michael H. Wehrle.
|
|
(8)
|
|
As used in this table, Other
Ketchum Family Members include the immediate family
members of Craig Ketchum and Kent Ketchum.
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147
Phantom Shares
Surrender Agreements
In connection with the Red Man Transaction, on October 30,
2007, PVF Holdings LLC and Red Man entered into phantom shares
surrender agreements with each of Jeffrey Lang and Dee Paige,
who were then employees of Red Man. Pursuant to these
agreements, Mr. Lang and Mr. Paige surrendered all
phantom shares awarded to them under Red Mans phantom
stock plan, which was terminated in connection with the Red Man
Transaction.
As consideration for Mr. Langs surrender of his
phantom shares, we are required to pay him $175,000 on each of
January 1, 2008, October 31, 2008, and January 1,
2009, in each case (i) provided that Mr. Lang is still
employed with us on the relevant payment date, (ii) plus
interest for the period from November 1, 2007 to the
payment date at a rate equal to 4.88%, and (iii) less any
withholding that we may be required to make. All of such
payments are immediately due and payable in certain
circumstances, including if Mr. Lang is terminated without
cause. As consideration for Mr. Paiges surrender of
his phantom shares, we are required to pay him $433,333.33 on
each of January 1, 2008, October 31, 2008, and
October 31, 2009, in each case (i) provided that
Mr. Paige is still employed with us on the relevant payment
date, (ii) plus interest for the period from
November 1, 2007 to the payment date at a rate equal to
4.88%, and (iii) less any withholding that we may be
required to make. All of such payments are immediately due in
certain circumstances, including if Mr. Paige is terminated
without cause.
Employment of
Directors and Family Members
Stephen G. Fox, brother of David Fox, III (one of our
executive officers), is employed by our company pursuant to an
employment agreement and earned aggregate compensation of
$764,807 in 2005, $935,322 in 2006 and $3,006,556 in 2007. Betty
Ketchum, mother of Craig Ketchum, is employed by our company and
the pro rated portion of her compensation in November/December
2007 (following the Red Man Transaction) was $451,934. Betty
Ketchum will cease to be an employee of our company effective
October 31, 2008. Brian Ketchum, brother of Craig Ketchum,
is employed by our company and the pro rated portion of his
compensation in November/December 2007 (following the Red Man
Transaction) was $345,704. Kevin Ketchum, brother of Craig
Ketchum, is employed by our company and the pro rated portion of
his compensation in November/December 2007 (following the Red
Man Transaction) was $348,286. Kent Ketchum, brother of Craig
Ketchum and a former member of our board of directors, was
formerly employed by Red Man and the pro rated portion of his
compensation in November/December 2007 (following the Red Man
Transaction) was $481,532. Since January 2008, Kent Ketchum
has been employed by Red Man Distributors LLC. David
Fox, Jr., father of David Fox, III, was previously
employed by our company and earned aggregate compensation of
$246,523 in 2005 and $289,918 in 2006.
Anthony Zande,
brother-in-law
of H.B. Wehrle, III (one of our directors), was employed by
our company until June 2008 and earned aggregate compensation of
$160,409 in 2006 and $161,613 in 2007. Helen Lynne Wehrle Zande,
H.B. Wehrle, IIIs sister, was employed by our company
until December 2007 and earned aggregate compensation of
$1,243,350 in 2005, $1,549,378 in 2006, and $258,535 in 2007.
E. Gaines Wehrle was a director of our company from January
2007 until August 2008. E. Gaines Wehrle was employed by
our company until January 31, 2007 and earned aggregate
compensation of $2,269,499 in 2005, $2,980,532 in 2006 and
$226,047 in 2007. Chilton Wehrle Mueller, sister of
E. Gaines Wehrle, was employed by our company until
January 31, 2007 and earned aggregate compensation of
$1,240,579 in 2005, $1,492,217 in 2006 and $110,060 in 2007.
Michael H. Wehrle, brother of E. Gaines Wehrle, was
employed by our company until January 31, 2007 and earned
aggregate compensation of $2,278,143 in 2005, $2,976,421 in 2006
and $223,519 in 2007. Cody Mueller,
brother-in-law
of E. Gaines Wehrle, was employed by our company until
April 15, 2008 and earned aggregate compensation of
$381,858 in 2006 and $495,185 in 2007.
148
Transactions with
Bain & Company
Sam Rovit, a member of our board of directors, is a partner at
Bain Corporate Renewal Group, a unit of Bain &
Company. Mr. Rovit joined Bain Corporate Renewal Group in
January 2008 and was a partner at Bain & Company
from 1989 to June 2005. In 2006, Bain & Company
provided consulting services to the entity now known as McJunkin
Red Man Corporation and McJunkin Red Man Corporation paid
Bain & Company $2,976,432 for such services.
Registration
Rights Agreement
Prior to this offering, we intend to enter into a new
registration rights agreement with PVF Holdings LLC pursuant to
which we may be required to register the sale of our shares held
by PVF Holdings LLC. Under the registration rights agreement,
PVF Holdings LLC will have the right, including in connection
with this offering, to request that we use our reasonable best
efforts to register the sale of shares held by PVF Holdings LLC
on its behalf on up to six occasions including requiring us to
file shelf registration statements permitting sales of shares
into the market from time to time over an extended period. PVF
Holdings LLCs right to demand registration will be subject
to certain limitations contained in the registration rights
agreement, including our right to decline to cause a
registration statement for a demand registration to be declared
effective within 180 days after the effective date of any
of our other registration statements.
In addition, PVF Holdings LLC will have the ability to exercise
certain piggyback registration rights with respect to its own
securities if we elect to register any of our equity securities.
The registration rights agreement will also include provisions
dealing with allocation of securities included in registration
statements, registration procedures, indemnification,
contribution and allocation of expenses. The registration rights
agreement will also provide that if PVF Holdings LLC is
dissolved, an amended and restated registration rights agreement
will become automatically effective and the existing agreement
will terminate. Pursuant to the terms of such amended and
restated registration rights agreement, the existing members of
PVF Holdings LLC would thereafter be entitled to certain
registration rights with respect to our shares which are
distributed to them in connection with any such dissolution of
PVF Holdings LLC.
Management
Stockholders Agreement
Each holder of a stock option
and/or
restricted stock award from the company, including the members
of our board of directors who have received stock option awards,
is a party to a management stockholders agreement. The
management stockholders agreement provides that upon the
termination of a restricted stock or stock option holders
employment with us (including, in the case of a non-employee
member of our board of directors, the termination of his or her
service on our board), we may exercise our right to purchase all
or a portion of the restricted stock
and/or
stock
received upon the exercise of stock options held by such
employee or director (or his or her permitted transferee). In
the event of a termination by us with cause, the call option
price would be the lesser of (i) the fair market value on
the date of repurchase (determined in accordance with the
management stockholders agreement) or (ii) the price paid
for the stock by such employee or director. Under all other
circumstances, the call option price would be the fair market
value of the stock subject to the call option on the date of
repurchase (determined in accordance with the management
stockholders agreement).
The management stockholders agreement prohibits the transfer of
any shares of our stock (including restricted stock) by a
restricted stock or stock option holder, other than
(i) following the death of such holder pursuant to the
terms of any trust or will of the deceased or by the laws of
intestate succession or (ii) in connection with our
exercise of our call option.
In connection with the hiring of our new chief executive
officer, Andrew Lane, on September 10, 2008, Mr. Lane
purchased shares of our common stock and was granted stock
options in respect of our common stock. In connection with this
purchase and grant, Mr. Lane became a party to the
149
management stockholders agreement. Upon the consummation of
this offering, Mr. Lane will no longer be a party to the
management stockholders agreement in respect of common stock
held by him, whether acquired by purchase or upon exercise of
his stock options.
Purchase of
Midfield Minority Interest
In June 2005, a subsidiary of Red Man, which is now known as
McJunkin Red Man Canada Ltd. (CanHCo) acquired an
equity interest in Midfield Supply ULC (Midfield).
This transaction is referred to as the Midfield
Investment. Midfield is an unlimited liability corporation
incorporated under the laws of Alberta and is one of the three
largest distributors of PVF products to the energy sector in the
four Western Canadian provinces. The headquarters of Midfield is
in Calgary, Alberta. Pursuant to the Midfield Investment, CanHCo
acquired an approximate 51% voting interest (constituting an
approximately 49% equity interest) in Midfield. The remainder of
the voting and equity interest was held by Midfield Holdings
(Alberta) Ltd. (MinorityHCo), an Alberta
corporation. The Midfield Investment was an acquisition
transaction whereby the existing shareholders of the predecessor
entity to Midfield partially liquidated their ownership
interests. There were in excess of 200 shareholders of the
predecessor entity, who were largely employees or former
employees of that entity. Prior to the Midfield Transaction
described below, employees of Midfield were shareholders of
MinorityHCo. These shareholders were largely employees or former
employees of Midfield or its predecessor. Certain employees of
Midfield own common units in PVF Holdings LLC.
In connection with the Midfield Investment, a shareholders
agreement was entered into among CanHCo, MinorityHCo and
Midfield. One of the features of the shareholders agreement was
the Call Right, which was held by CanHCo, and was a
right to acquire the securities of Midfield held by MinorityHCo.
This allowed CanHCo to acquire the remainder of the ownership in
Midfield that it did not acquire in June 2005 at the time of the
Midfield Investment. The Call Right was exercisable during a
six-month period which commenced on June 15, 2008. Pursuant
to the Call Right, CanHCo had the option to provide a purchase
notice to MinorityHCo, and was entitled to acquire the shares of
Midfield held by MinorityHCo at a price provided by formula. We
were required to concurrently acquire all related shareholder
loans owing by Midfield to Holdings. CanHCo had intended to
exercise the Call Right in the manner described above, however,
the Call Right transaction was ultimately structured as a
purchase by CanHCo of all of the outstanding securities of
MinorityHCo from its shareholders (the Midfield
Transaction). On July 31, 2008, we paid approximately
CDN$90.04 million (US$87.97 million) to the
shareholders of and lenders to MinorityHCo, of which
$2 million is being held in escrow for one year to satisfy
any potential indemnification claims against such shareholders
and lenders. On August 1, 2008, pursuant to the stock
purchase agreement entered into in connection with the Red Man
Transaction, a subsidiary of McJunkin Red Man Corporation paid
approximately $47.7 million to former shareholders of Red
Man, including Craig Ketchum, Kent Ketchum (brother of Craig
Ketchum), and an immediate family member of Craig Ketchum, who
received approximately $4.5 million, $6.2 million, and
$165,250 respectively.
Red Man
Distributors LLC
Red Man Distributors LLC (RMD) is an Oklahoma
limited liability company formed on November 1, 2007 for
the purposes of distributing oil country tubular goods in North
America as a certified minority supplier. McJunkin Red Man
Corporation is a member of RMD and owns 49% of the outstanding
equity interests of RMD. The other members of RMD, consisting of
Craig Ketchum, Kent Ketchum, Kevin Ketchum and Brian Ketchum,
own in the aggregate the remaining 51% of the outstanding equity
interests of RMD. RMD is managed by its members. McJunkin Red
Man Corporation is retained by RMD as an independent contractor
to provide general corporate and administrative services to RMD.
McJunkin Red Man Corporation is paid an annual services fee of
$725,000 by RMD to provide such services. In addition, McJunkin
Red Man Corporation is paid an annual license fee for the right
and license to use the name Red Man. McJunkin Red
Man
150
Corporation pays RMD a specified percentage of RMDs gross
monthly revenue for the relevant month from sales of products by
RMD that are sourced from McJunkin Red Man Corporation.
Related Party
Transaction Policy
Beginning on January 31, 2007, we had in place an informal
policy for the review, approval, ratification and disclosure of
related party transactions. Under this policy, related party
transactions were required to be entered into on an arms
length basis. In addition, from January 31, 2007 until the
completion of this offering, we are bound by a provision in the
PVF LLC Agreement which provides that neither we nor any of our
subsidiaries may enter into any transactions with any of the
Goldman Sachs Funds or any of their affiliates except for
transactions which (i) are otherwise permitted or
contemplated by the PVF LLC Agreement, or (ii) are on fair
and reasonable terms not materially less favorable to us than we
would obtain in a hypothetical comparable arms length
transaction with a person that was not an affiliate of the
Goldman Sachs Funds. Our credit facilities also contain
covenants which, subject to certain exceptions, require us to
conduct all transactions with any of our affiliates on terms
that are substantially as favorable to us as we would obtain in
a comparable arms length transaction with a person that is
not an affiliate.
Prior to the completion of this offering, our board of directors
will adopt a Related Party Transaction Policy, which is designed
to monitor and ensure the proper review, approval, ratification
and disclosure of related party transactions involving us. This
policy applies to any transaction, arrangement or relationship
(or any series of similar transactions, arrangements or
relationships) in which we were, are or will be a participant
and the amount involved exceeds $120,000, and in which any
related party had, has or will have a direct or indirect
material interest. The audit committee of our board of directors
must review, approve and ratify a related party transaction if
such transaction is consistent with the Related Party
Transaction Policy and is on terms, taken as a whole, which the
audit committee believes are no less favorable to us than could
be obtained in an arms-length transaction with an unrelated
third party, unless the audit committee otherwise determines
that the transaction is not in our best interests. Any related
party transaction or modification of such transaction which our
board of directors has approved or ratified by the affirmative
vote of a majority of directors, who do not have a direct or
indirect material interest in such transaction, does not need to
be approved or ratified by our audit committee. In addition,
related party transactions involving compensation will be
approved by our compensation committee in lieu of our audit
committee.
151
DESCRIPTION OF
OUR INDEBTEDNESS
The following summaries of the material terms of our revolving
credit facility, two term loan credit facilities and the debt of
our subsidiary Midfield Supply ULC are only general descriptions
and are not complete and, as such, are subject to and are
qualified in their entirety by reference to the provisions of
the revolving credit facility, the two term loan credit
facilities, and the agreements governing Midfield Supply
ULCs debt, as applicable.
Revolving Credit
Facility and Term Loan Facility
Our subsidiary McJunkin Red Man Corporation is the borrower
under a $700 million revolving credit facility (the
Revolving Credit Facility) and a $575 million
term loan facility (the Term Loan Facility and,
together with the Revolving Credit Facility, the Senior
Secured Facilities). $204.4 million of borrowings
were outstanding and $490.9 million were available under
the Revolving Credit Facility as of June 26, 2008. Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc. are co-lead
arrangers and joint bookrunners for each of these facilities.
McJunkin Red Man Corporation entered into the Term Loan
Facility, as well as a $300 million asset-backed revolving
credit facility with The CIT Group/Business Credit, Inc. and the
other financial institutions party thereto, in January 2007 for
purposes of financing the acquisition of McJunkin Corporation by
affiliates of Goldman Sachs. The Term Loan Facility was amended,
and the Revolving Credit Facility was entered into, for purposes
of financing the Red Man Transaction in October 2007 and
refinancing the $300 million asset-backed revolving credit
facility. The Revolving Credit Facility was upsized on
June 10, 2008 from $650 million to $700 million.
Letter of Credit and Swingline
Sublimits.
The Revolving Credit Facility
provides for the extension of both revolving loans and swingline
loans and the issuance of letters of credit. The aggregate
principal amount of revolving loans outstanding at any time
under the Revolving Credit Facility may not exceed
$700 million, subject to adjustments based on changes in
the borrowing base and less the sum of aggregate letters of
credit outstanding and the aggregate principal amount of
swingline loans outstanding, provided that the borrower may
elect to increase the limit on the revolving loans or term loans
outstanding as described in Incremental
Facilities below. There is a $60 million sub-limit on
swingline loans and the total letters of credit outstanding at
any time may not exceed $60 million.
Maturity.
The revolving loans have a
maturity date of October 31, 2013 and the swingline loans
have a maturity date of October 24, 2013. Any letters of
credit outstanding under the Revolving Credit Facility will
expire on October 24, 2013. The maturity date of the term
loans under the Term Loan Facility is January 31, 2014.
Interest Rate and Fees.
The term loans
bear interest at a rate per annum equal to, at the
borrowers option, either (i) the greater of the prime
rate and the federal funds effective rate plus 0.50%, plus in
either case 2.25%; or (ii) LIBOR plus 3.25%. On
June 26, 2008, $567.8 million was outstanding under
the Term Loan Facility and the interest rate on these loans was
6.13%.
The revolving loans bear interest at a rate per annum equal to,
at the borrowers option, either (i) the greater of
the prime rate and the federal funds effective rate plus 0.50%,
plus in either case (a) 0.50% if the borrowers
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00, (b) 0.25% if such
ratio is greater than or equal to 2.00 to 1.00 but less than
2.75 to 1.00, or (c) 0.00% if such ratio is less than 2.00
to 1.00; or (ii) LIBOR plus (a) 1.50% if the
borrowers consolidated total debt to consolidated adjusted
EBITDA ratio is greater than or equal to 2.75 to 1.00,
(b) 1.25% if such ratio is greater than or equal to 2.00 to
1.00 but less than 2.75 to 1.00, or (c) 1.00% if such ratio
is less than 2.00 to 1.00. Interest on swingline loans is
calculated on the basis of the rate described in clause (i)
of the preceding sentence. The weighted average interest rate on
the revolving loans as of June 26, 2008 was 4.14% and the
interest rate on the swingline loans was 5.25%.
152
Additionally, the borrower is required to pay a commitment fee
with respect to unutilized revolving credit commitments at a
rate per annum equal to (i) 0.375% if the borrowers
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00 and (ii) 0.25% if
such ratio is less than 2.75 to 1.00. The borrower is also
required to pay fees on the stated amounts of outstanding
letters of credit for the account of all revolving lenders at a
per annum rate equal to (i) 1.375% if the borrowers
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00, (ii) 1.125% if such
ratio is greater than or equal to 2.00 to 1.00 but less than
2.75 to 1.00, or (iii) 0.875% if such ratio is less than
2.00 to 1.00. The borrower is required to pay a fronting fee for
the account of the letter of credit issuer in respect of each
letter of credit issued by it at a rate for each day equal to
0.125% per annum on the average daily stated amount of such
letter of credit. The borrower is also obligated to pay directly
to the letter of credit issuer upon each issuance of, drawing
under,
and/or
amendment of, a letter of credit issued by it such amount as the
borrower and the letter of credit issuer agree upon for
issuances of, drawings under or amendments of, letters of credit
issued by the letter of credit issuer.
Prepayments.
The borrower may
voluntarily prepay revolving loans, swingline loans and term
loans in whole or in part at the borrowers option, in each
case without premium or penalty. If the borrower refinances the
term loans on certain terms prior to October 31, 2008, the
borrower will be subject to a prepayment penalty of 1.00% of the
aggregate principal amount of such prepayment. The borrower is
required to prepay outstanding term loans with 100% of the net
cash proceeds of:
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a disposition of any business units, assets or other property of
the borrower or any of the borrowers restricted
subsidiaries not in the ordinary course of business, subject to
certain exceptions for permitted asset sales;
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a casualty event with respect to collateral for which the
borrower or any of its restricted subsidiaries receives
insurance proceeds, or proceeds of a condemnation award or other
compensation;
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the issuance or incurrence by the borrower or any of its
restricted subsidiaries of indebtedness, subject to certain
exceptions; and
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any sale-leaseback transaction permitted under the Term Loan
Facility.
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Not later than the date that is 90 days after the last day
of any fiscal year, the borrower under the Term Loan Facility
will be required to prepay the outstanding term loans under the
Term Loan Facility with an amount equal to (i) 50% of
excess cash flow for such fiscal year, provided that
(a) the percentage will be reduced to 25% if the
borrowers ratio of consolidated total debt to consolidated
EBITDA for the most recent four consecutive fiscal quarters is
no greater than 2.50 to 1.00 but greater than 2.00 to 1.00, and
(b) no prepayment of term loans with excess cash flow is
required if the borrowers ratio of consolidated total debt
to consolidated EBITDA for the most recent four consecutive
fiscal quarters is no greater than 2.00 to 1.00, minus
(ii) the principal amount of term loans under the Term Loan
Facility voluntarily prepaid during such fiscal year.
In addition, if at any time the aggregate amount of outstanding
loans, unreimbursed letter of credit drawings and undrawn
letters of credit under the Revolving Credit Facility
exceeds the total revolving credit commitments or the
borrowing base, the borrower will be required to repay
outstanding loans or cash collateralize letters of credit in an
aggregate amount equal to such excess, with no reduction of the
commitment amount. If the amount available under the Revolving
Credit Facility is less than 7% of total revolving credit
commitments for any period of five consecutive business days, or
an event of default pursuant to certain provisions of the
Revolving Credit Facility has occurred, the borrower would be
required to transfer funds from certain blocked accounts daily
into a collection account under the exclusive control of the
agent under the Revolving Credit Facility.
Amortization.
The term loans are
repayable in quarterly installments in an amount equal to the
principal amount of the term loans outstanding on the quarterly
installment date multiplied by
153
0.25%, with the balance of the principal amount due on the term
loan maturity date of January 31, 2014.
Incremental Facilities.
Subject to
certain terms and conditions, the borrower may request an
increase in revolving loan commitments and term loan
commitments. The increase in revolving loan commitments may not
exceed the sum of (i) $150 million, plus
(ii) only after the entire amount in the preceding
clause (i) is drawn, an amount such that on a pro forma
basis after giving effect to the new revolving credit
commitments and certain other specified transactions, the
secured leverage ratio will be no greater than 4.75 to 1.00. The
borrowers ability to borrow under such incremental
facilities, however, would still be limited by the borrowing
base. The incremental term loan commitments may not exceed the
difference between (i) up to $100 million, and
(ii) the sum of all incremental revolving commitments and
incremental term loan commitments taken together. Any lender
that is offered to provide all or part of the new revolving loan
commitments or new term loan commitments may elect or decline,
in its sole discretion, to provide such new commitments.
Collateral and Guarantors.
The
obligations under the Senior Secured Facilities are guaranteed
by the borrowers wholly owned domestic subsidiaries. The
obligations under the Revolving Credit Facility are secured,
subject to exceptions, by substantially all of the assets of the
borrower and the subsidiary guarantors, including (i) a
first-priority security interest in personal property consisting
of and arising from inventory and accounts receivable;
(ii) a second-priority pledge of certain of the capital
stock held by the borrower or any subsidiary guarantor; and
(iii) a
second-priority
security interest in, and mortgages on, substantially all other
tangible and intangible assets of the borrower and each
subsidiary guarantor. The obligations under the Term Loan
Facility are secured, subject to certain significant exceptions,
by substantially all of the assets of the borrower and the
subsidiary guarantors, including (i) a second-priority
security interest in personal property consisting of and arising
from inventory and accounts receivable; (ii) a
first-priority pledge of certain of the capital stock held by
the borrower or any subsidiary guarantor; and (iii) a
first-priority security interest in, and mortgages on,
substantially all other tangible and intangible assets of the
borrower and each subsidiary guarantor.
Covenants.
The Senior Secured
Facilities contain customary covenants. These agreements, among
other things, restrict, subject to certain exceptions, the
ability of the borrower and its subsidiaries to incur additional
indebtedness, create liens on assets, engage in mergers,
consolidations or sales of assets, dispose of subsidiary
interests, make investments, loans or advances, pay dividends,
make payments with respect to subordinated indebtedness, enter
into sale and leaseback transactions, change the business
conducted by the borrower and its subsidiaries taken as a whole,
and enter into agreements that restrict subsidiary dividends or
limit the ability of the borrower or any subsidiary guarantor to
create or keep liens for the benefit of the lenders with respect
to the obligations under the Senior Secured Facilities. The
Senior Secured Facilities require the borrower to enter into
interest rate swap, cap and hedge agreements for purposes of
ensuring that no less than 50% of the aggregate principal amount
of the total indebtedness of the borrower and its subsidiaries
then outstanding is either subject to such interest rate
agreements or bears interest at a fixed rate.
154
The Term Loan Facility requires the borrower to maintain a
maximum ratio of consolidated total debt to consolidated
adjusted EBITDA and a minimum ratio of consolidated adjusted
EBITDA to consolidated interest expense. Each of these ratios is
calculated for the period that is four consecutive fiscal
quarters prior to the date of calculation. These financial
covenants are set forth in the table below:
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Maximum
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Minimum
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Consolidated
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Consolidated
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Total Debt to
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Adjusted EBITDA to
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Consolidated
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Consolidated
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Adjusted EBITDA
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Interest Expense
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Four Consecutive Fiscal
Quarters Ending on:
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Ratio
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Ratio
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June 30, 2008
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4.25:1.00
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3.00:1.00
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September 30, 2008
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4.25:1.00
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3.00:1.00
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December 31, 2008
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4.25:1.00
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3.00:1.00
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March 31, 2009
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3.50:1.00
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3.25:1.00
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June 30, 2009
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3.50:1.00
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3.25:1.00
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September 30, 2009
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3.50:1.00
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3.25:1.00
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December 31, 2009
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3.50:1.00
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3.25:1.00
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March 31, 2010
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2.75:1.00
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3.25:1.00
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June 30, 2010
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2.75:1.00
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3.25:1.00
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September 30, 2010
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2.75:1.00
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3.25:1.00
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December 31, 2010
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2.75:1.00
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3.25:1.00
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March 31, 2011
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2.50:1.00
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3.25:1.00
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June 30, 2011
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2.50:1.00
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3.25:1.00
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September 30, 2011
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2.50:1.00
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3.25:1.00
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December 31, 2011
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2.50:1.00
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3.25:1.00
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March 31, 2012 and thereafter
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2.50:1.00
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3.50:1.00
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If the borrower fails to comply with the consolidated total debt
to consolidated adjusted EBITDA ratio, then within ten days
after the date on which financial statements for the applicable
period are due under the Term Loan Facility, the Goldman Sachs
Funds and other investors in the borrower (or any direct or
indirect parent of the borrower) have a cure right which allows
any of them to make a direct or indirect equity investment in
the borrower or any restricted subsidiary of the borrower in
cash. If such cure right is exercised, the consolidated total
debt to consolidated adjusted EBITDA ratio of the borrower will
be recalculated to give pro forma effect to the net cash
proceeds received from the exercise of the cure right. The cure
right is subject to certain limitations. For the four prior
consecutive fiscal quarters, there must be at least one fiscal
quarter in which the cure right is not exercised. Additionally,
the equity investment contributed under the cure right may not
exceed the amount necessary to bring the borrower back into
compliance with the restrictions regarding the borrowers
consolidated total debt to consolidated adjusted EBITDA ratio.
Although the Revolving Credit Facility does not require the
borrower to comply with any financial ratio maintenance
covenants, if less than 7% of the then-outstanding credit
commitments are available to be borrowed under the Revolving
Credit Facility at any time, the borrower will not be permitted
to borrow additional amounts unless its pro forma ratio of
consolidated adjusted EBITDA to consolidated fixed charges is at
least 1.00 to 1.00.
The Term Loan Facility provides that the borrower and its
restricted subsidiaries may not make, or commit to make, capital
expenditures in excess of $25 million in any year. If the
actual amount of capital expenditures made in any fiscal year is
less than the amount permitted to be made in such fiscal year,
the amount of such difference may be carried forward and used to
make capital expenditures in the succeeding fiscal year, though
the carried forward amount may not be used beyond the
immediately succeeding fiscal year.
155
Events of Default.
The Senior Secured
Facilities contain customary events of default. The events of
default include the failure to pay interest and principal when
due, failure to pay fees and any other amounts owed under the
Senior Secured Facilities when due, a breach of certain
covenants in the Senior Secured Facilities, a breach of any
representation or warranty contained in the Senior Secured
Facilities in any material breach, defaults in payments with
respect to any other indebtedness in excess of $15 million
(under the Term Loan Facility) or in excess of $30 million
(under the Revolving Credit Facility), defaults with respect to
other indebtedness in excess of $15 million (under the Term
Loan Facility) or in excess of $30 million (under the
Revolving Credit Facility) that has the effect of accelerating
such indebtedness, bankruptcy, certain events relating to
employee benefits plans, failure of a material subsidiarys
guarantee to remain in full force and effect, failure of the
security agreement, pledge agreements pursuant to which the
stock of any material subsidiary is pledged, or any mortgage for
the benefit of the lenders under the Term Loan Facility to
remain in full force and effect, entry of one or more judgments
or decrees against the borrower or its restricted subsidiaries
involving a liability of $15 million or more in the
aggregate (under the Term Loan Facility) or $30 million or
more in the aggregate (under the Revolving Credit Facility), and
the invalidation of subordination provisions of any document
evidencing permitted additional debt having a principal amount
in excess of $15 million.
The Senior Secured Facilities also contain an event of default
upon the occurrence of a change of control. Under the Senior
Secured Facilities, a change of control shall have
occurred if (i) the Goldman Sachs Funds and certain of
their affiliates shall cease to beneficially own at least 35% of
the voting power of the outstanding voting stock of the borrower
(other than as a result of one or more widely distributed
offerings of the common stock of the borrower or any direct or
indirect parent of the borrower); or (ii) any person,
entity or group (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) shall have acquired beneficial ownership of a
percentage of the voting power of the outstanding voting stock
of the borrower that exceeds the percentage of the voting power
of such voting stock then beneficially owned, in the aggregate,
by the Goldman Sachs Funds and certain of their affiliates,
unless, in the case of either clause (i) or
(ii) above, the Goldman Sachs Funds have, at such time, the
right or the ability by voting power, contract or otherwise to
elect or designate for election at least a majority of the board
of directors of the borrower; or (iii) a majority of the
board of directors of the borrower ceases to consist of
continuing directors, defined as individuals who
(a) were members of the board of directors of the borrower
on October 31, 2007 (or January 31, 2007 for purposes
of determining whether an event of default has occurred under
the Term Loan Facility), (b) who have been a member of the
board of directors for at least 12 months preceding
October 31, 2007 or January 31, 2007, as the case may
be, (c) who have been nominated to be a member of the board
of directors, directly or indirectly, by the Goldman Sachs Funds
and certain of their affiliates or persons nominated by the
Goldman Sachs Funds and certain of their affiliates or
(d) who have been nominated to be a member of the board of
directors by a majority of the other continuing directors then
in office.
Junior Term Loan
Facility
On May 22, 2008, McJunkin Red Man Holding Corporation, as
the borrower, entered into a $450 Million Term Loan Credit
Agreement (the Junior Term Loan Facility). Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc. were the
co-lead arrangers and joint bookrunners under this facility. The
proceeds from the Junior Term Loan Facility, along with
$25 million in proceeds from revolving loans drawn under
the Revolving Credit Facility, were used to fund a dividend to
McJunkin Red Man Holding Corporations stockholders,
including PVF Holdings LLC. PVF Holdings LLC distributed the
proceeds it received from the dividend to its members, including
the Goldman Sachs Funds and certain of our directors and members
of our management. See Certain Relationships and Related
Party Transactions Transactions with the Goldman
Sachs Funds May 2008 Dividend. The term loans
under the Junior Term Loan Facility are not subject to
amortization and the principal of such loans must be repaid on
January 31, 2014.
156
Interest Rate and Fees.
The term loans
under the Junior Term Loan Facility bear interest at a rate per
annum equal to, at the borrowers option, either
(i) the greater of the prime rate and the federal funds
effective rate plus 0.50%, plus in either case 2.25%, or
(ii) LIBOR multiplied by the statutory reserve rate plus
3.25%.
Prepayments.
We may voluntarily prepay
term loans under the Junior Term Loan Facility in whole or in
part at our option, without premium or penalty. After the
payment in full of the term loans under the Term Loan Facility,
we will be required to prepay outstanding term loans under the
Junior Term Loan Facility with 100% of the net cash proceeds of:
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a disposition of any of our or our restricted subsidiaries
business units, assets or other property not in the ordinary
course of business, subject to certain exceptions for permitted
asset sales;
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a casualty event with respect to collateral for which we or any
of our restricted subsidiaries receives insurance proceeds, or
proceeds of a condemnation award or other compensation;
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the issuance or incurrence by us or any of our restricted
subsidiaries of indebtedness, subject to certain
exceptions; and
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any sale-leaseback transaction permitted under the Junior Term
Loan Facility.
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Also, after the payment in full of the term loans under the Term
Loan Facility, not later than the date that is 90 days
after the last day of any fiscal year, we will be required to
prepay the outstanding term loans under the Junior Term Loan
Facility with an amount equal to (i) 50% of excess
cash flow for such fiscal year, provided that (a) the
percentage will be reduced to 25% if the borrowers ratio
of consolidated total debt to consolidated adjusted EBITDA for
the most recent four consecutive fiscal quarters is no greater
than 2.50 to 1.00 but greater than 2.00 to 1.00, and (b) no
prepayment of term loans with excess cash flow is required if
the borrowers ratio of consolidated total debt to
consolidated adjusted EBITDA for the most recent four
consecutive fiscal quarters is no greater than 2.00 to 1.00,
minus (ii) the principal amount of term loans under the
Junior Term Loan Facility voluntarily prepaid during such fiscal
year.
We must also prepay the principal amount of the term loans under
the Junior Term Loan Facility with 50% of the cash proceeds
received by us from a Qualified IPO, net of
underwriting discounts and commissions and other related
reasonable costs and expenses. A Qualified IPO is
defined as a bona fide underwritten sale to the public of our
common stock or the common stock of any of our direct or
indirect subsidiaries or our direct or indirect parent companies
pursuant to a registration statement that is declared effective
by the SEC or the equivalent offering on a private exchange or
platform. Prepayment is only required if we or one of our
subsidiaries receives cash proceeds from the Qualified IPO.
Collateral.
The term loans under the
Junior Term Loan Facility are secured by perfected security
interests in and liens on substantially all of the personal
property and certain real property of McJunkin Red Man Holding
Corporation, including the common stock we hold of McJunkin Red
Man Corporation. The term loans are not guaranteed by any of our
subsidiaries or by PVF Holdings LLC.
Certain Covenants and Events of
Default.
The Junior Term Loan Facility
contains customary covenants for a holding company facility.
These agreements, among other things, restrict, subject to
certain exceptions, the ability of the borrower to incur
additional indebtedness, create liens on assets, and engage in
activities or own assets other than certain specified activities
and assets. Also, the Junior Term Loan Facility requires the
borrower to maintain a maximum ratio of consolidated total debt
to consolidated adjusted EBITDA and a minimum ratio of
consolidated adjusted EBITDA to consolidated interest expense.
Each of these ratios is calculated for the period that is four
consecutive
157
fiscal quarters prior to the date of calculation. These
financial covenants are set forth in the table below:
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Maximum
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Minimum
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Consolidated
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Consolidated
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Total Debt to
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Adjusted EBITDA to
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Consolidated
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Consolidated
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Adjusted EBITDA
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Interest Expense
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Four Consecutive Fiscal
Quarters Ending on:
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Ratio
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Ratio
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June 30, 2008
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4.75:1.00
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2.50:1.00
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September 30, 2008
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4.75:1.00
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2.50:1.00
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December 31, 2008
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4.75:1.00
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2.50:1.00
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March 31, 2009
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4.00:1.00
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2.75:1.00
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June 30, 2009
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4.00:1.00
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2.75:1.00
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September 30, 2009
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4.00:1.00
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2.75:1.00
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December 31, 2009
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4.00:1.00
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2.75:1.00
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March 31, 2010
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3.25:1.00
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2.75:1.00
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June 30, 2010
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3.25:1.00
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2.75:1.00
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September 30, 2010
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3.25:1.00
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2.75:1.00
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December 31, 2010
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3.25:1.00
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2.75:1.00
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March 31, 2011
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3.00:1.00
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2.75:1.00
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June 30, 2011
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3.00:1.00
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2.75:1.00
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September 30, 2011
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3.00:1.00
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2.75:1.00
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December 31, 2011
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3.00:1.00
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2.75:1.00
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March 31, 2012 and thereafter
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3.00:1.00
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3.00:1.00
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Consolidated adjusted EBITDA is calculated under the Junior Term
Loan Facility in a similar manner as under the Senior Secured
Facilities. See Revolving Credit Facility and
Term Loan Facility Covenants.
The Junior Term Loan Facility provides that the borrower and its
restricted subsidiaries may not make, or commit to make, capital
expenditures in excess of $30 million in any year. If the
actual amount of capital expenditures made in any fiscal year is
less than the amount permitted to be made in such fiscal year,
the amount of such difference may be carried forward and used to
make capital expenditures in the succeeding fiscal year, though
the carried forward amount may not be used beyond the
immediately succeeding fiscal year.
If the borrower fails to comply with the consolidated total debt
to consolidated adjusted EBITDA ratio, then the Goldman Sachs
Funds and other investors in the borrower have a cure right that
is similar to the cure right provided with respect to the Term
Loan Facility. See Revolving Credit Facility
and Term Loan Facility Covenants.
The Junior Term Loan Facility also contains customary events of
default that are similar to the events of default under the
Senior Secured Credit Facilities, including an event of default
upon a change of control. See Revolving Credit
Facility and Term Loan Facility Events of
Default.
Purchases of Outstanding Loans.
Subject
to certain terms and conditions, the Goldman Sachs Funds and
their affiliates may from time to time seek to purchase term
loans under the Junior Term Loan Facility from the lenders under
the facility pursuant to open market purchases in an aggregate
amount not to exceed 30% of the aggregate principal amount of
the loans outstanding under the Junior Term Loan Facility. The
Goldman Sachs Funds and their affiliates may contribute such
purchased loans to PVF Holdings LLC as an equity contribution in
return for equity interests in PVF Holdings LLC and PVF Holdings
LLC will then contribute such loans to the borrower under the
Junior Term Loan Facility as an equity contribution in return
for additional stock of the borrower. In the case of such
purchases of term loans by the Goldman Sachs Funds and their
affiliates followed by
158
contributions of the purchased loans to PVF Holdings LLC and
then to the borrower, the loans subject to such purchases and
contributions shall be cancelled.
In addition, the borrower under the Junior Term Loan Facility
may from time to time seek to purchase, subject to certain terms
and conditions, term loans under the Junior Term Loan Facility
from the lenders under the facility pursuant to open market
purchases. In the case of such purchases by the borrower, the
loans subject to such purchases shall be cancelled.
Midfield CDN$150
Million (US$148.26 Million) Revolving Credit
Facility
One of our subsidiaries, Midfield Supply ULC, is the borrower
under a CDN$150 million (US$148.26 million) revolving
credit facility (the Midfield Revolving Credit
Facility) with Bank of America, N.A. and certain other
lenders from time to time parties thereto. Proceeds from this
facility may be used by Midfield for working capital and other
general corporate purposes. As of June 26, 2008,
US$51.7 million of borrowings were outstanding and
$51.6 million were available under the Midfield Revolving
Credit Facility. The facility provides for the extension of up
to CDN$150 million (US$148.26 million) in revolving
loans, subject to adjustments based on the borrowing base and
less the aggregate letters of credit outstanding under the
facility. Letters of credit may be issued under the facility
subject to certain conditions, including a CDN$10 million
or US$9.88 million sub-limit. The revolving loans have a
maturity date of November 2, 2010. All letters of credit
issued under the facility must expire at least 20 business days
prior to November 2, 2010.
Interest Rate and Fees.
The revolving
loans bear interest at a rate equal to either (i) the
Canadian prime rate, plus (a) 0.25% if the average
daily availability (as defined in the loan and security
agreement for the facility) for the previous fiscal quarter was
less than CDN$30 million (US$29.65 million) or
(b) 0.00% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CDN$30 million, (US$29.65 million) or, at the
borrowers option, (ii) the rate of interest per annum
equal to the rates applicable to Canadian Dollar Bankers
Acceptances having a comparable term as the proposed loan
displayed on the CDOR Page of Reuter Monitor Money
Rates Service, plus (a) 1.75% if the average daily
availability for the previous fiscal quarter was less than
CDN$30 million (US$29.65 million), (b) 1.50% if
the average daily availability for the previous fiscal quarter
was greater than or equal to CDN$30 million
(US$29.65 million) but less than CDN$60 million
(US$59.3 million), or (c) 1.25% if the if the average
daily availability for the previous fiscal quarter was greater
than or equal to CDN$60 million (US$59.3 million).
The borrower must pay a monthly unused line fee with respect to
unutilized revolving loan commitments equal to (i) 0.25% if
the outstanding amount of borrowings under the facility for the
immediately preceding fiscal quarter are greater than 50% of the
revolving loan commitments, or (ii) 0.375% if otherwise.
The borrower must pay a monthly fronting fee equal to 0.125% per
annum of the stated amount of letters of credit issued and must
also pay a monthly fee to the agent on the average daily stated
amount of letters of credit issued equal to (i) 1.75% if
the average daily availability for the previous fiscal quarter
was less than CDN$30 million (US$29.65 million),
(ii) 1.50% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CDN$30 million (US$29.65 million) but less than
CDN$60 million (US$59.3 million), or (iii) 1.25%
if the average daily availability for the previous fiscal
quarter was greater than or equal to CDN$60 million
(US$59.3 million).
Prepayments.
The borrower may prepay
the revolving loans from time to time without premium or penalty.
Collateral and Guarantors.
The Midfield
Revolving Credit Facility is secured by substantially all of the
personal property of Midfield Supply ULC and its subsidiary
guarantors, Mega Production Testing Inc. and Hagan Oilfield
Supply Ltd.
Certain Covenants and Events of
Default.
The Midfield Revolving Credit
Facility contains customary covenants. These agreements, among
other things, restrict, subject to certain exceptions,
159
the ability of the borrower and its subsidiaries to incur
additional indebtedness, create liens on assets, make
distributions, make investments, sell, lease or transfer assets,
make loans or advances, pay certain debt, amalgamate, merge,
combine or consolidate with another entity, enter into certain
types of restrictive agreements, engage in any business other
than the business conducted by the borrower and its subsidiaries
on the closing date of the Midfield Revolving Credit Facility,
enter into transactions with affiliates, become a party to
certain employee benefit plans, enter into certain amendments
with respect to subordinated debt, make acquisitions, enter into
transactions which would reasonably be expected to have a
material adverse effect or cause a default, enter into sale and
leaseback transactions, and terminate certain agreements.
Additionally, the Midfield Revolving Credit Facility requires
the borrower to maintain a leverage ratio of no greater than
3.50 to 1.00 (measured on a monthly basis) and to maintain a
fixed charge coverage ratio of at least 1.15 to 1.00 (measured
on a monthly basis). The facility also prohibits the borrower
and its subsidiaries from making capital expenditures in excess
of $5 million in the aggregate during any fiscal year,
subject to exceptions for certain expenditures and provided that
if the actual amount of capital expenditures made in any fiscal
year is less than the amount permitted to be made in such fiscal
year, up to $250,000 of such excess may be carried forward and
used to make capital expenditures in the succeeding fiscal year.
The Midfield Revolving Credit Facility contains customary events
of default. The events of default include, among others, the
failure to pay interest, principal and other obligations under
the facilitys loan documents when due, a breach of any
representation or warranty contained in the loan documents,
breaches of certain covenants, the failure of any loan document
to remain in full force and effect, a default with respect to
other indebtedness in excess of $250,000 if the other
indebtedness may be accelerated due to such default, judgments
against the borrower and its subsidiaries in excess of $250,000
in the aggregate, the occurrence of any loss or damage with
respect to the collateral if the amount not covered by insurance
exceeds $100,000, cessation or governmental restraint of a
material part of the borrowers or a subsidiarys
business, insolvency, certain events related to benefits plans,
the criminal indictment of a senior officer of the borrower or a
guarantor or the conviction of a senior officer of the borrower
or a guarantor of certain crimes, an amendment to the
shareholders agreement among Midfield Supply ULC, the entity now
known as McJunkin Red Man Canada Ltd. and Midfield Holdings
(Alberta) Ltd. without the prior written consent of Bank of
America, N.A., and any event or condition that has a material
adverse effect on the borrower or a guarantor.
A change of control is also an event of default. A
change of control occurs if (i) McJunkin Red
Man Canada Ltd. ceases to own and control, directly or
indirectly, 51% or more of the voting equity interests of
Midfield Supply ULC, (ii) a change in the majority of
directors of Midfield Supply ULC occurs, unless approved by the
then-majority of directors, or (iii) all or substantially
all of Midfield Supply ULCs assets are sold or transferred.
Midfield CDN$15
Million (US$14.83 Million) Facility
One of our subsidiaries, Midfield Supply ULC, is also the
borrower under a CDN$15 million (US$14.83 million)
credit facility with Alberta Treasury Branches. The facility is
secured by substantially all of the real property and equipment
of Midfield Supply ULC and its subsidiary guarantors. The
facility contains customary covenants and events of default. The
borrowers leverage ratio must not exceed 3.50 to 1, its
fixed charge coverage ratio must be at least 1.15 to 1, and its
ratio of tangible asset value to borrowings outstanding must be
at least 2.00 to 1.
The Midfield CDN$15 million (US$14.83 million)
facility and the Midfield CDN$150 million
(US$148.26 million) facility are subject to an
intercreditor agreement which relates to, among other things,
priority of liens and proceeds of sale of collateral.
160
DESCRIPTION OF
OUR CAPITAL STOCK
Immediately following the completion of this offering, our
authorized capital stock will consist
of shares
of common stock, par value $0.01 per share,
and shares
of preferred stock, par value $0.01 per share, the rights and
preferences of which may be established from time to time by our
board of directors. Upon the completion of this offering, there
will
be
outstanding shares of common stock and no outstanding shares of
preferred stock. The following description of our capital stock
does not purport to be complete and is subject to and qualified
by our amended and restated certificate of incorporation and
bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the
provisions of applicable Delaware law.
Common
Stock
Holders of our common stock are entitled to one vote for each
share on all matters voted upon by our stockholders, including
the election of directors, and do not have cumulative voting
rights. Subject to the rights of holders of any then outstanding
shares of our preferred stock, our common stockholders are
entitled to any dividends that may be declared by our board of
directors. Holders of our common stock are entitled to share
ratably in our net assets upon our dissolution or liquidation
after payment or provision for all liabilities and any
preferential liquidation rights of our preferred stock then
outstanding. Holders of our common stock have no preemptive
rights to purchase shares of our stock. The shares of our common
stock are not subject to any redemption provisions and are not
convertible into any other shares of our capital stock. All
outstanding shares of our common stock are fully paid and
nonassessable. The rights, preferences and privileges of holders
of our common stock will be subject to those of the holders of
any shares of our preferred stock we may issue in the future.
Our common stock will be represented by certificates, unless our
board of directors adopts a resolution providing that some or
all of our common stock shall be uncertificated. Any such
resolution will not apply to any shares of common stock that are
already certificated until such shares are surrendered to us.
Preferred
Stock
Our board of directors may, from time to time, authorize the
issuance of one or more series of preferred stock without
stockholder approval. We have no current intention to issue any
shares of preferred stock.
One of the effects of undesignated preferred stock may be to
enable our board of directors to discourage an attempt to obtain
control of our company by means of a tender offer, proxy
contest, merger or otherwise. The issuance of preferred stock
may adversely affect the rights of our common stockholders by,
among other things:
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restricting dividends on the common stock;
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diluting the voting power of the common stock;
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impairing the liquidation rights of the common stock; or
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delaying or preventing a change in control without further
action by the stockholders.
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Limitation on
Liability and Indemnification of Officers and
Directors
Our amended and restated certificate of incorporation limits the
liability of directors to the fullest extent permitted by
Delaware law. The effect of these provisions is to eliminate the
rights of our company and our stockholders, through
stockholders derivative suits on behalf of our company, to
recover monetary damages against a director for breach of
fiduciary duty as a director, including breaches resulting from
grossly negligent behavior. However, our directors will be
personally liable to us and our stockholders for any breach of
the directors duty of loyalty, for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, under Section 174 of
161
the Delaware General Corporation Law or for any transaction from
which the director derived an improper personal benefit. In
addition, our amended and restated certificate of incorporation
and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We may
enter into indemnification agreements with our current directors
and executive officers prior to the completion of this offering.
We also maintain directors and officers insurance.
Corporate
Opportunities
Our amended and restated certificate of incorporation provides
that Goldman, Sachs & Co. and its affiliates (which
include the Goldman Sachs Funds) have no obligation to offer us
any opportunity to participate in business opportunities
presented to Goldman, Sachs & Co. or its affiliates
even if the opportunity is one that we might reasonably have
pursued, and that neither Goldman, Sachs & Co. nor its
affiliates will be liable to us or our stockholders for breach
of any duty by reason of any such activities unless, in the case
of any person who is a director or officer of our company, such
business opportunity is expressly offered to such director or
officer in writing solely in his or her capacity as an officer
or director of our company. Stockholders will be deemed to have
notice of and consented to this provision of our amended and
restated certificate of incorporation.
Delaware
Anti-Takeover Law
Our amended and restated certificate of incorporation provides
that we are not subject to Section 203 of the Delaware
General Corporation Law, which regulates corporate acquisitions.
This law provides that specified persons who, together with
affiliates and associates, own, or within three years did own,
15% or more of the outstanding voting stock of a corporation may
not engage in business combinations with the corporation for a
period of three years after the date on which the person became
an interested stockholder. The law defines the term
business combination to include mergers, asset sales
and other transactions in which the interested stockholder
receives or could receive a financial benefit on other than a
pro rata basis with other stockholders.
Removal of
Directors; Vacancies
Our amended and restated certificate of incorporation and bylaws
provide that any director or the entire board of directors may
be removed with or without cause by the affirmative vote of the
majority of all shares then entitled to vote at an election of
directors. Our amended and restated certificate of incorporation
and bylaws also provide that any vacancies on our board of
directors will be filled by the affirmative vote of a majority
of the board of directors then in office, even if less than a
quorum, or by a sole remaining director.
Voting
The affirmative vote of a plurality of the shares of our common
stock present, in person or by proxy will decide the election of
any directors, and the affirmative vote of a majority of the
shares of our common stock present, in person or by proxy will
decide all other matters voted on by stockholders, unless the
question is one upon which, by express provision of law, under
our amended and restated certificate of incorporation, or under
our bylaws, a different vote is required, in which case such
provision will control.
Action by Written
Consent
Our amended and restated certificate of incorporation and bylaws
provide that stockholder action can be taken by written consent
of the stockholders only if Goldman, Sachs & Co. and
its affiliates beneficially own more than 25.0% of the
outstanding shares of our common stock.
162
Ability to Call
Special Meetings
Our amended and restated certificate of incorporation and bylaws
provide that special meetings of our stockholders can only be
called pursuant to a resolution adopted by a majority of our
board of directors or by the chairman of our board of directors.
Special meetings may also be called by the holders of not less
than 25% of the outstanding shares of our common stock if
Goldman, Sachs & Co. and its affiliates beneficially own
25% or more of the outstanding shares of our common stock. If
Goldman, Sachs & Co. and its affiliates beneficially own
less than 25% of the outstanding shares of our common stock,
stockholders will not be permitted to call a special meeting or
to require our board to call a special meeting.
Amending Our
Certificate of Incorporation and Bylaws
Our amended and restated certificate of incorporation provides
that our certificate of incorporation may be amended by the
affirmative vote of a majority of the board of directors and by
the affirmative vote of the majority of all shares of our common
stock then entitled to vote at any annual or special meeting of
stockholders. In addition, our amended and restated certificate
of incorporation and bylaws provide that our bylaws may be
amended, repealed or new bylaws may be adopted by the
affirmative vote of a majority of the board of directors or when
a quorum is present at any meeting, by the vote of the holders
of a majority of the voting power of our common stock entitled
to vote thereon, present and voting, in person or represented by
proxy.
Advance Notice
Provisions for Stockholders
In order to nominate directors to our board of directors or
bring other business before an annual meeting of our
stockholders, a stockholders notice must be received by
the Secretary of the Company at the principal executive offices
of the Company not earlier than 120 calendar days and not
later than 90 calendar days before the first anniversary of
the previous years annual meeting of stockholders, subject
to certain exceptions contained in our bylaws. If the date of
the applicable annual meeting is more than 30 days before
or more than 30 days after such anniversary date, notice by
a stockholder to be timely must be so delivered not earlier than
120 calendar days before the date of such annual meeting
and not later than 90 calendar days before the date of such
annual meeting or, if the first public announcement of the date
of such annual meeting is less than 100 days prior to the
date of such annual meeting, the tenth day following the date on
which public announcement of the date of such meeting is first
made by the Company. The adjournment or postponement of an
annual meeting or the announcement shall not commence a new time
period for the giving of a stockholders notice as
described above.
Listing
We intend to apply to list our common stock on the New York
Stock Exchange under the symbol MRC.
Transfer Agent
and Registrar
The transfer agent and registrar for our common stock
is .
163
SHARES ELIGIBLE
FOR FUTURE SALE
Upon the completion of this offering, we will have
outstanding shares
of common stock.
The shares
sold in this offering plus any additional shares sold by the
selling stockholder upon exercise of the underwriters
option will be freely tradable without restriction under the
Securities Act, unless purchased by our affiliates
as that term is defined in Rule 144 under the Securities
Act. In general, affiliates include executive officers,
directors and our largest stockholders. Shares of common stock
purchased by affiliates will be subject to the resale
limitations of Rule 144.
The
remaining shares
outstanding following this offering are restricted securities
within the meaning of Rule 144. Restricted securities may
be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144
promulgated under the Securities Act, which is summarized below.
Our executive officers and directors and our principal
stockholder, PVF Holdings LLC, will enter into
lock-up
agreements in connection with this offering, generally providing
that they will not offer, sell, contract to sell, or grant any
option to purchase or otherwise dispose of our common stock or
any securities exercisable for or convertible into our common
stock owned by them for a period of 180 days after the date
of this prospectus without the prior written consent of Goldman,
Sachs & Co.
Despite possible earlier eligibility for sale under the
provisions of Rule 144 under the Securities Act, any shares
subject to the
lock-up
agreement will not be salable until the
lock-up
agreement expires or is waived by Goldman, Sachs & Co.
Taking into account the
lock-up
agreement, and assuming that PVF Holdings LLC is not released
from its
lock-up
agreement, the shares held by
our affiliates will be eligible for future sale in accordance
with the requirements of Rule 144 upon the expiration of
the
lock-up
agreement.
In general, under Rule 144 as currently in effect, after
the expiration of
lock-up
agreements, a person who has beneficially owned restricted
securities for at least six months would be entitled to sell
within any three-month period a number of shares that does not
exceed the greater of the following:
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one percent of the number of shares of common stock then
outstanding, which will equal
approximately shares
immediately after this offering; or
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the average weekly trading volume of the common stock during the
four calendar weeks preceding the sale.
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Sales under Rule 144 by affiliates are also subject to
manner-of-sale requirements, notice requirements and the
availability of current public information about us.
PVF Holdings LLC, which will
hold shares
of our common stock upon the completion of this offering if the
underwriters option to purchase additional shares from PVF
Holdings LLC is not exercised
( shares
of our common stock upon completion of this offering if the
underwriters option is exercised in full), will enter into
a new registration rights agreement with us prior to the
consummation of this offering. Pursuant to this registration
rights agreement, PVF Holdings LLC can request that we use our
reasonable best efforts to register its shares with the SEC,
including in connection with this offering, on up to six
occasions, including pursuant to shelf registration statements.
In addition, under the registration rights agreement PVF
Holdings LLC will have the ability to exercise certain piggyback
registration rights with respect to its own securities if we
elect to register any of our equity securities. Immediately
after this offering, all of our shares held by PVF Holdings LLC
will be entitled to these registration rights.
The registration rights agreement will also provide that if PVF
Holdings LLC is dissolved, an amended and restated registration
rights agreement will become automatically effective and the
existing agreement will terminate. Pursuant to the terms of such
amended and restated registration rights agreement, the existing
members of PVF Holdings LLC would thereunder be entitled to
certain registration rights with respect to our shares which are
distributed to them in connection with any such dissolution of
PVF Holdings LLC.
164
CERTAIN U.S.
FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-U.S.
HOLDERS
The following is a general discussion of the material
U.S. federal income and estate tax consequences of the
ownership and disposition of our common stock by a
non-U.S. holder.
This discussion is for general information only and is not tax
advice. For purposes of this discussion, the term
non-U.S. holder
means a beneficial owner of our common stock that is not, for
U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States
or a former citizen or resident of the United States subject to
taxation as an expatriate;
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a corporation (or other entity classified as a corporation for
these purposes) created or organized in, or under the laws of,
the United States or any political subdivision of the United
States;
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a partnership (including any entity or arrangement classified as
a partnership for these purposes);
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an estate whose income is includible in gross income for
U.S. federal income tax purposes regardless of its
source; or
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a trust, if (1) a United States court is able to exercise
primary supervision over the trusts administration and one
or more United States persons (within the meaning of
the U.S. Internal Revenue Code of 1986, as amended, or the
Code) has the authority to control all of the trusts
substantial decisions, or (2) the trust has a valid
election in effect under applicable U.S. Treasury
regulations to be treated as a United States person.
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An individual may be treated as a resident of the United States
in any calendar year for U.S. federal income tax purposes,
instead of as a nonresident, by, among other ways, being present
in the United States on at least 31 days in that calendar
year and for an aggregate of at least 183 days during a
three-year period ending in the current calendar year. For
purposes of this calculation, an individual would count all of
the days present in the current year, one-third of the days
present in the immediately preceding year and one-sixth of the
days present in the second preceding year. Residents are taxed
for U.S. federal income purposes as if they were
U.S. citizens.
If a partnership (or other entity taxable as a partnership for
U.S. federal income tax purposes) owns our common stock,
the tax treatment of a partner of the partnership may depend
upon the status of the partner and the activities of the
partnership and upon certain determinations made at the partner
level. Partners in partnerships that own our common stock should
consult their own tax advisors as to the particular
U.S. federal income and estate tax consequences applicable
to them.
This discussion does not address all of the aspects of
U.S. federal income and estate taxation that may be
relevant to a
non-U.S. holder
in light of the
non-U.S. holders
particular investment or other circumstances. In particular,
this discussion only addresses a
non-U.S. holder
that holds our common stock as a capital asset (generally,
investment property) and does not address:
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special U.S. federal income tax rules that may apply to
particular
non-U.S. holders,
such as financial institutions, insurance companies, tax-exempt
organizations, and dealers and traders in stocks, securities or
currencies;
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non-U.S. holders
holding our common stock as part of a conversion, constructive
sale, wash sale or other integrated transaction or a hedge,
straddle or synthetic security;
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any U.S. state and local or
non-U.S. or
other tax consequences; or
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the U.S. federal income or estate tax consequences for the
beneficial owners of a
non-U.S. holder.
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This discussion is based on provisions of the Code, applicable
U.S. Treasury regulations and administrative and judicial
interpretations, all as in effect or in existence on the date of
this prospectus.
165
Subsequent developments in U.S. federal income or estate
tax law, including changes in law or differing interpretations,
which may be applied retroactively, could have a material effect
on the U.S. federal income and estate tax consequences of
owning and disposing of our common stock as set forth in this
discussion.
If you are considering purchasing our common stock, you
should consult your tax advisor regarding the U.S. federal,
state, local and
non-U.S. income,
estate and other tax consequences to you of owning and disposing
of our common stock.
Dividends
We do not anticipate paying any cash dividends on our common
stock in the foreseeable future. See Dividend
Policy. In the event, however, that we pay dividends on
our common stock that are not effectively connected with a
non-U.S. holders
conduct of a trade or business in the United States, a
U.S. federal withholding tax at a rate of 30%, or a lower
rate under an applicable income tax treaty, will be withheld
from the gross amount of the dividends paid to such
non-U.S. holder.
In order to claim the benefit of an applicable income tax
treaty, a
non-U.S. holder
will be required to provide a properly completed and executed
U.S. Internal Revenue Service
Form W-8BEN
(or other applicable form) in accordance with the applicable
certification and disclosure requirements. Special rules apply
to partnerships and other pass-through entities and these
certification and disclosure requirements also may apply to
beneficial owners of partnerships and other pass-through
entities that hold our common stock. A
non-U.S. holder
that is eligible for a reduced rate of U.S. federal
withholding tax under an income tax treaty may obtain a refund
or credit of any excess amounts withheld by filing an
appropriate claim for a refund with the U.S. Internal
Revenue Service.
Non-U.S. holders
should consult their own tax advisors regarding their
entitlement to benefits under a relevant income tax treaty and
the manner of claiming the benefits.
Dividends that are effectively connected with a
non-U.S. holders
conduct of a trade or business in the United States and, if
required by an applicable income tax treaty, are attributable to
a permanent establishment maintained by the
non-U.S. holder
in the United States, generally will be taxed on a net income
basis at the regular graduated rates and in the manner
applicable to United States persons. In that case, the
U.S. federal withholding tax discussed above will not apply
if the
non-U.S. holder
provides a properly completed and executed U.S. Internal
Revenue Service
Form W-8ECI
(or other applicable form) in accordance with the applicable
certification and disclosure requirements. In addition, a
branch profits tax may be imposed at a 30% rate, or
a lower rate under an applicable income tax treaty, on dividends
received by a foreign corporation that are effectively connected
with the conduct of a trade or business in the United States.
Gain on
disposition of our common stock
A
non-U.S.
holder generally will not be taxed on any gain realized on a
disposition of our common stock unless:
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the gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States and, if
required by an applicable income tax treaty, is attributable to
a permanent establishment maintained by the
non-U.S. holder
in the United States; in these cases, the gain generally will be
taxed on a net income basis at the regular graduated rates and
in the manner applicable to United States persons (unless an
applicable income tax treaty provides otherwise) and, if the
non-U.S. holder
is a foreign corporation, the branch profits tax
described above may also apply;
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the
non-U.S. holder
is an individual who holds our common stock as a capital asset,
is present in the United States for at least 183 days in
the taxable year of the disposition and meets other requirements
(in which case, except as otherwise provided by an applicable
income tax treaty, the gain, which may be offset by
U.S. source capital losses, generally will be subject to a
flat
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166
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30% U.S. federal income tax, even though the
non-U.S. holder
is not considered a resident alien under the Code); or
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we are or have been a U.S. real property holding
corporation for U.S. federal income tax purposes at
any time during the shorter of the five-year period ending on
the date of disposition or the period that the
non-U.S. holder
held our common stock.
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Generally, a corporation is a U.S. real property
holding corporation if the fair market value of its
U.S. real property interests equals or exceeds
50% of the sum of the fair market value of its worldwide real
property interests plus its other assets used or held for use in
a trade or business. The tax relating to stock in a
U.S. real property holding corporation generally will not
apply to a
non-U.S. holder
whose holdings, direct and indirect, at all times during the
applicable period, constituted 5% or less of our common stock,
provided that our common stock was regularly traded on an
established securities market. We believe that we are not
currently, and we do not anticipate becoming in the future, a
U.S. real property holding corporation.
Federal estate
tax
Our common stock that is owned or treated as owned by an
individual who is not a U.S. citizen or resident of the
United States (as specially defined for U.S. federal estate
tax purposes) at the time of death will be included in the
individuals gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax or other treaty
provides otherwise and, therefore, may be subject to
U.S. federal estate tax.
Information
reporting and backup withholding tax
Dividends paid to a
non-U.S. holder
may be subject to U.S. information reporting and backup
withholding. A
non-U.S. holder
will be exempt from backup withholding if the
non-U.S. holder
provides a properly completed and executed U.S. Internal
Revenue Service
Form W-8BEN
or otherwise meets documentary evidence requirements for
establishing its status as a
non-U.S. holder
or otherwise establishes an exemption.
The gross proceeds from the disposition of our common stock may
be subject to U.S. information reporting and backup
withholding. If a
non-U.S. holder
sells our common stock outside the United States through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to the
non-U.S. holder
outside the United States, then the U.S. backup withholding
and information reporting requirements generally will not apply
to that payment. However, U.S. information reporting, but
not U.S. backup withholding, will apply to a payment of
sales proceeds, even if that payment is made outside the United
States, if a
non-U.S. holder
sells our common stock through a
non-U.S. office
of a broker that:
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is a United States person;
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derives 50% or more of its gross income in specific periods from
the conduct of a trade or business in the United States;
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is a controlled foreign corporation for
U.S. federal income tax purposes; or
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is a foreign partnership, if at any time during its tax year:
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one or more of its partners are United States persons who in the
aggregate hold more than 50% of the income or capital interests
in the partnership; or
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the foreign partnership is engaged in a United States trade or
business,
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unless the broker has documentary evidence in its files that the
non-U.S. holder
is not a United States person and certain other conditions are
met or the
non-U.S. holder
otherwise establishes an exemption.
167
If a
non-U.S. holder
receives payments of the proceeds of a sale of our common stock
from or through a U.S. office of a broker, the payment is
subject to both U.S. backup withholding and information
reporting unless the
non-U.S. holder
provides a properly completed and executed U.S. Internal
Revenue Service
Form W-8BEN
certifying that the
non-U.S. Holder
is not a United States person or the
non-U.S. holder
otherwise establishes an exemption.
Backup withholding is not an additional tax. A
non-U.S. holder
generally may obtain a refund of any amounts withheld under the
backup withholding rules that exceed the
non-U.S. holders
U.S. federal income tax liability, if any, by filing a
refund claim with the U.S. Internal Revenue Service.
THE U.S. FEDERAL INCOME AND ESTATE TAX DISCUSSION SET
FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY.
YOU SHOULD CONSULT YOUR TAX ADVISOR TO DETERMINE THE
U.S. FEDERAL, STATE, LOCAL AND
NON-U.S. TAX
CONSEQUENCES TO YOU OF OWNING AND DISPOSING OF OUR COMMON
STOCK.
168
UNDERWRITING
The Company, the selling stockholder and the underwriters will
enter into an underwriting agreement with respect to the shares
being offered. Subject to certain conditions, each underwriter
has severally agreed to purchase the number of shares indicated
in the following table. Goldman, Sachs & Co. and
Lehman Brothers Inc. are the representatives of the underwriters
and the joint
book-running
managers for this offering.
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Underwriters
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Number of Shares
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Goldman, Sachs & Co.
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Lehman Brothers Inc.
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J.P. Morgan Securities Inc.
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Deutsche Bank Securities Inc.
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Robert W. Baird & Co. Incorporated
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Credit Suisse Securities (USA) LLC
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Stephens Inc.
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Total
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The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised. We expect that the underwriting agreement
will provide that the obligations of the underwriters to take
and pay for the shares are subject to a number of conditions,
including, among others, the accuracy of the Companys and
the selling stockholders representations and warranties in
the underwriting agreement, listing of the shares, receipt of
specified letters from counsel and the Companys
independent registered public accounting firm, and receipt of
specified officers certificates.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an
additional shares
from the selling stockholder. They may exercise that option for
30 days. If any shares are purchased pursuant to this
option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table
above.
The following table shows the per share and total underwriting
discounts and commissions to be paid to the underwriters by the
selling stockholder. These amounts are shown assuming both no
exercise and full exercise of the underwriters option to
purchase
additional shares of common stock.
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No Exercise
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Full Exercise
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Per Share
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$
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$
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Total
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$
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$
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Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover page of this prospectus. Any shares sold by the
underwriters to securities dealers may be sold at a discount of
up to $ per share from the initial
public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change
the offering price and the other selling terms. The offering of
the shares by the underwriters is subject to receipt and
acceptance and subject to the underwriters right to reject
any order in whole or in part.
The Company, its executive officers and directors and the
selling stockholder have agreed with the underwriters, subject
to certain exceptions, not to dispose of or hedge any of their
common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this
prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent
of the representatives. This agreement does not apply to any
existing employee benefit plans. See Shares Eligible for
Future Sale for a description of certain transfer
restrictions.
169
The
180-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
180-day
restricted period the Company issues an earnings release or
announces material news or a material event; or (2) prior
to the expiration of the
180-day
restricted period, the Company announces that it will release
earnings results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
Prior to this offering, there has been no public market for the
common stock. The initial public offering price will be
negotiated among the Company, the selling stockholder and the
representatives. The factors to be considered in determining the
initial public offering price of the shares include:
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the history and prospects for our industry;
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our historical performance, including our net sales, net income,
margins and certain other financial information;
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estimates of our business potential and earnings prospects;
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an assessment of our management;
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investor demand for our shares of common stock;
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market valuations of companies that we and the representatives
believe to be comparable; and
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prevailing securities markets at the time of this offering.
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We intend to apply to list our common stock on the New York
Stock Exchange under the symbol MRC. In order to
meet the requirements for listing the common stock on the New
York Stock Exchange, the underwriters have undertaken to sell
lots of 100 or more shares to a minimum of 2,000 beneficial
holders.
In connection with this offering, the underwriters may purchase
and sell shares of the common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in this offering.
Covered short sales are sales made in an amount not
greater than the underwriters option to purchase
additional shares from the selling stockholder in this offering.
The underwriters may close out any covered short position by
either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source
of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase additional shares pursuant
to the option granted to them. Naked short sales are
any sales in excess of that option. The underwriters must close
out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the shares of common stock in the open
market after pricing that could adversely affect investors who
purchase in this offering. Stabilizing transactions consist of
various bids for or purchases of shares of common stock made by
the underwriters in the open market prior to the completion of
this offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of that underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions
may have the effect of preventing or retarding a decline in the
market price of the shares of common stock and, together with
the imposition of the penalty bid, may stabilize, maintain or
otherwise affect the market price of the shares of common stock.
As a result, the price of the shares of common stock may be
higher than the
170
price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued at any time.
These transactions may be effected on the New York Stock
Exchange, in the over-the-counter market or otherwise.
Each underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with the sale of the shares in circumstances in
which Section 21(1) of the FSMA does not apply to the
Company; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that it may, with effect from
and including the Relevant Implementation Date, make an offer of
shares to the public in that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43 million and (3) an annual net turnover of
more than 50 million, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representatives
for any such offer; or
(d) in any other circumstances which do not require the
publication by the Company of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to
171
do so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (1) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore, or the SFA, (2) to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA or (3) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The securities have not been and will not be registered under
the Securities and Exchange Law of Japan (the Securities
and Exchange Law) and each underwriter has agreed that it
will not offer or sell any securities, directly or indirectly,
in Japan or to, or for the benefit of, any resident of Japan
(which term as used herein means any person resident in Japan,
including any corporation or other entity organized under the
laws of Japan), or to others for re-offering or resale, directly
or indirectly, in Japan or to a resident of Japan, except
pursuant to an exemption from the registration requirements of,
and otherwise in compliance with, the Securities and Exchange
Law and any other applicable laws, regulations and ministerial
guidelines of Japan.
The shares may not be offered, sold and delivered directly or
indirectly, or offered or sold to any person for reoffering or
resale, directly or indirectly, in Korea or to any resident of
Korea except pursuant to the applicable laws and regulations of
Korea, including the Korea Securities and Exchange Act and the
Foreign Exchange Transaction Law and the decrees and regulations
thereunder. The shares have not been registered with the
Financial Services Commission of Korea for public offering in
Korea. Furthermore, the shares may not be resold to Korean
residents unless the purchaser of the shares complies with all
applicable regulatory requirements (including but not limited to
government approval requirements under the Foreign Exchange
Transaction Law and its subordinate decrees and regulations) in
connection with the purchase of the shares.
This prospectus has not been and will not be registered as a
prospectus with the Registrar of Companies in India or with the
Securities and Exchange Board of India. This prospectus or any
other material relating to these securities is for information
purposes only and may not be circulated or distributed, directly
or indirectly, to the public or any members of the public in
India and in any event to not more than 50 persons in
India. Further, persons into whose possession this prospectus
comes are required to inform themselves about and to observe any
such restrictions. Each prospective investor is advised to
consult its advisors about the particular consequences to it of
an investment in these securities. Each prospective investor is
also advised that any investment in these securities by it is
172
subject to the regulations prescribed by the Reserve Bank of
India and the Foreign Exchange Management Act and any
regulations framed thereunder.
No prospectus or other disclosure document (as defined in the
Corporations Act 2001 (Cth) of Australia (Corporations
Act)) in relation to the shares has been or will be lodged
with the Australian Securities & Investments
Commission (ASIC). This document has not been lodged
with ASIC and is only directed to certain categories of exempt
persons. Accordingly, if you receive this document in Australia:
(a) you confirm and warrant that you are either:
(i) a sophisticated investor under
section 708(8)(a) or (b) of the Corporations Act;
(ii) a sophisticated investor under
section 708(8)(c) or (d) of the Corporations Act and
that you have provided an accountants certificate to us
which complies with the requirements of section 708(8)(c)(i) or
(ii) of the Corporations Act and related regulations before
the offer has been made;
(ii) a person associated with the company under
section 708(12) of the Corporations Act; or
(iv) a professional investor within the meaning
of section 708(11)(a) or (b) of the Corporations Act,
and to the extent that you are unable to confirm or warrant that
you are an exempt sophisticated investor, associated person or
professional investor under the Corporations Act any offer made
to you under this document is void and incapable of acceptance;
and
(b) you warrant and agree that you will not offer any of
the shares for resale in Australia within 12 months of
those shares being issued unless any such resale offer is exempt
from the requirement to issue a disclosure document under
section 708 of the Corporations Act.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
The underwriters have informed us that they do not intend to
confirm sales to discretionary accounts without the prior
specific written approval of the customer.
The Company and the selling stockholder estimate that their
share of the total expenses of this offering will be
approximately $5.4 million.
The Company and the selling stockholder have agreed to indemnify
the several underwriters against specified liabilities,
including liabilities under the Securities Act.
Affiliates of Goldman, Sachs & Co. own more than 10%
of the Companys outstanding common stock. As a result,
Goldman, Sachs & Co. is deemed to be an affiliate of
the Company under Rule 2720(b)(1) of the NASD Conduct Rules
and is deemed to have a conflict of interest under
Rule 2720 of such Rules. PVF Holdings LLC, the selling
stockholder in this offering, will receive the net proceeds of
this offering. Affiliates of Goldman, Sachs & Co. own
a majority interest in PVF Holdings LLC, which owns a majority
of our outstanding common stock. Accordingly, such affiliates
will receive approximately % of the
proceeds from this offering. This offering will be made in
compliance with the applicable provisions of Rule 2720 of
the NASD Conduct Rules as required by such Rules. Rule 2720
requires that the initial public offering price be no higher
than that recommended by a qualified independent
underwriter, as defined by the Financial Industry
Regulatory Authority (FINRA). Lehman Brothers Inc.
is serving as a qualified independent underwriter and will
assume the customary responsibilities of acting as a qualified
independent underwriter in pricing the offering and conducting
due diligence. We have agreed to indemnify Lehman Brothers Inc.
against any liabilities arising in connection with its role as a
qualified independent underwriter, including liabilities under
the Securities Act.
173
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory, investment banking,
commercial banking and other services for the company, for which
they received or will receive customary fees and expenses.
Furthermore, certain of the underwriters and their respective
affiliates may, from time to time, enter into arms-length
transactions with us in the ordinary course of their business.
Goldman Sachs Credit Partners L.P. is a co-lead arranger and
joint bookrunner under our Revolving Credit Facility, Term Loan
Facility and Junior Term Loan Facility. Goldman Sachs Credit
Partners L.P. is also the syndication agent under the Term Loan
Facility and the Junior Term Loan Facility. For a description of
other transactions between us and Goldman Sachs & Co.
and its affiliates, including payments of dividends and payments
under our credit facilities by us to such affiliates, see
Certain Relationships and Related Party Transactions.
Lehman Brothers Inc. is a co-lead arranger and joint bookrunner
under our Revolving Credit Facility, Term Loan Facility, and
Junior Term Loan Facility. Lehman Brothers Inc. is also the
syndication agent under the Term Loan Facility. Lehman
Commercial Paper Inc., an affiliate of Lehman Brothers Inc., is
an administrative agent and collateral agent under the Term Loan
Facility and the Junior Term Loan Facility.
JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan
Securities Inc., is a lender under the Revolving Credit Facility
and is also a co-documentation agent and reference lender under
that facility. JPMorgan Chase Bank, N.A. is also a reference
lender under the Term Loan Facility and the Junior Term Loan
Facility, and is a lender under the Midfield Revolving Credit
Facility.
A prospectus in electronic format may be made available on
Internet sites or through other online services maintained by
one or more of the underwriters
and/or
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
underwriter or selling group member, prospective investors may
be allowed to place orders online. The underwriters may agree
with us to allocate a specific number of shares for sale to
online brokerage account holders. Any such allocation for online
distributions will be made by the representatives on the same
basis as other allocations.
Other than the prospectus in electronic format, the information
on any underwriters or selling group members web
site and any information contained in any other web site
maintained by an underwriter or selling group member is not part
of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved
and/or
endorsed by us or any underwriter or selling group member in its
capacity as underwriter or selling group member and should not
be relied upon by investors.
If you purchase shares of common stock offered in this
prospectus, you may be required to pay stamp taxes and other
charges under the laws and practices of the country of purchase,
in addition to the offering price listed on the cover page of
this prospectus.
174
LEGAL
MATTERS
The validity of the shares of common stock offered by this
prospectus will be passed upon for our company by Fried, Frank,
Harris, Shriver & Jacobson LLP, New York, New York.
Davis Polk & Wardwell, New York, New York is acting as
counsel to the underwriters.
EXPERTS
The consolidated financial statements of McJunkin Red Man
Holding Corporation and subsidiaries as of December 31,
2007, and for the period from inception (January 31, 2007)
to December 31, 2007, and those of McJunkin Corporation and
subsidiaries predecessor to McJunkin Red Man Holding Corporation
for the period from January 1, 2007 to January 30,
2007, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
Schneider Downs & Co., Inc., independent registered
public accounting firm, has audited the financial statements of
McJunkin Corporation at December 31, 2005 and
December 31, 2006 and for the years ended December 31,
2005 and December 31, 2006, as set forth in their report.
We have included these financial statements in the prospectus
and elsewhere in the registration statement in reliance on the
report of Schneider Downs & Co., Inc., given on their
authority as experts in accounting and auditing.
The consolidated financial statements of Red Man Pipe and Supply
Company at October 31, 2007 and October 31, 2006 and
for each of the three years in the period ended October 31,
2007, included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The auditor of our predecessor, McJunkin Corporation, was
Schneider Downs & Co., Inc. through December 31,
2006. At the direction of our board of directors, Schneider
Downs & Co., Inc. was dismissed and on June 1, 2007
the company engaged Ernst & Young LLP as its independent
registered public accounting firm for the fiscal year ended
December 31, 2007. The reports of Schneider
Downs & Co., Inc. on our predecessors financial
statements for the past two fiscal years ended December 31,
2006 and 2005 did not contain an adverse opinion or a disclaimer
of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. In connection with the
audits of our predecessors financial statements for each
of the two fiscal years ended December 31, 2006 and in the
subsequent interim period through the date of appointment of
Ernst & Young, LLP, there were no disagreements with
Schneider Downs & Co., Inc. on any matters of
accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of Schneider Downs & Co.,
Inc. would have caused Schneider Downs & Co., to make
reference to the matter in their report. In addition, no event
occurred which requires disclosure under Item 304(a)(2) of
Regulation S-K. The company has requested Schneider
Downs & Co., to furnish it a letter addressed to the
Commission stating whether it agrees with the above statements.
A copy of that letter, dated August 18, 2008, is filed as
Exhibit 16 to the registration statement of which this
prospectus forms a part.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the common stock. This
prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules to the
registration statement. For further
175
information with respect to us and our common stock, we refer
you to the registration statement and the exhibits and schedules
filed as a part of the registration statement. Statements
contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete. If
a contract or document has been filed as an exhibit to the
registration statement, we refer you to the copy of the contract
or document that has been filed as an exhibit and reference
thereto is qualified in all respects by the terms of the filed
exhibit.
The registration statement, including exhibits and schedules,
may be inspected without charge at the Public Reference Room of
the SEC at 100 F Street, N.E., Washington, D.C.
20549, and copies of all or any part of it may be obtained from
that office after payment of fees prescribed by the SEC.
Information on the operation of the Public Reference Room may be
obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding
registrants that file electronically with the SEC at
http://www.sec.gov.
176
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Consolidated Financial Statements of McJunkin Red Man Holding
Corporation and Subsidiaries
|
|
|
|
|
Audited Financial Statements:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
Unaudited Financial Statements:
|
|
|
|
|
|
|
|
F-33
|
|
|
|
|
F-34
|
|
|
|
|
F-35
|
|
|
|
|
F-36
|
|
Consolidated Financial Statements of McJunkin Corporation and
Subsidiaries
|
|
|
|
|
Audited Financial Statements:
|
|
|
|
|
|
|
|
F-55
|
|
|
|
|
F-56
|
|
|
|
|
F-57
|
|
|
|
|
F-58
|
|
|
|
|
F-59
|
|
|
|
|
F-60
|
|
|
|
|
F-68
|
|
|
|
|
F-69
|
|
Consolidated Financial Statements of Red Man Pipe &
Supply Co. and Subsidiaries
|
|
|
|
|
Audited Financial Statements:
|
|
|
|
|
|
|
|
F-70
|
|
|
|
|
F-71
|
|
|
|
|
F-72
|
|
|
|
|
F-73
|
|
|
|
|
F-74
|
|
|
|
|
F-75
|
|
|
|
|
F-77
|
|
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of McJunkin Red Man Corporation and subsidiaries
We have audited the accompanying consolidated balance sheet of
McJunkin Red Man Holding Corporation and subsidiaries (the
Company) as of December 31, 2007, and the related
consolidated statements of income, shareholders equity,
and cash flows for the period from inception (January 31,
2007) to December 31, 2007. We have also audited the
accompanying consolidated statements of income,
shareholders equity and cash flows of McJunkin Corporation
and subsidiaries (McJunkin) predecessor to the Company for the
period from January 1, 2007 to January 30, 2007. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. The
financial statements of McJunkin as of December 31, 2006,
and for each of the two years in the period then ended were
audited by other auditors whose report dated January 13,
2007, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of McJunkin Red Man Holding Corporation and
subsidiaries at December 31, 2007, and the consolidated
results of their operations and their cash flows for the period
from inception (January 31, 2007) to December 31,
2007, and the consolidated results of operations and cash flows
of McJunkin Corporation and Subsidiaries, predecessor to the
Company for the period from January 1, 2007 to
January 30, 2007, in conformity with U.S. generally
accepted accounting principles.
Charleston, West Virginia
August 15, 2008
F-2
CONSOLIDATED
BALANCE SHEETS
McJUNKIN RED MAN
HOLDING CORPORATION
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2006
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,075
|
|
|
|
$
|
3,748
|
|
Receivables, less allowances of $6,352 and $2,015
|
|
|
481,463
|
|
|
|
|
168,877
|
|
Inventories
|
|
|
666,188
|
|
|
|
|
225,304
|
|
Other current assets
|
|
|
1,937
|
|
|
|
|
3,122
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
1,159,663
|
|
|
|
|
401,051
|
|
INVESTMENTS AND OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
1,680
|
|
|
|
|
40,985
|
|
Assets held for sale
|
|
|
37,500
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
23,390
|
|
|
|
|
|
|
Notes receivable and other assets
|
|
|
4,376
|
|
|
|
|
2,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,946
|
|
|
|
|
43,980
|
|
FIXED ASSETS
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
80,120
|
|
|
|
|
27,208
|
|
PROPERTY HELD UNDER CAPITAL LEASES
|
|
|
1,925
|
|
|
|
|
2,104
|
|
INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,092,379
|
|
|
|
|
6,274
|
|
Intangible assets
|
|
|
523,998
|
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,616,377
|
|
|
|
|
6,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,925,031
|
|
|
|
$
|
480,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
306,509
|
|
|
|
$
|
130,864
|
|
Accrued expenses and other liabilities
|
|
|
70,778
|
|
|
|
|
46,471
|
|
Income taxes payable
|
|
|
11,996
|
|
|
|
|
2,500
|
|
Deferred revenue
|
|
|
6,552
|
|
|
|
|
4,715
|
|
Deferred income taxes
|
|
|
80,364
|
|
|
|
|
3,998
|
|
Term loans due on demand
|
|
|
10,228
|
|
|
|
|
|
|
Current portion of long-term obligations
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
9,553
|
|
|
|
|
|
|
Capital leases
|
|
|
189
|
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
496,169
|
|
|
|
|
188,715
|
|
LONG-TERM OBLIGATIONS
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
848,616
|
|
|
|
|
13,035
|
|
Payable to shareholders
|
|
|
49,164
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
215,487
|
|
|
|
|
15,627
|
|
Capital leases
|
|
|
3,446
|
|
|
|
|
3,635
|
|
Other liabilities
|
|
|
1,415
|
|
|
|
|
1,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,118,128
|
|
|
|
|
34,096
|
|
MINORITY INTEREST AND AMOUNTS DUE TO FORMER RED MAN SHAREHOLDERS
|
|
|
100,700
|
|
|
|
|
15,601
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 authorized 1,000,000;
issued and outstanding 299,891.4604 in 2007
|
|
|
|
|
|
|
|
|
|
Common stock, Class A voting, par value $700
authorized 37,860; issued and outstanding 16,940 in 2006
|
|
|
|
|
|
|
|
11,858
|
|
Common stock, Class B nonvoting, par value $700
authorized 5,000; issued and outstanding 570 in 2006
|
|
|
|
|
|
|
|
399
|
|
Additional paid-in capital
|
|
|
1,154,148
|
|
|
|
|
|
|
Retained earnings
|
|
|
56,926
|
|
|
|
|
206,044
|
|
Other comprehensive (loss) income, net of deferred income taxes
of $162 and $14,759
|
|
|
(1,040
|
)
|
|
|
|
24,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,210,034
|
|
|
|
|
242,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,925,031
|
|
|
|
$
|
480,999
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
CONSOLIDATED
STATEMENTS OF INCOME
McJUNKIN RED MAN
HOLDING CORPORATION
(Dollars in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
SALES
|
|
$
|
2,124,919
|
|
|
|
$
|
142,549
|
|
|
$
|
1,713,679
|
|
|
$
|
1,445,770
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
1,734,558
|
|
|
|
|
114,562
|
|
|
|
1,394,294
|
|
|
|
1,177,091
|
|
Selling, general and administrative expenses
|
|
|
201,948
|
|
|
|
|
14,592
|
|
|
|
173,948
|
|
|
|
155,717
|
|
Depreciation and amortization
|
|
|
5,402
|
|
|
|
|
344
|
|
|
|
3,936
|
|
|
|
3,743
|
|
Amortization of intangibles
|
|
|
10,489
|
|
|
|
|
16
|
|
|
|
277
|
|
|
|
337
|
|
Profit sharing
|
|
|
13,167
|
|
|
|
|
1,338
|
|
|
|
15,064
|
|
|
|
13,144
|
|
Stock-based compensation
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COSTS AND EXPENSES
|
|
|
1,968,552
|
|
|
|
|
130,852
|
|
|
|
1,587,519
|
|
|
|
1,350,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
156,367
|
|
|
|
|
11,697
|
|
|
|
126,160
|
|
|
|
95,738
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(61,703
|
)
|
|
|
|
(131
|
)
|
|
|
(2,845
|
)
|
|
|
(2,707
|
)
|
Minority interests
|
|
|
(89
|
)
|
|
|
|
(356
|
)
|
|
|
(4,142
|
)
|
|
|
(2,774
|
)
|
Other, net
|
|
|
(1,090
|
)
|
|
|
|
(15
|
)
|
|
|
(1,259
|
)
|
|
|
(1,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,882
|
)
|
|
|
|
(502
|
)
|
|
|
(8,246
|
)
|
|
|
(6,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
93,485
|
|
|
|
|
11,195
|
|
|
|
117,914
|
|
|
|
89,124
|
|
Income tax expense
|
|
|
36,559
|
|
|
|
|
4,599
|
|
|
|
48,340
|
|
|
|
36,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
56,926
|
|
|
|
$
|
6,596
|
|
|
$
|
69,574
|
|
|
$
|
52,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share Class A, basic
|
|
|
|
|
|
|
|
|
|
|
$
|
3,972.08
|
|
|
$
|
2,952.12
|
|
Earnings per share Class A, diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
3,972.08
|
|
|
$
|
2,952.12
|
|
Weighted average shares Class A, basic
|
|
|
|
|
|
|
|
|
|
|
|
16,940
|
|
|
|
16,940
|
|
Weighted average shares Class A, diluted
|
|
|
|
|
|
|
|
|
|
|
|
16,940
|
|
|
|
16,940
|
|
Earnings per share Class B, basic
|
|
|
|
|
|
|
|
|
|
|
$
|
4,012.08
|
|
|
$
|
4,442.12
|
|
Earnings per share Class B, diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
4,012.08
|
|
|
$
|
4,442.12
|
|
Weighted average shares Class B, basic
|
|
|
|
|
|
|
|
|
|
|
|
570
|
|
|
|
570
|
|
Weighted average shares Class B, diluted
|
|
|
|
|
|
|
|
|
|
|
|
570
|
|
|
|
570
|
|
Basic earnings per common share
|
|
$
|
410.64
|
|
|
|
$
|
376.70
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
409.84
|
|
|
|
$
|
376.70
|
|
|
|
|
|
|
|
|
|
Dividends per common share, Class A
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
1,490
|
|
Dividends per common share, Class B
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
80
|
|
|
$
|
2,980
|
|
See notes to consolidated financial statements.
F-4
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
McJUNKIN RED MAN
HOLDING CORPORATION
(Dollars in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
PREDECESSOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
|
16,940
|
|
|
$
|
11,858
|
|
|
|
570
|
|
|
$
|
399
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
111,592
|
|
|
$
|
8,469
|
|
|
$
|
132,318
|
|
Net income for the year 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,541
|
|
|
|
|
|
|
|
52,541
|
|
Change in unrealized gain on securities available for sale net
of deferred taxes of $7,153 and reclassification adjustments for
gains included in net income of $585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,880
|
|
|
|
10,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,421
|
|
Cash dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On Class A, $1,490 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,242
|
)
|
|
|
|
|
|
|
(25,242
|
)
|
On Class B, $2,980 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,699
|
)
|
|
|
|
|
|
|
(1,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
16,940
|
|
|
|
11,858
|
|
|
|
570
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,192
|
|
|
|
19,349
|
|
|
|
168,798
|
|
Net income for the year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,574
|
|
|
|
|
|
|
|
69,574
|
|
Change in unrealized gain on securities available for sale net
of deferred taxes of $3,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,937
|
|
|
|
4,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,511
|
|
Cash dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On Class A, $40 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(677
|
)
|
|
|
|
|
|
|
(677
|
)
|
On Class B, $80 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
16,940
|
|
|
|
11,858
|
|
|
|
570
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,044
|
|
|
|
24,286
|
|
|
|
242,587
|
|
Net income for month ended January 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,596
|
|
|
|
|
|
|
|
6,596
|
|
Change in unrealized gain on securities available for sale net
of deferred taxes of $2,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,958
|
)
|
|
|
(3,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2007
|
|
|
16,940
|
|
|
$
|
11,858
|
|
|
|
570
|
|
|
$
|
399
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
212,640
|
|
|
$
|
20,328
|
|
|
$
|
245,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUCCESSOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for eleven months ended December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
56,926
|
|
|
$
|
|
|
|
$
|
56,926
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(791
|
)
|
|
|
(791
|
)
|
Derivative valuation adjustment (net of $162 of deferred taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(249
|
)
|
|
|
(249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,886
|
|
Equity contribution to acquire controlling interest and
recognize new basis of accounting arising from change of
controlling interest of predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,111
|
|
|
|
|
|
|
|
385,125
|
|
|
|
|
|
|
|
|
|
|
|
385,125
|
|
Carryover basis adjustment for continuing shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,605
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,605
|
)
|
Equity contribution associated with acquisition of Red Man
Pipe & Supply Co.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,472
|
|
|
|
|
|
|
|
104,136
|
|
|
|
|
|
|
|
|
|
|
|
104,136
|
|
Equity contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,309
|
|
|
|
|
|
|
|
674,537
|
|
|
|
|
|
|
|
|
|
|
|
674,537
|
|
Issuance of stock subscription receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,033
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,033
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
299,892
|
|
|
$
|
|
|
|
$
|
1,154,148
|
|
|
$
|
56,926
|
|
|
$
|
(1,040
|
)
|
|
$
|
1,210,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
CONSOLIDATED
STATEMENTS OF CASH FLOWS
McJUNKIN RED MAN
HOLDING CORPORATION
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
CASH PROVIDED BY (USED IN) OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
56,926
|
|
|
|
$
|
6,596
|
|
|
$
|
69,574
|
|
|
$
|
52,541
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,402
|
|
|
|
|
344
|
|
|
|
3,936
|
|
|
|
3,743
|
|
Amortization of debt issuance costs
|
|
|
8,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
3,802
|
|
|
|
(4,905
|
)
|
Minority interest
|
|
|
89
|
|
|
|
|
356
|
|
|
|
4,142
|
|
|
|
2,774
|
|
Amortization of intangibles
|
|
|
10,489
|
|
|
|
|
16
|
|
|
|
277
|
|
|
|
337
|
|
Increase in fair market value of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(499
|
)
|
Provision for losses on receivables
|
|
|
380
|
|
|
|
|
35
|
|
|
|
414
|
|
|
|
90
|
|
Reduction of inventory loss provision
|
|
|
(30
|
)
|
|
|
|
13
|
|
|
|
(260
|
)
|
|
|
(233
|
)
|
Non-operating gains and other items not providing cash
|
|
|
297
|
|
|
|
|
(153
|
)
|
|
|
(571
|
)
|
|
|
(1,001
|
)
|
Changes to operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
46,974
|
|
|
|
|
(1,363
|
)
|
|
|
(5,516
|
)
|
|
|
(53,444
|
)
|
Inventories
|
|
|
27,821
|
|
|
|
|
6,700
|
|
|
|
(35,835
|
)
|
|
|
(36,386
|
)
|
Income taxes
|
|
|
1,778
|
|
|
|
|
4,595
|
|
|
|
(6,016
|
)
|
|
|
6,823
|
|
Other current assets
|
|
|
2,169
|
|
|
|
|
139
|
|
|
|
(580
|
)
|
|
|
(65
|
)
|
Accounts payable
|
|
|
(35,130
|
)
|
|
|
|
(7,665
|
)
|
|
|
(14,432
|
)
|
|
|
47,694
|
|
Deferred revenue
|
|
|
1,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
|
(19,178
|
)
|
|
|
|
(2,996
|
)
|
|
|
(583
|
)
|
|
|
12,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATIONS
|
|
|
110,226
|
|
|
|
|
6,617
|
|
|
|
18,352
|
|
|
|
30,385
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(5,521
|
)
|
|
|
|
(417
|
)
|
|
|
(5,314
|
)
|
|
|
(8,680
|
)
|
Proceeds from the disposition of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
354
|
|
|
|
955
|
|
Acquisition of controlling interest in McJunkin by GSCP
|
|
|
(849,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
Midway-Tristate
Corporation
|
|
|
(83,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Red Man Pipe & Supply Co., net of cash
acquired of $13,866
|
|
|
(852,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investment and notes receivable transactions
|
|
|
1,414
|
|
|
|
|
259
|
|
|
|
1,698
|
|
|
|
1,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(1,788,920
|
)
|
|
|
|
(158
|
)
|
|
|
(3,262
|
)
|
|
|
(6,701
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term obligations
|
|
|
897,500
|
|
|
|
|
|
|
|
|
9,731
|
|
|
|
|
|
Payments on long-term obligations
|
|
|
(78,834
|
)
|
|
|
|
(8,254
|
)
|
|
|
|
|
|
|
(11,319
|
)
|
Cash equity contribution in conjunction with acquisition of
controlling interest in McJunkin by GSCP
|
|
|
225,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equity contributions
|
|
|
673,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs paid
|
|
|
(30,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
(26,938
|
)
|
|
|
(9,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
1,687,188
|
|
|
|
|
(8,254
|
)
|
|
|
(17,207
|
)
|
|
|
(21,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
8,494
|
|
|
|
|
(1,795
|
)
|
|
|
(2,117
|
)
|
|
|
2,600
|
|
Effect of foreign exchange rate on cash
|
|
|
(372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash beginning of period
|
|
|
1,953
|
|
|
|
|
3,748
|
|
|
|
5,865
|
|
|
|
3,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH END OF YEAR
|
|
$
|
10,075
|
|
|
|
$
|
1,953
|
|
|
$
|
3,748
|
|
|
$
|
5,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
|
|
NOTE 1
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Business Operations:
McJunkin Red Man
Holding Corporation (the Company) is a holding company
co-headquartered in Charleston, West Virginia and Tulsa,
Oklahoma. Holding is a substantially owned subsidiary of PVF
Holdings LLC. The Companys wholly owned subsidiary,
McJunkin Red Man Corporation and its subsidiaries (MRM) are
national distributors of pipe, valves, and fittings, with
locations in principal industrial, hydrocarbon producing and
refining areas throughout the United States and Canada. Major
customers represent the natural gas producing, petroleum
refining, chemical and other segments of the raw materials
processing and construction industries. Products are obtained
from a broad range of suppliers.
The Company operates as a single reportable segment, which
represents the Companys business of providing industrial
pipe valves and fittings to various customers through our
distribution operations located throughout North America. The
Company has operations in eight geographic regions, which have
similar economic characteristics, and similar products and
services, types or classes of customers, distribution methods
and similar regulatory environments in each location. The total
consolidated net sales outside of the United States were 4.49%
for the eleven months ended December 31, 2007, 0.8% for the
one month ended January 30, 2007 and 0.8% and 1.0% for the
years ended December 31, 2006 and 2005, respectively. The
percentage of total consolidated assets outside of the United
States as of December 31, 2007 and 2006 was 11.0% and 0.7%,
respectively.
Basis of Presentation:
PVF Holdings
LLC, (formerly known as McJ Holding LLC) was formed on
November 20, 2006 by affiliates of The Goldman Sachs Group,
Inc. (Goldman Sachs) and a control group of certain
shareholders of McJunkin Corporation (McJunkin) for the purpose
of acquiring McJunkin on January 31, 2007. The affiliates
of Goldman Sachs referred to in the previous sentence are
GS Capital Partners V Fund, L.P., GS Capital
Partners V Offshore Fund, L.P., GS Capital
Partners V GmbH & Co. KG, and GS Capital
Partners V Institutional, L.P. (collectively, the
Goldman Sachs Funds). Management and control of all
of the Goldman Sachs Funds is vested exclusively in their
general partners and investment managers, which are wholly owned
direct and indirect subsidiaries of Goldman Sachs. The
investment manager of each of the Goldman Sachs Funds is
Goldman, Sachs & Co., which is a wholly owned
subsidiary of Goldman Sachs. In connection with the acquisition
by the Goldman Sachs Funds of a controlling interest in
McJunkin, a new basis of accounting and reporting was
established that reflected the Goldman Sachs Funds cost of
the acquisition. This new accounting basis has been pushed down
to the Companys accounts and is reflected in the
Companys consolidated balance sheet (successor basis) at
December 31, 2007.
Because PVF Holdings LLC and the Company had no operations,
assets, or business prior to their acquisition of McJunkin,
McJunkin is the predecessor of MRM, the Company, and PVF
Holdings LLC. While these statements have been prepared to
present the financial position and results of operations for the
Company, such financial position and results would not be
significantly different if reported at either the PVF Holdings
LLC or the MRM levels of consolidation.
All references to the Predecessor relate to McJunkin
for periods prior to January 31, 2007. All references to
the Successor relate to the Company for periods
subsequent to January 31, 2007. As a result, the
consolidated income statements and statements of cash flows for
the eleven-month period ended December 31, 2007 consist of
the earnings and cash flows of the Company. The consolidated
income statements and statements of cash flows of the Company
for the month ended January 30, 2007 and for the years
ended December 31, 2006 and 2005, are presented as
Predecessor financial statements for comparison purposes.
F-7
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates. The consolidated financial statements include the
accounts of McJunkin Red Man Holding Corporation and its wholly
owned and majority owned subsidiaries. The residual ownership in
the equity and income of Midfield Supply ULC (Midfield), a 51%
owned, Canada-based subsidiary, is reflected as minority
interest. All significant intercompany transactions have been
eliminated.
Cash Equivalents:
The Company considers
all highly liquid investments with maturities of three months or
less at the date of purchase to be cash equivalents.
Financial Instruments:
In the normal
course of business, the Company invests in various financial
assets and incurs various financial liabilities. Financial
instruments that potentially could subject the Company to
concentrations of credit risk consist principally of trade
accounts and notes receivable and an interest rate swap
agreement. The Companys financial assets and liabilities
are generally recorded in the consolidated balance sheets at
historical cost, which approximates fair value. Specific
treatment of certain financial instruments is discussed below.
Investments:
Investments are carried at
fair market value based on quoted market prices. Prior to the
acquisition by the Goldman Sachs Funds on January 31, 2007,
these available for sale investments were recorded at fair value
and reflected as investments on the balance sheets. Changes to
the fair value of the assets were recorded in other
comprehensive income, net of related deferred taxes. On
January 31, 2007, these investments were reclassified as
assets held for sale as more fully described in Assets Held for
Sale below.
Short-Term and Long-Term
Borrowings:
Borrowings under the credit
facilities have variable rates that reflect currently available
terms and conditions for similar debt. The carrying amount of
this debt is a reasonable estimate of its fair value.
Leases:
Management estimated the fair
value of the Companys lease obligations using discounted
cash flow analysis based on the Companys current lease
rates for similar leases, and determined that the fair value is
not materially different from carrying values.
Derivatives:
The Company utilizes
interest rate swaps to reduce its exposure to potential interest
rate increases. Changes in fair values of derivative instruments
were based upon independent market quotes.
Assets Held for Sale:
Certain of the
Companys assets, consisting principally of certain
available for sale securities and certain real estate holdings,
were designated as non-core assets under the terms of the
acquisition by the Goldman Sachs Funds . The Company has
classified these as assets held for sale in the balance sheet. A
corresponding liability to predecessor shareholders has been
recognized to reflect the obligation to the shareholders of
record at the date of the acquisition. Upon the sale of these
assets, the proceeds net of associated taxes will be distributed
to the predecessor shareholders. No gain or loss will be
recognized as the result of the sale of these assets.
Allowance for Doubtful
Accounts:
Managements evaluation of the
adequacy of the allowance for losses on receivables is based
upon periodic evaluation of accounts that may have a higher
credit risk using information available about the customer and
other relevant data. This formal analysis is inherently
subjective and requires management to make significant estimates
of factors affecting doubtful accounts, including customer
specific information, current economic conditions, volume,
growth and composition of the account, and other factors such as
financial statements, news
F-8
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
reports and published credit ratings. The amount of the
allowance for the remainder of the trade balance is not
evaluated individually but is based upon historical loss
experience. Because this process is subjective and based on
estimates, ultimate losses may differ from those estimates.
Receivable balances are written off when we determine that the
balance is uncollectible. Subsequent recoveries, if any, are
credited to the allowance when received. The provision for
losses on receivables, which is not material, is included in
other expenses in the accompanying consolidated statements of
income. Activity in the allowance for doubtful accounts is set
forth in the table below.
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Additions
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Charged to
|
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|
|
Beginning
|
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Costs &
|
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|
|
Ending
|
|
|
|
Balance
|
|
|
Expenses
|
|
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Deductions
|
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|
Balance
|
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|
(In thousands)
|
|
|
(Successor)
|
|
|
|
|
|
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Eleven months ended
|
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|
|
|
|
|
|
December 31, 2007
|
|
$
|
2,059.6
|
|
|
$
|
4,450.2
|
|
|
$
|
157.6
|
|
|
$
|
6,352.2
|
|
One month ended January 30, 2007
|
|
|
2,015.0
|
|
|
|
45.0
|
|
|
|
0.4
|
|
|
|
2,059.6
|
|
|
|
|
|
|
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(Predecessor)
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Year ended December 31, 2006
|
|
|
1,743.3
|
|
|
|
414.0
|
|
|
|
142.3
|
|
|
|
2,015.0
|
|
Year ended December 31, 2005
|
|
|
1,722.0
|
|
|
|
90.0
|
|
|
|
68.7
|
|
|
|
1,743.3
|
|
Concentration of Credit Risk:
Most of
the Companys business activity is with customers in the
chemical, petroleum, refining and other segments of the raw
materials processing industry. In the normal course of business
the Company grants credit to these customers in the form of
trade accounts receivable. These receivables could potentially
subject the Company to concentrations of credit risk; however,
the Company minimizes such risk by closely monitoring extensions
of trade credit. The Company generally does not require
collateral on its trade receivables.
The Company has a broad customer base doing business in all
regions of the United States as well as parts of Canada. During
2007, 2006 and 2005, the Company did not have sales to any
customers in excess of 10% of gross sales and at those
respective year-ends, no individual customer balances exceeded
10% of gross accounts receivable. Accordingly, no significant
concentration of credit risk is considered to exist.
Debt Issuance Costs:
The Company defers
costs directly related to obtaining financing and amortizes them
over the term of the loan on a straight-line basis which is not
materially different than the effective interest method. Such
amounts are reflected in the consolidated income statement as a
component of interest expense.
Derivatives and Hedging:
The Company
records all derivatives on the balance sheet at fair value. If a
derivative is designated as a cash flow hedge, the Company
measures the effectiveness of the hedge, or the degree that the
gain (loss) for the hedging instrument offsets the loss (gain)
on the hedged item, at each reporting period. The effective
portion of the gain (loss) on the derivative instrument is
recognized in other comprehensive income as a component of
equity and, subsequently, reclassified into earnings when the
forecasted transaction affects earnings. The ineffective portion
of a derivatives change in fair value is recognized in
earnings immediately. Derivatives that do not qualify for hedge
treatment are recorded at fair value with gains (losses)
recognized in earnings in the period of change.
F-9
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
Fixed Assets:
Land, buildings and
equipment are stated on the basis of cost. For financial
statement purposes, depreciation is computed over the estimated
useful lives of the assets principally by the straight-line
method; accelerated depreciation and cost recovery methods are
used for income tax purposes. When assets are retired or
otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss
is reflected in income for the period. Maintenance and repairs
are charged to expense as incurred. Ranges of estimated useful
lives for financial reporting purposes are as follows:
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Buildings and improvements
|
|
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40 years
|
|
Machinery, shop equipment and vehicles
|
|
|
3-10 years
|
|
Furniture, fixtures and office equipment
|
|
|
3-10 years
|
|
Foreign Currency Translation and
Transactions:
Gains and losses from balance
sheet translation of operations outside of the United States
where the applicable foreign currency is the functional currency
are included as a component of accumulated other comprehensive
income within stockholders equity. Gains and losses
resulting from foreign currency transactions are recognized
currently in the consolidated income statements.
Goodwill and Other Intangible
Assets:
Goodwill represents the excess of
cost over the fair value of net assets acquired. Recorded
goodwill balances are not amortized but, instead, are evaluated
for impairment annually or more frequently if circumstances
indicate that an impairment may exist.
Intangible assets are initially recorded at fair value at the
date of acquisition. Amortization is provided using the
straight-line method over their estimated useful lives. The
carrying value of intangible assets is subject to an impairment
test on an annual basis, or more frequently if events or
circumstances indicate a possible impairment. The measure of
impairment is based on the estimated fair values.
Income Taxes:
Deferred tax assets and
liabilities are recorded for differences between the financial
reporting and tax bases of assets and liabilities using the tax
rate expected to be in effect when the taxes will actually be
paid or refunds received.
The Company adopted Financial Accounting Standards Board (FASB)
Interpretation (FIN) 48,
Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109
, which clarifies the accounting and disclosure
for uncertain tax positions, as defined. FIN 48 requires
that a tax position meet a probable recognition
threshold for the benefit of the uncertain tax position to
be recognized in the financial statements. The impact of
adoption was not material.
Insurance:
The Company is self-insured
for portions of employee healthcare and maintains a deductible
program as it relates to workers compensation, automobile
liability, asbestos claims and general liability claims
including, but not limited to, product liability claims, which
are secured by various letters of credit totaling
$3.1 million. Commercially comprehensive catastrophic
coverage is maintained. The companys liability and related
expenses for claims are estimated based upon past experience.
The companys historical claim data is used to project
anticipated losses. The reserves are deemed by the company to be
sufficient to cover outstanding claims including those incurred
but not reported as of the estimation date.
Under our Property & Casualty Program, we are self-insured
for automobile collision and automobile comprehensive coverage.
We are also self-insured for product recall. We also currently
self-insure
for ocean cargo shipments to Nigeria. The dollar volume of
product fluctuates depending on the particular shipment. For all
other coverage, we carry commercially reasonable and non-
F-10
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
material deductibles. We have an umbrella liability policy that
covers liabilities in excess of $1 million, except that
this policy only covers automobile-related liabilities in excess
of $3 million. We also have excess liability coverage for
liabilities in excess of $25 million.
Inventories:
The Companys
inventories are generally valued at the lower of cost
(principally
last-in,
first-out method) or market. The Company believes the LIFO
method more fairly presents the results of operations by more
closely matching current costs with current revenues. The
Company records an adjustment each month, if necessary, for the
expected annual effect of inflation, and these estimates are
adjusted to actual results determined at year-end. This practice
excludes certain inventories held in Canada totaling
$78.6 million, at December 31, 2007, that are valued
at the lower of weighted average cost or market.
Long-Lived Assets:
The carrying value
of long-lived assets is evaluated whenever events or changes in
circumstances indicate that the carrying value of the asset may
be impaired. Upon the occurrence of such an event or change in
circumstance, an impairment loss is recognized when estimated
undiscounted future cash flows resulting from the use of the
asset, including disposition, is less than the carrying value of
the asset. Impairment is measured by the amount by which the
carrying amount exceeds the fair value.
Reclassifications:
Certain immaterial
amounts in the prior years financial statements have been
reclassified to conform to the current years presentation.
Revenue Recognition:
The Company
recognizes revenue as products are shipped, title has
transferred to the customer, and the customer assumes the risk
and rewards of ownership. Out-bound shipping and handling costs
are reflected in cost of goods sold, and freight charges billed
to customers are reflected in revenues.
Equity-Based Compensation:
The
Companys equity-based compensation consists of restricted
common units, profit units, restricted stock and non-qualified
stock options. The cost of employee services received in
exchange for an award of an equity instrument is measured based
on the grant-date fair value of the award. The Companys
policy is to expense stock-based compensation using the
fair-value of awards granted, modified or settled. Restricted
common units, profit units, and restricted stock are credited to
equity as they are expensed over their vesting periods based on
the current market value of the shares to be granted.
The fair value of non-qualified stock options is measured on the
grant date of the related equity instrument using the
Black-Scholes option-pricing model and is recognized as
compensation expense over the applicable vesting period.
Earnings Per Share:
Basic earnings per
share are computed based upon the weighted average number of
common units outstanding. Diluted earnings per share include the
dilutive effect of restricted stock and stock options.
Recent Accounting Pronouncements:
In
December 2007, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 141R
(SFAS No. 141R),
Business Combinations
Revised
. SFAS No. 141R requires an acquirer to
recognize the assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree at the acquisition
date, measured at the fair values as of that date, with limited
exceptions specified in the statement. That replaces Statement
141s cost-allocation process, which required the cost of
an acquisition to be allocated to the individual assets acquired
and liabilities assumed based on their estimated fair values.
The statement applies to business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
F-11
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
2008. The Company has not yet completed the analysis necessary
to determine the impact adoption of this standard may ultimately
have on future financial reporting.
In September 2006, the FASB issued Statement on Financial
Accounting Standards No. 157 (SFAS No. 157),
Fair Value Measurements
. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. The
provisions of SFAS No. 157 are effective for fiscal
years beginning after November 15, 2007. The Company does
not expect adoption of SFAS No. 157 to have a material
effect on its results of operations or financial position.
In February 2007, the FASB issued Statement on Financial
Accounting Standards No. 159 (SFAS No. 159),
The Fair Value Option for Financial Assets and Financial
Liabilities
. SFAS No. 159 provides companies with
an option to report selected financial assets and liabilities at
fair value. It also established presentation and disclosure
requirements to facilitate comparisons between companies using
different measurement attributes for similar types of assets and
liabilities. This statement is effective for fiscal years
beginning after November 15, 2007. The Company does not
expect adoption of SFAS No. 159 to have a material
effect on its results of operations or financial position.
In December 2007, the FASB issued Statement on Financial
Accounting Standards No. 160 (SFAS No. 160),
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51
. SFAS No. 160
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated.
SFAS No. 160 also establishes disclosure requirements
that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. This
statement is effective for fiscal years beginning after
December 15, 2008. The Company has not yet completed the
analysis necessary to determine the impact adoption of this
standard may ultimately have on future financial reporting.
Acquisition
of Controlling Interest in McJunkin by the Goldman Sachs
Funds
The acquisition of a controlling interest in McJunkin by the
Goldman Sachs Funds was accounted for in accordance with the
provisions of Emerging Issues Task Force
No. 88-16,
Basis in Leveraged Buyout Transactions
(EITF 88-16).
EITF 88-16
requires a partial or complete change in accounting basis when
there has been a change in control of voting interest. In this
transaction, the Goldman Sachs Funds, which had no previous
ownership interest in McJunkin, acquired an approximately 55%
ownership interest in McJunkin on a fully-diluted basis. The
purchase price paid to effect the acquisition was allocated to
the fair value of acquired assets and liabilities at
January 31, 2007.
Certain members of the Companys executive management team
held equity interests in McJunkin, the Predecessor, prior to
this transaction and continue to hold equity interests in the
Successor. As outlined in
EITF 88-16,
such members of management are deemed to be part of the control
group and the basis of their interests in the Successor after
the acquisition was carried over at the basis of their interests
in the Predecessor prior to the acquisition as determined by the
lesser of their residual interest in the Predecessor and their
residual interest in the Successor. Because the 15.8% collective
ownership of these individuals prior to the transaction exceeded
the 8.3% collective ownership of these individuals subsequent to
the transaction, their basis in the Predecessor was
F-12
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
carried over to the Successor at a value equaling 8.3% of the
Companys historical basis. The difference between this
historical basis and the fair value of these interests is
reflected in the purchase price allocation table below as a
carryover basis adjustment.
The purchase price was approximately $1,008.5 million. The
sources and uses of funds in connection with the acquisition are
summarized below (in millions):
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|
|
Sources
|
|
|
|
|
Asset-Based Revolving Credit Facility
|
|
$
|
75.0
|
|
Term Loan Facility
|
|
|
575.0
|
|
Equity contribution cash
|
|
|
225.6
|
|
Equity contribution non-cash
|
|
|
159.5
|
|
|
|
|
|
|
Total sources
|
|
$
|
1,035.1
|
|
|
|
|
|
|
Uses
|
|
|
|
|
Consideration paid to stockholders (including non-cash
rollover by McJunkin and McApple stockholders of
$159.5 million)
|
|
$
|
983.4
|
|
Transaction costs
|
|
|
16.5
|
|
Debt issuance costs
|
|
|
22.8
|
|
General corporate purposes
|
|
|
7.6
|
|
Repayment of existing debt
|
|
|
4.8
|
|
|
|
|
|
|
Total uses
|
|
$
|
1,035.1
|
|
|
|
|
|
|
In connection with the purchase price allocation, the fair
values of long-lived and intangible assets were determined based
upon assumptions related to future cash flows, discount rates
and asset lives utilizing currently available information. As of
January 31, 2007, the Company recorded adjustments to
reflect property and equipment, inventory, intangible assets for
its tradename, customer-related intangibles, and backlog at
their estimated fair values. The Company also acquired the
minority interest in McJunkin Appalachian Oilfield Supply
Company (McJunkin Appalachian), which became wholly owned
concurrent with the acquisition by the Goldman Sachs Funds.
F-13
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
The purchase price has been allocated as follows (in millions):
|
|
|
|
|
|
|
|
|
Cash consideration:
|
|
|
|
|
|
|
|
|
Paid to shareholders
|
|
|
|
|
|
$
|
823.9
|
|
Transaction costs paid at closing
|
|
|
|
|
|
|
16.5
|
|
Transaction costs paid outside of closing
|
|
|
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
849.0
|
|
Noncash consideration
|
|
|
|
|
|
|
159.5
|
|
|
|
|
|
|
|
|
|
|
Total consideration
|
|
|
|
|
|
|
1,008.5
|
|
Net assets acquired at historical cost
|
|
|
|
|
|
|
245.2
|
|
Adjustments to state acquired assets at fair value:
|
|
|
|
|
|
|
|
|
1) Increase carrying value of property and equipment to fair
value
|
|
$
|
16.6
|
|
|
|
|
|
2) Increase carrying value of inventory to fair value
|
|
|
68.2
|
|
|
|
|
|
3) Write-off historical goodwill and tradename
|
|
|
(6.6
|
)
|
|
|
|
|
4) Record intangible assets acquired
|
|
|
|
|
|
|
|
|
Customer-related intangibles
|
|
|
356.0
|
|
|
|
|
|
Sales order backlog
|
|
|
1.6
|
|
|
|
|
|
Non-compete agreements
|
|
|
1.0
|
|
|
|
|
|
Tradename
|
|
|
155.8
|
|
|
|
|
|
5) Eliminate McApple minority interest
|
|
|
16.0
|
|
|
|
|
|
6) Record liability to shareholders related to non-core assets
|
|
|
(26.2
|
)
|
|
|
|
|
7) Record fair value adjustments to various other assets and
liabilities
|
|
|
0.2
|
|
|
|
|
|
8) Tax impact of valuation adjustments
|
|
|
(213.8
|
)
|
|
|
368.8
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired at fair value
|
|
|
|
|
|
|
614.0
|
|
Carryover basis adjustment
|
|
|
|
|
|
|
(11.6
|
)
|
|
|
|
|
|
|
|
|
|
Excess purchase price recorded as goodwill
|
|
|
|
|
|
$
|
382.9
|
|
|
|
|
|
|
|
|
|
|
The tradename has an indefinite life and is not subject to
amortization. Tradename and goodwill will be reviewed at least
annually for impairment.
F-14
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
The purchase price was allocated as follows:
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
10.9
|
|
Accounts receivable
|
|
|
168.8
|
|
Inventory
|
|
|
293.8
|
|
Assets held for sale
|
|
|
39.9
|
|
Debt issuance costs
|
|
|
22.8
|
|
Fixed assets
|
|
|
39.8
|
|
Other assets
|
|
|
5.7
|
|
Intangible assets
|
|
|
514.4
|
|
Goodwill
|
|
|
382.9
|
|
|
|
|
|
|
|
|
|
1,479.0
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
Accounts payable
|
|
|
135.2
|
|
Accrued expenses
|
|
|
50.8
|
|
Income taxes payable
|
|
|
7.0
|
|
Deferred income taxes
|
|
|
230.7
|
|
Payable to shareholders
|
|
|
28.0
|
|
Other liabilities
|
|
|
3.8
|
|
Debt
|
|
|
650.0
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
373.5
|
|
|
|
|
|
|
|
|
$
|
1,479.0
|
|
Transaction costs paid at closing included $10.6 million
paid to an affiliate of the Goldman Sachs Funds as reimbursement
of their costs associated with due diligence and advisory
services.
Acquisition
of Midway-Tristate Corporation
On April 30, 2007, MRM, through its wholly owned subsidiary
McJunkin Appalachian, acquired a 100% interest in
Midway-Tristate
Corporation (Midway). Midway is engaged primarily in the
distribution of pipe, equipment and supplies to the oil and gas
and utility industries in Michigan, West Virginia, Ohio,
Pennsylvania, Utah, Wyoming, and Colorado. The acquisition of
Midway significantly increased McJunkin Appalachians
presence particularly in the strategic Rocky Mountain region.
F-15
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
The purchase price was approximately $83.3 million and has
preliminarily been allocated as follows (in millions):
|
|
|
|
|
Assets acquired
|
|
|
|
|
Accounts receivable
|
|
$
|
19.5
|
|
Inventory
|
|
|
30.8
|
|
Fixed assets
|
|
|
3.4
|
|
Other assets
|
|
|
0.1
|
|
Customer-related intangibles
|
|
|
20.1
|
|
Goodwill
|
|
|
30.8
|
|
|
|
|
|
|
|
|
|
104.7
|
|
Liabilities assumed
|
|
|
|
|
Accounts payable
|
|
|
11.5
|
|
Accrued expenses
|
|
|
2.1
|
|
Income taxes payable
|
|
|
0.2
|
|
Deferred income taxes
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
21.4
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
83.3
|
|
|
|
|
|
|
Goodwill associated with this transaction is not deductible for
tax purposes, nor is any amortization associated with
customer-related intangibles which have a useful life of
20 years.
Acquisition
of Red Man Pipe & Supply Co.
On October 31, 2007, MRM, through its wholly owned
subsidiary West Oklahoma PVF Company, acquired a 100% interest
in Red Man Pipe & Supply Co. (Red Man). Red Man is a
distributor of tubular goods and an operator of service and
supply centers which distribute maintenance, repair and
operating products utilized primarily in the energy industry as
well as industrial products consisting primarily of line pipe,
valves, fittings and flanges. Red Man distributes products and
tubular goods through service and supply centers and sales
locations strategically located close to major hydrocarbon
producing and refining areas of the United States and Canada.
F-16
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
The purchase price was approximately $970.4 million
(including common units issued for Red Man shares of
$104.1 million at closing) and has preliminarily been
allocated as follows (in millions):
|
|
|
|
|
Assets acquired
|
|
|
|
|
Cash
|
|
$
|
13.9
|
|
Accounts receivable
|
|
|
342.3
|
|
Notes and other receivables
|
|
|
5.2
|
|
Inventory
|
|
|
378.5
|
|
Fixed assets
|
|
|
39.6
|
|
Other assets
|
|
|
0.2
|
|
Intangible Assets
|
|
|
451.1
|
|
Goodwill
|
|
|
230.8
|
|
|
|
|
|
|
|
|
|
1,461.6
|
|
Liabilities assumed
|
|
|
|
|
Accounts payable
|
|
|
209.5
|
|
Accrued expenses
|
|
|
42.9
|
|
Income taxes payable
|
|
|
3.1
|
|
Deferred income taxes
|
|
|
60.3
|
|
Debt
|
|
|
71.6
|
|
Minority interest and amounts due to former Red Man shareholders
|
|
|
100.6
|
|
Other liabilities
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
491.2
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
970.4
|
|
|
|
|
|
|
This allocation of the purchase price is preliminary pending
receipt of appraisals and valuations for certain of Red
Mans assets, including intangible assets. Goodwill
associated with this transaction is not deductible for tax
purposes, nor is any amortization associated with amortizable
intangibles that are still being valued.
Transaction costs capitalized in connection with the acquisition
of Red Man Pipe & Supply Co. totaled
$17.3 million and included $12.0 million paid to an
affiliate of the Goldman Sachs Funds as reimbursement of their
costs associated with due diligence and advisory services.
Subsequent to the date of the balance sheet, certain provisions
of the purchase agreement, including a net working capital
adjustment, were finalized resulting in an increase of the
purchase price referenced above of $18.1 million, including
additional shares issued of $7.0 million.
As part of the Red Man transaction, MRM indirectly acquired a
call option to buy out the 49% minority interest of Midfield for
approximately $100.0 million. The call option may be
exercised between June 15, 2008 and December 15, 2008.
The Company has concluded that it is probable the option will be
exercised and has provided for the financing of such exercise in
the Asset-Based Revolving Credit Facility. Accordingly, the
Company has allocated $100.0 million of the purchase price
to minority interest and amounts due to former Red Man
shareholders. This balance represents the total exercise price
of the call option including those amounts that are expected to
be paid to the Midfield minority interest shareholders as well
as additional amounts that are expected to be paid to the former
shareholders of Red Man. In the event the call option is not
exercised during that time period, certain additional amounts
would be due to the former shareholders of Red Man on
January 15, 2009.
F-17
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
Pro Forma
Financial Information
The following unaudited pro forma results of operations assume
that each of the transactions described above occurred on
January 1, 2006. This unaudited pro forma information
should not be relied upon as necessarily being indicative of the
historical results that would have been obtained if the
transactions had actually occurred on that date nor the results
that may be obtained in the future.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
$
|
4,000.0
|
|
|
$
|
3,703.1
|
|
Net income
|
|
|
147.6
|
|
|
|
84.4
|
|
Equity
Issuances
The following is a summary of our equity issuances in 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Restricted Stock
|
|
|
|
Consideration
|
|
|
Stock
|
|
|
& Options
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Equity issued to majority shareholders in exchange for cash
|
|
$
|
900,158
|
|
|
|
228,571.74
|
|
|
|
|
|
Equity issued in exchange for shares in McJunkin
|
|
|
159,472
|
|
|
|
40,538.94
|
|
|
|
|
|
Equity issued in exchange for shares in Red Man
|
|
|
104,136
|
|
|
|
26,472.20
|
|
|
|
|
|
Equity issued in deferred compensation to members of management
|
|
|
|
|
|
|
4,308.80
|
|
|
|
4,168.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,163,766
|
|
|
|
299,892
|
|
|
|
4,168.99
|
|
F-18
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
|
|
NOTE 3
|
GOODWILL AND
INTANGIBLE ASSETS
|
The significant components of goodwill and intangible assets are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
Tradename
|
|
|
|
|
|
|
Order
|
|
|
Customer
|
|
|
Non Compete
|
|
|
(With
|
|
|
|
|
|
|
Backlog
|
|
|
Base
|
|
|
Agreements
|
|
|
Indefinite
|
|
|
|
|
|
|
(1 Year)
|
|
|
(38 Years)
|
|
|
(5 Years)
|
|
|
Life)
|
|
|
Goodwill
|
|
|
Recorded in connection with the McJunkin acquisition
|
|
$
|
1,601
|
|
|
$
|
356,036
|
|
|
$
|
970
|
|
|
$
|
155,762
|
|
|
$
|
382,908
|
|
Recorded in connection with the Midway acquisition
|
|
|
|
|
|
|
20,118
|
|
|
|
|
|
|
|
|
|
|
|
30,802
|
|
Recorded in connection with the Red Man acquisition
(preliminary, see note below)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681,906
|
|
Amortization
|
|
|
(1,467
|
)
|
|
|
(8,844
|
)
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
Impact of foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
134
|
|
|
$
|
367,310
|
|
|
$
|
792
|
|
|
$
|
155,762
|
|
|
$
|
1,092,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of Intangible Assets
Amortization in future periods could change significantly based
on the finalization of the purchase price allocation for the Red
Man transaction. The potential impact on amortization expense
for the two-month period from the date of the acquisition to
December 31, 2007 is not material. The weighted average
amortization period for each type of intangible is noted in the
table above. The weighted average amortization period for all
amortizable intangibles is 38 years. Total amortization of
all acquisition-related intangible assets for each of the years
ending December 31, 2008 to 2012, is currently estimated as
follows (in millions):
|
|
|
|
|
2008
|
|
$
|
10.3
|
|
2009
|
|
|
10.1
|
|
2010
|
|
|
10.1
|
|
2011
|
|
|
10.1
|
|
2012
|
|
|
10.1
|
|
Equity issued in 2007:
(dollars in thousands)
F-19
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
If inventories were reported at values approximating current
costs, as would have resulted from using the
first-in,
first-out method, they would have been $10.3 million and
$74.4 million higher at December 31, 2007 and 2006,
respectively. In addition, after giving pro forma effect to
profit sharing and income taxes, net income would have been
higher by $6.7 million for the eleven months ended
December 31, 2007, $0 for the one-month ended
January 30, 2007, and $7.9 million and
$13.1 million for the years ended December 31, 2006
and 2005, respectively. For the eleven months ended
December 31, 2007, the Company experienced a liquidation of
certain LIFO inventories resulting in income of
$1.5 million.
The Companys inventory is composed of finished goods.
There are no general and administrative costs charged to
inventory.
The significant components of our long-term debt are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2006
|
|
Asset-based revolving credit facility
|
|
$
|
234,146
|
|
|
|
$
|
|
|
Term loan facility
|
|
|
569,250
|
|
|
|
|
|
|
Revolving credit/term loan agreement
|
|
|
|
|
|
|
|
8,300
|
|
Short-term debt expected to be refinanced on a long-term basis
|
|
|
|
|
|
|
|
2,735
|
|
Three-year asset securitization
|
|
|
|
|
|
|
|
2,000
|
|
Midfield revolving credit facility
|
|
|
50,970
|
|
|
|
|
|
|
Midfield term loan facility
|
|
|
10,228
|
|
|
|
|
|
|
Midfield notes payable
|
|
|
3,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
868,397
|
|
|
|
|
13,035
|
|
Less current portion
|
|
|
19,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
848,616
|
|
|
|
$
|
13,035
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Based Revolving Credit
Facility:
On January 31, 2007, in
connection with the acquisition of McJunkin by GSCP, MRM entered
into a credit agreement and related security and other
agreements for a secured Asset-Based Revolving Credit Facility
with The CIT Group/Business Credit, Inc. as administrative agent
and collateral agent. The Asset-Based Revolving Credit Facility
provided financing of up to $300.0 million, subject to a
borrowing base equal to at any time the lesser of 85% of
eligible accounts receivable and 85% of net orderly liquidation
value of the eligible inventory, less certain reserves. The
Asset-Based Revolving Credit Facility included borrowing
capacity available for letters of credit and for borrowings on
same-day
notice. At the closing of the acquisition, MRM utilized
$75.0 million of the Asset-Based Revolving Credit Facility
for loans and approximately $3.1 million for letters of
credit.
On October 31, 2007, and concurrent with the close of the
Red Man acquisition, MRM refinanced the initial Asset-Based
Revolving Credit Facility with a new $650.0 million
facility with terms substantially the same as those described
above. At that date, MRM utilized $322.5 million of the new
Asset-Based Revolving Credit Facility to fund a portion of the
Red Man acquisition in addition to refinancing amounts
previously outstanding.
F-20
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
As of December 31, 2007, MRM had $326.5 million of
unused borrowing availability under the Asset-Based Revolving
Credit Facility based on a borrowing base of $563.8 million
and after giving effect to $3.1 million used for letters of
credit.
The Asset-Based Revolving Credit Facility provides that MRM has
the right at any time to request incremental facilities
commitments, but the lenders are under no obligation to provide
any such additional commitments. The Asset-Based Revolving
Credit Facility permits incremental facilities (together with
any new commitments under the Term Loan Facility discussed
below) up to (1) $200.0 million specifically available
to fund the CanHCo Call Right (which pertains to the Midfield
Supply minority interest) and refinance certain indebtedness of
Midfield Supply, (2) $150.0 million generally
available, (3) and additional amounts available so long as
the secured leverage ratio as specified in the Asset-Based
Revolving Credit Facility is satisfied. If MRM were to request
any such additional commitments and the existing lenders or new
lenders were to agree to provide such commitments, the
Asset-Based Revolving Credit Facility size could be increased as
described above, but MRMs ability to borrow would still be
limited by the amount of the borrowing base.
Borrowings under the Asset-Based Revolving Credit Facility bear
interest at a rate per annum equal to, at MRMs option,
either (a) a base rate determined by reference to the
greater of (1) the prime rate as quoted in
The Wall
Street Journal
and (2) the federal funds effective rate
plus
1
/
2
of 1% or (b) a LIBOR rate, subject to certain adjustments,
in each case plus an applicable margin. The applicable margin in
the initial asset revolving credit facility was 0.75% with
respect to base rate borrowings and 1.75% with respect to LIBOR
borrowings. As part of the refinancing, these were revised to
0.50% and 1.50%, respectively. The applicable margin is subject
to adjustment downward based on the MRMs leverage ratio.
In addition, MRM is required to pay a commitment fee of 0.375%
per annum in respect of the unutilized commitments. This rate is
also subject to adjustment downward based upon the MRMs
leverage. MRM must also pay customary letter of credit fees and
agency fees.
If at any time the aggregate amount of outstanding loans,
unreimbursed letter of credit drawings and undrawn letters of
credit under the Asset-Based Revolving Credit Facility exceeds
the lesser of (i) the total revolving credit commitments
and (ii) the borrowing base, MRM will be required to repay
outstanding loans or cash collateralize letters of credit in an
aggregate amount equal to such excess, with no reduction of the
commitment amount. If the amount available under the Asset-Based
Revolving Credit Facility is less than 7% of total revolving
credit commitments, or an event of default pursuant to certain
provisions of the credit agreement has occurred, MRM would then
be required to deposit daily in a collection account managed by
the agent under the Asset-Based Revolving Credit Facility. MRM
may voluntarily reduce the unutilized portion of the commitment
amount and repay outstanding loans at any time without premium
or penalty other than customary breakage costs with
respect to LIBOR loans. There is no scheduled amortization under
the Asset-Based Revolving Credit Facility; the principal amount
of the loans outstanding is due and payable in full on
October 31, 2013.
All obligations under the Asset-Based Revolving Credit Facility
are guaranteed by MRMs existing and future wholly owned
domestic subsidiaries. All obligations under MRMs
Asset-Based Revolving Credit Facility, and the guarantees of
those obligations, are secured, subject to certain significant
exceptions, by substantially all of the assets of MRM and the
subsidiaries that have guaranteed the Asset-Based Revolving
Credit Facility, including:
|
|
|
|
|
A first-priority security interest in personal property
consisting of inventory and accounts receivable;
|
|
|
|
A second-priority pledge of certain of the capital stock held by
MRM or any subsidiary guarantor; and
|
F-21
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
|
|
|
|
|
A second-priority security interest in, and mortgages on,
substantially all other tangible and intangible assets of MRM
and each subsidiary guarantor.
|
The Asset-Based Revolving Credit Facility contains a number of
covenants that, among other things and subject to certain
significant exceptions, restrict its ability and the ability of
its subsidiaries to:
|
|
|
|
|
Incur additional indebtedness;
|
|
|
|
Pay dividends on MRMs capital stock or the capital stock
of MRMs direct or indirect parent;
|
|
|
|
Make investments, loans, advances or acquisitions;
|
|
|
|
Sell assets, including capital stock of MRMs subsidiaries;
|
|
|
|
Consolidate or merge with another entity;
|
|
|
|
Create liens;
|
|
|
|
Pay, redeem, or amend the terms of subordinated indebtedness;
|
|
|
|
Enter into certain sale-leaseback transactions;
|
|
|
|
Fundamentally or substantively alter the character of the
business conducted by MRM and its subsidiaries; and
|
|
|
|
Enter into agreements that limit (1) the ability of
non-guarantors to pay dividends to MRM or any guarantor or
(2) the ability of MRM or any guarantor to pledge its
assets to secure its obligations under the Asset-Based Revolving
Credit Facility.
|
In addition to other customary exceptions, the covenants
limiting dividends and other restricted payments and prepayments
or redemptions of subordinated indebtedness generally permit the
restricted actions in additional limited amounts, subject to the
satisfaction of certain conditions, principally that MRM must
have at least $50.0 million of pro forma excess
availability under the
Asset-Based
Revolving Credit Facility.
Although the credit agreement governing the Asset-Based
Revolving Credit Facility does not require MRM to comply with
any financial ratio maintenance covenants, if less than 7% of
the then outstanding credit commitments were available to be
borrowed under the Asset-Based Revolving Credit Facility at any
time, MRM would not be permitted to borrow any additional
amounts unless its pro forma ratio of consolidated EBITDA to
consolidated Fixed Charges (as such terms are defined in the
credit agreement) were at least 1.0 to 1.0. The credit agreement
also contains customary affirmative covenants and events of
default.
Term Loan Facility:
On January 31,
2007, in connection with the acquisition of McJunkin by the
Goldman Sachs Funds, MRM entered into a credit agreement and
related security and other agreements for a $575.0 million
Term Loan Facility with Lehman Commercial Paper as
administrative agent and collateral agent. The full amount of
the Term Loan Facility was borrowed on January 31, 2007.
On October 31, 2007, and concurrent with the close of the
Red Man acquisition, the Term Loan Facility was amended to
permit for the refinancing of the Asset-Based Revolving Credit
Facility, as described above, in addition to revising certain
provisions of the agreement as discussed in more detail below.
F-22
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
At December 31, 2007, borrowings under the Term Loan
Facility bore interest at a rate per annum equal to, at
MRMs option, either (a) a base rate determined by
reference to the greater of (1) the prime rate as quoted in
The Wall Street Journal
and (2) the federal funds
effective rate plus
1
/
2
of 1% or (b) a LIBOR rate, subject to certain adjustments,
in each case plus an applicable margin. At December 31,
2007, the applicable margin with respect to base rate borrowings
was 2.25% and the applicable margin with respect to LIBOR
borrowings was 3.25%. The interest rate on the outstanding
borrowings pursuant to the Term Loan Facility was 8.08% at
December 31, 2007.
The Term Loan Facility requires MRM to prepay outstanding term
loans with 50% (which percentage will be reduced to 25% if
MRMs total leverage ratio is less than a specified ratio
and will be reduced to 0% if MRMs total leverage ratio is
less than a specified ratio) of its annual excess cash flow (as
defined in the credit agreement). For 2007, MRM was not required
to prepay any outstanding term loans pursuant to the annual
excess cash flow requirements.
MRM may voluntarily prepay outstanding loans under the Term Loan
Facility at any time without premium or penalty other than
customary breakage costs with respect to LIBOR
loans. The Term Loan Facility amortizes at a rate of 1.00% per
year with the balance due at January 31, 2014.
All obligations under the Term Loan Facility are unconditionally
guaranteed by the MRM and each wholly owned domestic subsidiary
of MRM. All obligations under the Term Loan Facility, and the
guarantees of those obligations, are secured, subject to certain
significant exceptions, by substantially all of the assets of
MRM and the subsidiaries that have guaranteed the Term Loan
Facility, including:
|
|
|
|
|
A second-priority security interest in personal property
consisting of inventory and accounts receivable;
|
|
|
|
A first-priority pledge of certain of the capital stock held by
MRM or any subsidiary guarantor; and
|
|
|
|
A first-priority security interest in, and mortgages on,
substantially all other tangible and intangible assets of the
MRM and each subsidiary guarantor.
|
The Term Loan Facility contains a number of negative covenants
that are substantially similar to those governing the
Asset-Based Revolving Credit Facility. The credit agreement also
contains customary affirmative covenants and events of default.
MRM was in compliance with the covenants contained in its credit
agreements during the eleven months ended December 31, 2007
and during the one month ended January 30, 2007.
Midfield Revolving Credit
Facility:
Midfield, the Companys
Canadian subsidiary, has a Canadian dollar revolving credit
facility administered by Bank of America. This facility has a
maximum limit of CAD $150 million (US$152.91 million
as of 12/31/07) bearing interest at Canadian prime rate plus a
margin of up to 0.25%. The revolver is secured by substantially
all of Midfields personal property assets including
accounts receivable, chattel paper, bank accounts, general
intangibles, inventory, investment property, cash and insurance
proceeds. The balance of the revolver is due at its maturity
date, November 2, 2010.
Midfield Term Loan Facility:
Midfield
has a term loan facility that is due on demand. This facility
bears interest at Canadian prime rate plus a margin of up to
0.5%. The term loan facility is secured by substantially all of
Midfields real property and equipment.
During the period from October 31, 2007, the date of the
Red Man Transaction, to December 31, 2007, Midfield was in
compliance with the covenants contained in its revolving credit
facility and other debt agreements.
F-23
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
Midfield Notes Payable:
Midfield has
two notes payable due April 1, 2008 pursuant to holdback
provisions from recent acquisitions. These amounts, totaling
$3.8 million at December 31, 2007, are owed to
individuals who became and continue to be shareholders of
Midfield supply as a result of these transactions.
Maturities of Long-Term Debt:
At
December 31, 2007, annual maturities of long-term debt
during the next five fiscal years and thereafter are as follows
(in millions):
|
|
|
|
|
2008
|
|
$
|
19.8
|
|
2009
|
|
|
5.8
|
|
2010
|
|
|
56.8
|
|
2011
|
|
|
5.8
|
|
2012
|
|
|
5.8
|
|
Thereafter
|
|
|
774.6
|
|
The above table does not reflect future excess cash flow
prepayments, if any, that may be required under the Term Loan
Facility.
Interest Rate Swaps:
The Company uses
derivative financial instruments to help manage its interest
rate risk. On December 3, 2007, MRM entered into a floating
to fixed interest rate swap agreement, effective
December 31, 2007, for a notional amount of
$700.0 million to limit its exposure to interest rate
increases related to a portion of its floating rate
indebtedness. The interest rate swap agreement terminates after
three years. At December 31, 2007, the fair value of
MRMs interest rate swap agreement was a loss of
approximately $0.4 million, which amount is included in
accrued liabilities.
As of the effective date, MRM designated the interest rate swap
as a cash flow hedge. As a result, changes in the fair value of
MRMs swap is recorded as a component of other
comprehensive income. At December 31, 2007,
$0.2 million of unrecognized losses, net of tax, on the
interest rate swap agreement is included in other comprehensive
income.
As a result of the swap agreement, MRMs effective fixed
interest rates as to the $700.0 million in floating rate
indebtedness will be 5.368% for associated indebtedness on the
Asset-Based Revolving Credit Facility and 7.118% for associated
indebtedness on the Term Loan Facility, per quarter through 2010
and result in an average fixed rate of 6.771%.
Interest Paid:
The Company paid
interest of $52.9 million for the eleven months ended
December 31, 2007, $0.1 million for the one month
ended January 30, 2007, and $2.8 million and
$2.6 million for the years ended December 31, 2006 and
2005, respectively.
F-24
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
|
|
NOTE 6
|
PROPERTY,
PLANT, AND EQUIPMENT
|
Property, plant, and equipment consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2006
|
|
Land and improvements
|
|
$
|
10,911
|
|
|
|
$
|
4,392
|
|
Buildings and building improvements
|
|
|
31,624
|
|
|
|
|
21,416
|
|
Equipment
|
|
|
42,295
|
|
|
|
|
43,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,830
|
|
|
|
|
68,951
|
|
Allowances for depreciation
|
|
|
(4,710
|
)
|
|
|
|
(41,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,120
|
|
|
|
$
|
27,208
|
|
|
|
|
|
|
|
|
|
|
|
The Company leases land and buildings at various locations from
Hansford Associates, Appalachian Leasing, and one stockholder.
The Company leases land, buildings and vehicles from Prideco.
Certain officers and directors of the Company participate in
ownership of Hansford Associates, Appalachian Leasing and
Prideco. Most of these leases are renewable for various periods
through 2026 and are renewable at the option of the Company. The
renewal options are subject to escalation clauses. These leases
contain clauses for payment of real estate taxes, maintenance,
insurance and certain other operating expenses of the
properties. Leases with unrelated parties contain similar
provisions.
Amortization of capital leases was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
Eleven
|
|
|
|
One
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Amortization of capital leases
|
|
$
|
164
|
|
|
|
$
|
15
|
|
|
$
|
179
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property held under capital leases in the balance sheets
consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2006
|
|
Land and buildings
|
|
$
|
2,089
|
|
|
|
$
|
4,881
|
|
Allowances for amortization
|
|
|
(164
|
)
|
|
|
|
(2,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,925
|
|
|
|
$
|
2,104
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments under capital leases aggregate
$10.1 million of which $3.2 million represents
interest and $3.4 million represents escalation and
executory costs. The present value of net minimum lease payments
is $3.6 million, all applicable to Hansford Associates.
Annual payments under capital leases are $0.9 million for
years 2008 through 2012.
F-25
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
Rent expense under operating leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
Eleven
|
|
|
|
One
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Leases with Hansford Associates
|
|
$
|
1,498
|
|
|
|
$
|
136
|
|
|
$
|
1,534
|
|
|
$
|
1,474
|
|
Leases with Appalachian Leasing
|
|
|
134
|
|
|
|
|
12
|
|
|
|
153
|
|
|
|
154
|
|
Leases with Prideco
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases with Midfield shareholders
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating leases
|
|
|
8,748
|
|
|
|
|
608
|
|
|
|
7,149
|
|
|
|
6,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense under operating leases
|
|
$
|
11,069
|
|
|
|
$
|
756
|
|
|
$
|
8,836
|
|
|
$
|
8,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum rental payments required under operating leases
that have initial or remaining noncancelable lease terms in
excess of one year aggregate to $45.5 million and include
leases applicable to Hansford Associates ($4.2 million),
Appalachian Leasing ($0.5 million), Prideco
($0.3 million), and the stockholder ($0.1 million).
Annual operating lease payments are $18.3 million,
$12.7 million, $6.2 million, $4.7 million, and
$3.7 million for years 2008 through 2012, respectively.
Income taxes included in the consolidated statements of income
consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
Eleven
|
|
|
|
One
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
31,190
|
|
|
|
$
|
4,024
|
|
|
$
|
36,514
|
|
|
$
|
34,075
|
|
State
|
|
|
5,895
|
|
|
|
|
814
|
|
|
|
8,024
|
|
|
|
7,413
|
|
Foreign
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,309
|
|
|
|
|
4,838
|
|
|
|
44,538
|
|
|
|
41,488
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
263
|
|
|
|
|
(197
|
)
|
|
|
3,129
|
|
|
|
(4,037
|
)
|
State
|
|
|
38
|
|
|
|
|
(42
|
)
|
|
|
673
|
|
|
|
(868
|
)
|
Foreign
|
|
|
(1,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(750
|
)
|
|
|
|
(239
|
)
|
|
|
3,802
|
|
|
|
(4,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
36,559
|
|
|
|
$
|
4,599
|
|
|
$
|
48,340
|
|
|
$
|
36,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
The Companys effective tax rate varied from the statutory
federal income tax rate for the following reasons (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
Eleven
|
|
|
|
One
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Federal tax expense at statutory rates
|
|
$
|
32,721
|
|
|
|
$
|
3,918
|
|
|
$
|
41,270
|
|
|
$
|
31,193
|
|
State taxes
|
|
|
3,971
|
|
|
|
|
502
|
|
|
|
5,653
|
|
|
|
4,254
|
|
Non-deductible expenses
|
|
|
424
|
|
|
|
|
26
|
|
|
|
409
|
|
|
|
372
|
|
Foreign
|
|
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
270
|
|
|
|
|
153
|
|
|
|
1,008
|
|
|
|
764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
36,559
|
|
|
|
$
|
4,599
|
|
|
$
|
48,340
|
|
|
$
|
36,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
39.10
|
%
|
|
|
|
40.78
|
%
|
|
|
41.0
|
%
|
|
|
41.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company paid $38.2 million for the eleven months ended
December 31, 2007, $0 for the one month ended
January 30, 2007, and $50.6 million and
$34.7 million in 2006 and 2005 for federal and state taxes.
Significant components of the Companys current deferred
tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable valuation
|
|
$
|
964
|
|
|
|
$
|
797
|
|
Real estate and investments
|
|
|
26
|
|
|
|
|
86
|
|
Accruals and reserves
|
|
|
2,395
|
|
|
|
|
3,684
|
|
Other
|
|
|
819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
4,204
|
|
|
|
|
4,567
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,878
|
)
|
|
|
|
|
|
Inventory valuation
|
|
|
(75,882
|
)
|
|
|
|
(6,464
|
)
|
Property, plant and equipment
|
|
|
(6,485
|
)
|
|
|
|
(2,969
|
)
|
Interest in Red Man Canada
|
|
|
(4,138
|
)
|
|
|
|
|
|
Investments
|
|
|
(11,930
|
)
|
|
|
|
(14,759
|
)
|
Intangible assets
|
|
|
(197,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(300,055
|
)
|
|
|
|
(24,192
|
)
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(295,851
|
)
|
|
|
$
|
(19,625
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax returns are filed in the U.S. federal
jurisdiction, various states, Puerto Rico and Canada. The
Company is no longer subject to U.S. federal income tax
examination for years through 2004.
F-27
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
Effective January 1, 2007, the Predecessor adopted
FIN 48,
Accounting for Uncertainty in Income Taxes
.
This interpretation established new standards for the financial
statement recognition, measurement and disclosure of uncertain
tax positions taken or expected to be taken in income tax
returns.
The effect of adopting FIN 48 was immaterial. Upon
adoption, the liability for income taxes under FIN 48 was
$0.4 million and interest and penalties were
$0.2 million. Interest related to income tax liabilities is
classified as interest expense and penalties are recognized as a
component of income tax expense. As of December 31, 2007,
there were no material changes in the reserve or the amount of
unrecognized tax benefits, interest or penalties. It is not
anticipated that settlement of the uncertain tax positions will
have a material affect on the statutory rate. The decrease in
tax liability shown below was due to expiring statute of
limitations and settlement of taxes.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
|
Eleven Months
|
|
|
One Month
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
January 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
667
|
|
|
$
|
667
|
|
Additions based on tax positions related to current year
|
|
|
|
|
|
|
|
|
Reductions due to lapse of statute of limitations
|
|
|
(69
|
)
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
(53
|
)
|
|
|
|
|
Settlements
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
505
|
|
|
$
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9
|
STOCK-BASED
COMPENSATION
|
Restricted Stock and Stock Option
Plans:
Effective March 27, 2007, the
Companys Board of Directors approved the formation of the
2007 Restricted Stock Plan and the 2007 Stock Option Plan. The
purpose of these plans is to aid MRM in recruiting and retaining
key employees, directors and consultants of outstanding ability
and to motivate such key employees, directors and consultants to
exert their best efforts on behalf of the Company by providing
incentives in the form of restricted stock and stock options.
The Company expects that it will benefit from the added interest
which such key employees, directors and consultants will have in
the welfare of the Company as a result of their proprietary
interest in the Companys success.
Under the terms of the stock option plan, options may not be
granted at prices less than their fair market value on the date
of the grant, nor for a term exceeding 10 years. Vesting
occurs in
one-third
increments on the third, fourth, and fifth anniversaries of the
date specified in the employees respective option
agreements. The Company expenses the fair value of the stock
option grants on a straight-line basis over the vesting period.
A Black-Scholes option pricing model was used to estimate the
fair value of the stock options granted in 2007. For purposes of
measuring compensation, the Company relies on a calculated value
that requires certain assumptions including volatility based on
F-28
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
the appropriate industry sector. Following are the weighted
average assumptions used to estimate the fair values of options
granted during the eleven months ended December 31, 2007:
|
|
|
Risk-free interest rate
|
|
4.10%
|
Dividend yield
|
|
0.00%
|
Expected volatility
|
|
22.07%
|
Expected lives
|
|
6.2 years
|
A summary of the status of stock option grants under the stock
option plan as of December 31, 2007, and changes during the
eleven months ended on that date is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Outstanding at January 31, 2007
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
3,533.46
|
|
|
|
3,933.81
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
3,533.46
|
|
|
$
|
3,933.81
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2007
|
|
|
|
|
|
$
|
|
|
Options vested at December 31, 2007
|
|
|
|
|
|
|
|
|
Under the terms of the restricted stock plan, restricted stock
may be granted at the direction of the Board of Directors and
vesting occurs in one-fourth increments on the second, third,
fourth, and fifth anniversaries of the date specified in the
employees respective restricted stock agreements. The
Company expenses the fair value of the restricted stock grants
on a straight-line basis over the vesting period.
The following table summarizes restricted stock activity under
the restricted stock plan as of December 31, 2007, and
changes during the eleven months ended on that date:
|
|
|
|
|
|
|
Shares
|
|
|
Balance at January 31, 2007
|
|
|
|
|
Granted
|
|
|
635.52
|
|
Forfeited
|
|
|
|
|
Issued
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
635.52
|
|
|
|
|
|
|
Compensation expense recognized under the stock option and
restricted stock plans totaled $0.3 million and
$0.1 million for the eleven months ended December 31,
2007. As of December 31, 2007, the Company had
$4.3 million and $1.4 million of unrecognized
compensation expense related to outstanding stock options and
restricted stock. These amounts will be recognized over a
weighted average vesting period of five years.
Restricted Common Units:
In conjunction
with the acquisition of McJunkin by the Goldman Sachs Funds,
certain key MRM employees received restricted common units of
PVF Holdings LLC that vest over a five-year requisite service
period. Compensation expense associated with these restricted
common units totaled $1.0 million for the eleven months
ended December 31, 2007 based upon their fair market value
at the date they were issued which is being recognized on a
straight-line basis over the vesting period. As of
December 31, 2007, the Company had $4.6 million of
F-29
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
unrecognized compensation expense related to outstanding
restricted common units which will be amortized over a weighted
average vesting period of four years.
Profits Units:
In conjunction with the
acquisition of McJunkin by the Goldman Sachs Funds and the Red
Man acquisition, certain key MRM employees received profits
units in PVF Holdings LLC that vest over a five-year requisite
service period. These units entitle their holders to a share of
any distributions made by PVF Holdings LLC once common unit
holders have received a return of all capital contributed to PVF
Holdings LLC in the period of resolution.
Compensation expense associated with these profits units totaled
$1.6 million for the eleven months ended December 31,
2007 based upon their fair market value at the date they were
issued which is being amortized on a straight-line basis over
the vesting period. As of December 31, 2007, the Company
had $15.4 million of unrecognized compensation expense
related to outstanding profits units which will be amortized
over a weighted average vesting period of five years.
|
|
NOTE 10
|
EMPLOYEE
BENEFIT PLANS
|
In 2007, the Company offered a noncontributory profit sharing
plan to employees with at least six months of service. This plan
provides for annual employer contributions generally based upon
a formula related primarily to earnings, limited to 15% of the
eligible compensation paid to all eligible employees. Employees
may also participate in the McJunkin Red Man Savings Plan,
whereunder any employee who has completed as least six months of
service to the Company may elect to defer a percentage of their
base earnings, and that deferral is partially matched by the
Company, pursuant to section 401(k) of the Internal Revenue
Code.
Employees of Red Man located in the United States who have
attained the age of 21 are eligible to participate in the Red
Man Pipe & Supply Co. Retirement Savings Plan which
also exists pursuant to Section 401(k) of the Internal
Revenue Code.
The Companys provisions for the profit sharing plan and
matching portion under the 401(k) plans approximated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
Eleven
|
|
|
|
One
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Profit sharing expenses
|
|
$
|
12,294
|
|
|
|
$
|
1,338
|
|
|
$
|
15,064
|
|
|
$
|
13,144
|
|
401(k) savings plan expenses
|
|
|
1,141
|
|
|
|
|
73
|
|
|
|
837
|
|
|
|
830
|
|
Other
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11
|
RELATED PARTY
TRANSACTIONS
|
In connection with Red Mans 2005 acquisition of 51% of the
shares of Midfield, a Shareholders Agreement between Red
Man Pipe & Supply Canada, LTD., the 51% majority
shareholder of Midfield Supply ULC, and Midfield Holdings
(Alberta) LTD., the 49% minority interest shareholder of
Midfield Supply ULC was created. This agreement, among other
things, stipulates how profits of Midfield Supply ULC are
shared. Midfield Holdings (Alberta) LTDs portion of the
profits are accrued and subsequently paid to shareholders of
Midfield Holdings (Alberta) LTD, who are also employees of
Midfield Supply ULC, via a formal Employee Profit Sharing Plan
(EPSP). In connection with the EPSP,
F-30
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
$8.9 million was accrued as of December 31, 2007.
Expense associated with this plan is included in selling,
general and administrative expenses. Red Man Pipe &
Supply Canada, LTDs portion of the profits was accrued and
subsequently paid through an after-tax dividend, which has been
eliminated in consolidation.
In connection with the EPSP payments, from time to time the
minority shareholders make loans to the Company. These notes
payable are unsecured, bear interest at 8% and have no fixed
terms of repayment. Amounts payable to minority interest
shareholders were $25.0 million at December 31, 2007.
|
|
NOTE 12
|
EARNINGS PER
SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net income (in thousands)
|
|
$
|
56,926
|
|
|
|
$
|
6,596
|
|
|
$
|
69,574
|
|
|
$
|
52,541
|
|
Average basic shares outstanding
|
|
|
138,627
|
|
|
|
|
17,510
|
|
|
|
17,510
|
|
|
|
17,510
|
|
Effect of dilutive securities
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average dilutive shares outstanding
|
|
|
138,899
|
|
|
|
|
17,510
|
|
|
|
17,510
|
|
|
|
17,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
410.64
|
|
|
|
$
|
376.70
|
|
|
$
|
3,973.39
|
|
|
$
|
3,000.63
|
|
Diluted
|
|
$
|
409.84
|
|
|
|
$
|
376.70
|
|
|
$
|
3,973.39
|
|
|
$
|
3,000.63
|
|
Stock option grants are disregarded in this calculation if they
are determined to be anti-dilutive. At December 31, 2007,
the Companys anti-dilutive stock options totaled 3,533.
There were no stock options outstanding at January 30,
2007, December 31, 2006 and 2005.
The Company is involved in various legal proceedings and claims,
both as a plaintiff and a defendant, which arise in the ordinary
course of business. Included in these legal proceedings are
cases where the Company has been named as a defendant in
lawsuits brought against a large number of entities by
individuals seeking damages for injuries allegedly caused by
certain products containing asbestos. Among other things, with
the assistance of accounting and financial consultants, the
Company conducted an analysis of pending and probable
asbestos-related claims to determine the adequacy of its accrual
for these claims. This analysis consisted of developing per
claim settlement estimates for each category of claim by alleged
disease type based on the Companys historical settlement
experience. These estimates were applied to each of the
Companys pending individual claims. Liability with respect
to mass filings was estimated by determining the number of
individual plaintiffs included in the mass filings likely to
have claims resulting in settlements based on the Companys
historical experience with mass filings. Finally, likely claims
expected to be asserted against the Company over the next
fifteen years were predicted based on public health estimates of
future incidences of certain asbestos-related diseases in the
general U.S. population and per claim settlement estimates
were applied to those estimated claims. Based on this analysis,
and the existence of certain insurance coverage, the Company
believes that its current accruals for
F-31
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
pending and probable asbestos-related litigation are adequate.
However, there is a possibility that resolution of the matters
could result in additional losses in excess of current accruals.
Also, there is a possibility that resolution of certain of the
Companys legal contingencies for which there are no
liabilities recorded could result in a loss. Management is not
able to estimate the amount of such loss, if any. However, in
the opinion of the Company, after consultation with counsel, the
ultimate resolution of all pending matters is not expected to
have a material effect on its financial position, although it is
possible that such resolutions could have a material adverse
impact on results of operations in the period of resolution.
In addition to the foregoing, from time to time the Company is
involved in various other legal and administrative proceedings
that are incidental to its business, including claims relating
to product liability, general negligence, environmental issues,
employment, and other matters. It is not expected that the
ultimate resolution of any of these matters will have a material
adverse impact on the Companys consolidated financial
position or results of operations.
Midfield has issued a financial guarantee in the form of an
irrevocable standby letter of credit for an associated entity in
the amount of $5.1 million which is recorded in the
accompanying balance sheet at its fair value. This letter
expires January 31, 2009 subject to certain renewal
provisions.
F-32
CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 26,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(Note1)
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,761
|
|
|
$
|
10,075
|
|
Receivables, less allowances of $5,426 and $6,352
|
|
|
617,693
|
|
|
|
481,463
|
|
Inventories
|
|
|
724,208
|
|
|
|
666,188
|
|
Other current assets
|
|
|
4,437
|
|
|
|
1,937
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
1,355,099
|
|
|
|
1,159,663
|
|
INVESTMENTS AND OTHER ASSETS
|
|
|
|
|
|
|
|
|
Investments
|
|
|
1,571
|
|
|
|
1,680
|
|
Assets held for sale
|
|
|
36,022
|
|
|
|
37,500
|
|
Debt issuance costs
|
|
|
30,341
|
|
|
|
23,390
|
|
Notes receivable and other assets
|
|
|
3,705
|
|
|
|
4,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,639
|
|
|
|
66,946
|
|
FIXED ASSETS
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
91,396
|
|
|
|
80,120
|
|
PROPERTY HELD UNDER CAPITAL LEASES
|
|
|
1,835
|
|
|
|
1,925
|
|
INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
814,704
|
|
|
|
1,092,379
|
|
Intangible assets
|
|
|
959,603
|
|
|
|
523,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,774,307
|
|
|
|
1,616,377
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,294,276
|
|
|
$
|
2,925,031
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
453,184
|
|
|
$
|
306,509
|
|
Accrued expenses and other liabilities
|
|
|
103,724
|
|
|
|
70,778
|
|
Income taxes payable
|
|
|
10,182
|
|
|
|
11,996
|
|
Deferred revenue
|
|
|
8,589
|
|
|
|
6,552
|
|
Deferred income taxes
|
|
|
76,538
|
|
|
|
80,364
|
|
Term loans due on demand
|
|
|
9,845
|
|
|
|
10,228
|
|
Current portion of long-term obligations
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
6,717
|
|
|
|
9,553
|
|
Capital leases
|
|
|
259
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
669,038
|
|
|
|
496,169
|
|
LONG-TERM OBLIGATIONS
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,268,184
|
|
|
|
848,616
|
|
Payable to shareholders
|
|
|
52,294
|
|
|
|
49,164
|
|
Deferred income taxes
|
|
|
380,512
|
|
|
|
215,487
|
|
Capital leases
|
|
|
3,339
|
|
|
|
3,446
|
|
Other liabilities
|
|
|
1,386
|
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,705,715
|
|
|
|
1,118,128
|
|
MINORITY INTEREST AND AMOUNTS DUE TO FORMER RED MAN SHAREHOLDERS
|
|
|
95,164
|
|
|
|
100,700
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share;
1,000,000 shares authorized issued and outstanding June
2008 311,364.7277, issued and outstanding December
2007 299,891.4604
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,169,589
|
|
|
|
1,154,148
|
|
Retained earnings
|
|
|
(341,763
|
)
|
|
|
56,926
|
|
Other comprehensive (loss), net of deferred income taxes of
$1,200 and $162
|
|
|
(3,467
|
)
|
|
|
(1,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
824,359
|
|
|
|
1,210,034
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,294,276
|
|
|
$
|
2,925,031
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-33
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
|
Six Months
|
|
|
Five Months
|
|
|
One Month
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 26, 2008
|
|
|
June 28, 2007
|
|
|
January 30, 2007
|
|
|
SALES
|
|
$
|
2,196,033
|
|
|
$
|
784,964
|
|
|
$
|
142,549
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
1,803,792
|
|
|
|
635,934
|
|
|
|
114,562
|
|
Selling, general and administrative expenses
|
|
|
200,116
|
|
|
|
80,714
|
|
|
|
14,592
|
|
Depreciation and amortization
|
|
|
5,192
|
|
|
|
1,665
|
|
|
|
344
|
|
Amortization of intangibles
|
|
|
15,623
|
|
|
|
4,624
|
|
|
|
16
|
|
Profit sharing
|
|
|
13,509
|
|
|
|
5,635
|
|
|
|
1,338
|
|
Stock-based compensation
|
|
|
3,319
|
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COSTS AND EXPENSES
|
|
|
2,041,551
|
|
|
|
729,863
|
|
|
|
130,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
154,482
|
|
|
|
55,101
|
|
|
|
11,697
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(34,973
|
)
|
|
|
(24,332
|
)
|
|
|
(131
|
)
|
Minority interests
|
|
|
(123
|
)
|
|
|
|
|
|
|
(356
|
)
|
Other, net
|
|
|
(249
|
)
|
|
|
(822
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,345
|
)
|
|
|
(25,154
|
)
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
119,137
|
|
|
|
29,947
|
|
|
|
11,195
|
|
Income tax expense
|
|
|
43,203
|
|
|
|
12,333
|
|
|
|
4,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
75,934
|
|
|
$
|
17,614
|
|
|
$
|
6,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate
|
|
|
36.26
|
%
|
|
|
41.18
|
%
|
|
|
41.08
|
%
|
Basic earnings per common share
|
|
$
|
245.41
|
|
|
$
|
171.69
|
|
|
$
|
376.70
|
|
Diluted earnings per common share
|
|
$
|
244.92
|
|
|
$
|
171.36
|
|
|
$
|
376.70
|
|
Dividends per common share
|
|
$
|
1,523
|
|
|
$
|
|
|
|
$
|
|
|
See notes to consolidated financial statements
F-34
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
|
Six Months
|
|
|
Five Months
|
|
|
One Month
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 26, 2008
|
|
|
June 28, 2007
|
|
|
January 30, 2007
|
|
|
CASH PROVIDED BY OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
75,934
|
|
|
$
|
17,614
|
|
|
$
|
6,596
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,192
|
|
|
|
1,665
|
|
|
|
344
|
|
Amortization of debt issuance costs
|
|
|
2,285
|
|
|
|
1,571
|
|
|
|
|
|
Stock-based compensation
|
|
|
3,319
|
|
|
|
1,291
|
|
|
|
|
|
Deferred income taxes
|
|
|
(2,482
|
)
|
|
|
(2,065
|
)
|
|
|
|
|
Minority interest
|
|
|
123
|
|
|
|
|
|
|
|
356
|
|
Amortization of intangibles
|
|
|
15,623
|
|
|
|
4,624
|
|
|
|
16
|
|
Change in fair market value of derivatives
|
|
|
413
|
|
|
|
|
|
|
|
|
|
Provision for losses on receivables
|
|
|
1,052
|
|
|
|
175
|
|
|
|
35
|
|
Inventory loss provision
|
|
|
313
|
|
|
|
65
|
|
|
|
13
|
|
Non-operating gains (losses) and other items not providing cash
|
|
|
(273
|
)
|
|
|
82
|
|
|
|
(153
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(138,949
|
)
|
|
|
(28,597
|
)
|
|
|
(1,363
|
)
|
Inventories
|
|
|
(57,634
|
)
|
|
|
(2,843
|
)
|
|
|
6,700
|
|
Income taxes
|
|
|
(1,763
|
)
|
|
|
(2,248
|
)
|
|
|
4,595
|
|
Other current assets
|
|
|
(2,509
|
)
|
|
|
526
|
|
|
|
139
|
|
Accounts payable
|
|
|
146,589
|
|
|
|
6,104
|
|
|
|
(7,665
|
)
|
Accrued expenses and other current liabilities
|
|
|
23,264
|
|
|
|
3,931
|
|
|
|
(2,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATIONS
|
|
|
70,497
|
|
|
|
1,895
|
|
|
|
6,617
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(7,550
|
)
|
|
|
(2,235
|
)
|
|
|
(417
|
)
|
Proceeds from the disposition of property, plant and equipment
|
|
|
1,330
|
|
|
|
39
|
|
|
|
|
|
Acquisition of controlling interest in McJunkin by GSCP
|
|
|
|
|
|
|
(849,053
|
)
|
|
|
|
|
Acquisition of Midway Tristate Corporation
|
|
|
(3
|
)
|
|
|
(83,338
|
)
|
|
|
|
|
Acquisition of Red Man Pipe & Supply
|
|
|
(11,391
|
)
|
|
|
|
|
|
|
|
|
Other investment and notes receivable transactions
|
|
|
1,177
|
|
|
|
1,331
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(16,437
|
)
|
|
|
(933,256
|
)
|
|
|
(158
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term obligations
|
|
|
454,474
|
|
|
|
747,433
|
|
|
|
|
|
Payments on long-term obligations
|
|
|
(31,384
|
)
|
|
|
(4,896
|
)
|
|
|
(8,254
|
)
|
Cash equity contribution in conjunction with acquisition of
controlling interest in McJunkin by GSCP
|
|
|
|
|
|
|
225,653
|
|
|
|
|
|
Cash equity contributions
|
|
|
5,030
|
|
|
|
507
|
|
|
|
|
|
Debt issuance costs paid
|
|
|
(9,257
|
)
|
|
|
(22,837
|
)
|
|
|
|
|
Dividends paid
|
|
|
(474,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
(55,233
|
)
|
|
|
945,860
|
|
|
|
(8,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash
|
|
|
(1,173
|
)
|
|
|
14,499
|
|
|
|
(1,795
|
)
|
Effect of foreign exchange rate on cash
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
Cash beginning of period
|
|
|
10,075
|
|
|
|
1,953
|
|
|
|
3,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH END OF PERIOD
|
|
$
|
8,761
|
|
|
$
|
16,452
|
|
|
$
|
1,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-35
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
McJUNKIN RED MAN HOLDING CORPORATION
June 26, 2008
(Unaudited)
|
|
NOTE 1
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Business Operations:
McJunkin Red Man
Holding Corporation (the Company) is a holding company
co-headquartered in Charleston, West Virginia and Tulsa,
Oklahoma. The Company is a substantially owned subsidiary of PVF
Holdings, LLC. Our wholly owned subsidiary, McJunkin Red Man
Corporation and its subsidiaries (MRM) are national distributors
of pipe, valves, and fittings, with locations in principal
industrial, hydrocarbon producing and refining areas throughout
the United States and Canada. Major customers represent the
natural gas producing, petroleum refining, chemical and other
segments of the raw materials processing and construction
industries. Products are obtained from a broad range of
suppliers.
The Company operates as a single reportable segment, which
represents the Companys business of providing industrial
pipe valves and fittings to various customers through our
distribution operations located throughout North America. The
Company has operations in eight geographic regions, which have
similar economic characteristics, and similar products and
services, types or classes of customers, distribution methods
and similar regulatory environments in each location. The total
consolidated net sales outside of the United States was 11.7%
for the six months ended June 26, 2008, 0.5% for the five
months ended June 28, 2007 and 0.8% for the one month ended
January 30, 2007. The percentage of total consolidated
assets outside of the United States as of June 26, 2008 and
December 31, 2007 was 10.5% and 0.2%, respectively. The
Company has a broad customer base and did not have sales to any
customer in excess of 10% of gross sales for any of the periods
presented.
Basis of Presentation:
PVF Holdings
LLC, (formerly known as McJ Holding LLC) was formed on
November 20, 2006 by affiliates of the Goldman Sachs Group,
Inc. (the Goldman Sachs Funds) and a control group of certain
shareholders of McJunkin Corporation (McJunkin) for the purpose
of acquiring McJunkin on January 31, 2007. In connection
with the acquisition by the Goldman Sachs Funds of a controlling
interest in McJunkin, a new basis of accounting and reporting
was established that reflected the Goldman Sachs Funds
cost of the acquisition. This new accounting basis has been
pushed down to the Companys accounts and is reflected in
the Companys consolidated balance sheet (successor basis)
at January 30, 2007.
In connection with the acquisition, GSCP and existing MRM
shareholders made an aggregate cash equity contribution of
$225.6 million and a noncash equity contribution of
$159.5 million to PVF in exchange for 100% ownership
interests in both the Company and MRM.
Because PVF Holdings LLC and the Company had no operations,
assets or business prior to their acquisition of McJunkin and
through December 31, 2007, MRM is the predecessor of the
Company and PVF Holdings LLC as of this date. On May 22,
2008, MRM borrowed $25 million in revolving loans under its
revolving credit facility and distributed the proceeds of the
loans to the Company. On the same date, the Company borrowed
$450 million in term loans under its term loan facility and
distributed the proceeds of the term loans, together with the
proceeds of the revolving loans, to its stockholders, including
PVF Holdings LLC. PVF Holdings LLC used the proceeds from the
dividend to fund distributions to members of PVF Holdings LLC in
May 2008.
All references to the Predecessor relate to McJunkin
for periods prior to January 31, 2007. All references to
the Successor relate to the Company for periods
subsequent to January 31, 2007. As a result, the
consolidated income statements and statements of cash flows for
the five-month period ended June 28, 2007 consist of the
earnings and cash flows of the Company. The consolidated income
statements and statements of cash flows of the Company for the
month ended January 30, are presented as Predecessor
financial statements for comparison purposes.
F-36
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
Variable Interest Entities (VIE) are those entities in which the
Company, through contractual arrangements, bears the risks of,
and enjoys the rewards normally associated with ownership of the
entities, and therefore, the Company is the primary beneficiary
of these entities. MRM owns 49% of the outstanding equity
interests of Red Man Distributors LLC (RMD), an
Oklahoma limited liability company, formed on November 1,
2007 for the purposes of distributing oil country tubular goods
in North America as a certified minority supplier. MRM is
retained by RMD as an independent contractor to provide general
corporate and administrative services to RMD. MRM is paid an
annual services fee by RMD to provide such services. In
addition, MRM is paid a license fee for the right and license to
use the name Red Man. MRM pays RMD a specified
percentage of RMDs gross monthly revenue for the relevant
month from sales of products by RMD that are sourced from
McJunkin Red Man Corporation. For the six months ended
June 26, 2008, the amounts paid approximated
$0.4 million (service fee), $0.6 million (license fee)
and $3.7 million (sales payment). There were no such
amounts paid in the year ended December 31, 2007. RMD is a
VIE and MRM has determined that it is the primary beneficiary,
therefore the Company has consolidated this entity.
The accompanying unaudited consolidated condensed financial
statements of the Company have been prepared in accordance with
Rule 10-01
of
Regulation S-X
for interim financial statements and do not include all
information and footnotes required by generally accepted
accounting principles for complete annual financial statements.
However, the information furnished herein reflects all normal
recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the results for the interim
periods. The results of operations for the six months ended
June 26, 2008 are not necessarily indicative of the results
that will be realized for the fiscal year ending
December 31, 2008. The consolidated balance sheet as of
December 31, 2007 has been derived from audited financial
statements for the year ended December 31, 2007. These
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2007.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting
period. Actual results may differ from these estimates. The
consolidated financial statements include the accounts of
McJunkin Red Man Holding Corporation and its wholly owned and
majority owned subsidiaries. The residual ownership in the
equity and income of Midfield Supply ULC (Midfield), a 51%
owned, Canada-based subsidiary, is reflected as minority
interest. All significant intercompany transactions have been
eliminated.
There have been no significant changes in our significant
accounting polices during the six months ended June 26,
2008 as compared to the significant accounting policies
described in our audited financial statements for the fiscal
year ending December 31, 2007.
Recent
Accounting Pronouncements:
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities
. SFAS No. 161 amends and expands the
disclosure requirements of SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. It requires
qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value
amounts of gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in
derivative agreements. This statement is effective for financial
statements issued for fiscal
F-37
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
years beginning after November 15, 2008. The Company is
still assessing the impact of this pronouncement.
In April 2008, the FASB issued FSP
FAS 142-3,
Determination of the Useful Life of Intangible Assets
,
(FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible Assets.
The intent of the position is to improve the consistency between
the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the intangible asset. FSP
FAS 142-3
is effective for the fiscal years beginning after
December 15, 2008. The Company is assessing the potential
impact that the adoption of FSP
FAS 142-3
may have on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162,
The
Hierarchy of Generally Accepted Accounting Principles,
(SFAS No. 162). SFAS No. 162 identifies
the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles. This
statement shall be effective 60 days following the
Securities and Exchange Commissions approval of the Public
Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles. The Company does
not believe that implementation of this standard will have a
material impact on its consolidated financial statements.
In June 2008, the FASB ratified Emerging Issues Task Force Issue
No. 08-3,
Accounting for Lessees for Maintenance Deposits Under Lease
Arrangements
,
(EITF 08-3).
EITF 08-3
provides guidance for accounting for nonrefundable maintenance
deposits.
EITF 08-3
is effective for fiscal years beginning after December 15,
2008. The Company does not currently expect the adoption of
EITF 08-3
to have a material impact on its consolidated financial
statements.
|
|
NOTE 2
|
TRANSACTIONS
AND SUBSEQUENT EVENT
|
Acquisition
of Controlling Interest in McJunkin by the Goldman Sachs
Funds
In connection with the acquisition of controlling interest in
McJunkin by the Goldman Sachs Funds, the purchase price paid to
effect the acquisition was allocated to the fair value of
acquired assets and liabilities at January 31, 2007.
Certain members of the Companys executive management team
held equity interests in McJunkin, the Predecessor, prior to
this transaction and continue to hold equity interests in the
Successor. In accordance with the provisions of Emerging Issues
Task Force
No. 88-16,
Basis in Leveraged Buyout Transactions
, the basis of
executive managements interests in the Company, the
Successor, after the acquisition was carried over at the basis
of their interests in the Predecessor prior to the acquisition.
F-38
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
The purchase price was approximately $1,008.5 million. The
sources and uses of funds in connection with the acquisition are
summarized below (in millions):
|
|
|
|
|
Sources
|
|
|
|
|
Asset-Based Revolving Credit Facility
|
|
$
|
75.0
|
|
Term Loan Facility
|
|
|
575.0
|
|
Equity contribution cash
|
|
|
225.6
|
|
Equity contribution non-cash
|
|
|
159.5
|
|
|
|
|
|
|
Total sources
|
|
$
|
1,035.1
|
|
|
|
|
|
|
Uses
|
|
|
|
|
Consideration paid to stockholders (including non-cash rollover
by McJunkin and McApple stockholders of $159.5 million)
|
|
$
|
983.4
|
|
Transaction costs
|
|
|
16.5
|
|
Debt issuance costs
|
|
|
22.8
|
|
General corporate purposes
|
|
|
7.6
|
|
Repayment of existing debt
|
|
|
4.8
|
|
|
|
|
|
|
Total uses
|
|
$
|
1,035.1
|
|
|
|
|
|
|
In connection with the purchase price allocation, the fair
values of long-lived and intangible assets were determined based
upon assumptions related to future cash flows, discount rates
and asset lives utilizing currently available information. As of
January 31, 2007, the Company recorded adjustments to
reflect property and equipment, inventory, intangible assets for
its tradename, customer-related intangibles, and backlog at
their estimated fair values. The Company also acquired the
minority interest in McJunkin Appalachian Oilfield Supply
Company (McJunkin Appalachian), which became wholly owned
concurrent with the acquisition by the Goldman Sachs Funds.
F-39
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
The purchase price has been allocated as follows (in millions):
|
|
|
|
|
|
|
|
|
Cash consideration:
|
|
|
|
|
|
|
|
|
Paid to shareholders
|
|
|
|
|
|
$
|
823.9
|
|
Transaction costs paid at closing
|
|
|
|
|
|
|
16.5
|
|
Transaction costs paid outside of closing
|
|
|
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
849.0
|
|
Noncash consideration
|
|
|
|
|
|
|
159.5
|
|
|
|
|
|
|
|
|
|
|
Total consideration
|
|
|
|
|
|
|
1,008.5
|
|
Net assets acquired at historical cost
|
|
|
|
|
|
|
245.2
|
|
Adjustments to state acquired assets at fair value:
|
|
|
|
|
|
|
|
|
1) Increase carrying value of property and equipment to fair
value
|
|
$
|
16.6
|
|
|
|
|
|
2) Increase carrying value of inventory to fair value
|
|
|
68.2
|
|
|
|
|
|
3) Write-off historical goodwill and tradename
|
|
|
(6.6
|
)
|
|
|
|
|
4) Record intangible assets acquired
|
|
|
|
|
|
|
|
|
Customer-related intangibles
|
|
|
356.0
|
|
|
|
|
|
Sales order backlog
|
|
|
1.6
|
|
|
|
|
|
Non-compete agreements
|
|
|
1.0
|
|
|
|
|
|
Tradename
|
|
|
155.8
|
|
|
|
|
|
5) Eliminate McApple minority interest
|
|
|
16.0
|
|
|
|
|
|
6) Record liability to shareholders related to non-core assets
|
|
|
(26.2
|
)
|
|
|
|
|
7) Record fair value adjustments to various other assets and
liabilities
|
|
|
0.2
|
|
|
|
|
|
8) Tax impact of valuation adjustments
|
|
|
(213.8
|
)
|
|
|
368.8
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired at fair value
|
|
|
|
|
|
|
614.0
|
|
Carryover basis adjustment
|
|
|
|
|
|
|
(11.6
|
)
|
|
|
|
|
|
|
|
|
|
Excess purchase price recorded as goodwill
|
|
|
|
|
|
$
|
382.9
|
|
|
|
|
|
|
|
|
|
|
The tradename has an indefinite life and is not subject to
amortization. Tradename and goodwill are reviewed at least
annually for impairment.
Transaction costs paid at closing included $10.6 million
paid to an affiliate of the Goldman Sachs Funds as reimbursement
of their costs associated with due diligence and advisory
services.
Acquisition
of Midway-Tristate Corporation
On April 30, 2007, MRM, through its wholly owned subsidiary
McJunkin Appalachian , acquired a 100% interest in
Midway-Tristate
Corporation (Midway). Midway is engaged primarily in the
distribution of pipe, equipment and supplies to the oil and gas
and utility industries in Michigan, West Virginia, Ohio,
Pennsylvania, Utah, Wyoming, and Colorado. The acquisition of
Midway significantly increased McApples presence
particularly in the strategic Rocky Mountain region.
F-40
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
The purchase price was approximately $83.3 million and has
been allocated as follows (in millions):
|
|
|
|
|
Assets acquired
|
|
|
|
|
Accounts receivable
|
|
$
|
19.5
|
|
Inventory
|
|
|
30.8
|
|
Fixed assets
|
|
|
3.4
|
|
Other assets
|
|
|
0.1
|
|
Customer-related intangibles
|
|
|
20.1
|
|
Goodwill
|
|
|
30.6
|
|
|
|
|
|
|
|
|
|
104.5
|
|
Liabilities assumed
|
|
|
|
|
Accounts payable
|
|
|
11.5
|
|
Accrued expenses
|
|
|
2.1
|
|
Income taxes payable
|
|
|
0.2
|
|
Deferred income taxes
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
21.2
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
83.3
|
|
|
|
|
|
|
Goodwill associated with this transaction is not deductible for
tax purposes, nor is any amortization associated with
customer-related intangibles which have a useful life of
20 years.
Acquisition
of Red Man Pipe & Supply Co.
On October 31, 2007, MRM, through its wholly owned
subsidiary West Oklahoma PVF Company, acquired a 100% interest
in Red Man Pipe & Supply Co. (Red Man). Red Man is a
distributor of tubular goods and an operator of service and
supply centers which distribute maintenance, repair and
operating products utilized primarily in the energy industry as
well as industrial products consisting primarily of line pipe,
valves, fittings and flanges. Red Man distributes products and
tubular goods through service and supply centers and sales
locations strategically located close to major hydrocarbon
producing and refining areas in the United States and Canada.
F-41
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
The purchase price was approximately $991.0 million
(including common units issued for Red Man shares of
$111.1 million) and has preliminarily been allocated as
follows (in millions):
|
|
|
|
|
Assets acquired
|
|
|
|
|
Cash
|
|
$
|
13.9
|
|
Accounts receivable
|
|
|
335.2
|
|
Notes and other receivables
|
|
|
5.2
|
|
Inventory
|
|
|
386.3
|
|
Fixed assets
|
|
|
50.6
|
|
Other assets
|
|
|
0.3
|
|
Customer-related intangibles
|
|
|
260.2
|
|
Tradename
|
|
|
188.9
|
|
Sales order backlog
|
|
|
2.0
|
|
Goodwill
|
|
|
407.9
|
|
|
|
|
|
|
|
|
|
1,650.5
|
|
Liabilities assumed
|
|
|
|
|
Accounts payable
|
|
|
209.5
|
|
Accrued expenses
|
|
|
45.6
|
|
Income taxes payable
|
|
|
3.1
|
|
Deferred income taxes
|
|
|
225.9
|
|
Debt
|
|
|
71.6
|
|
Minority interest
|
|
|
100.6
|
|
Other liabilities
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
659.5
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
991.0
|
|
|
|
|
|
|
Transaction costs capitalized in connection with the acquisition
of Red Man Pipe & Supply Co. totaled
$17.3 million and included $12.0 million paid to an
affiliate of GSCP as reimbursement of their costs associated
with due diligence and advisory services.
As part of the Red Man transaction, MRM indirectly acquired a
call option to buy out the 49% minority interest of Midfield for
approximately $100.0 million. The call option may be
exercised between June 15, 2008 and December 15, 2008.
On July 31, 2008 MRM exercised this call right.
Approximately $68 million of the purchase price was paid in
cash with proceeds from MRMs Asset Based Revolving Credit
Facility while the remainder was paid through the issuance of
PVF stock. In addition to the $100.0 million purchase
price, the company repaid $29 million of loans to the
selling shareholders of Midfield Supply.
Pro Forma
Financial Information
The following unaudited pro forma results of operations assume
that each of the transactions described above occurred on
January 1, 2007. This unaudited pro forma information
should not be
F-42
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
relied upon as necessarily being indicative of the historical
results that would have been obtained if the transactions had
actually occurred on that date nor the results that may be
obtained in the future.
|
|
|
|
|
|
|
Six Months Ended,
|
|
|
|
June 28,
|
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Pro forma sales
|
|
$
|
1,909.2
|
|
Pro forma net income
|
|
$
|
62.6
|
|
|
|
NOTE 3
|
GOODWILL AND
INTANGIBLE ASSETS
|
The following tables present the Companys goodwill and
other intangible assets at June 26, 2008 and
December 31, 2007 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
Tradename
|
|
|
|
|
|
|
Order
|
|
|
Customer
|
|
|
Non Compete
|
|
|
(With
|
|
|
|
|
|
|
Backlog
|
|
|
Base
|
|
|
Agreements
|
|
|
Indefinite
|
|
|
|
|
|
|
(1 Year)
|
|
|
(30.5 Years)
|
|
|
(5 Years)
|
|
|
Life)
|
|
|
Goodwill
|
|
|
Recorded in connection with the McJunkin acquisition
|
|
$
|
1,601
|
|
|
$
|
356,036
|
|
|
$
|
970
|
|
|
$
|
155,762
|
|
|
$
|
382,908
|
|
Recorded in connection with the Midway acquisition (preliminary)
|
|
|
|
|
|
|
20,118
|
|
|
|
|
|
|
|
|
|
|
|
30,802
|
|
Recorded in connection with the Red Man acquisition (preliminary)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681,906
|
|
Amortization
|
|
|
(1,467
|
)
|
|
|
(8,844
|
)
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
Impact of foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
134
|
|
|
$
|
367,310
|
|
|
$
|
792
|
|
|
$
|
155,762
|
|
|
$
|
1,092,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to purchase price allocation in connection with the
Red Man acquisition
|
|
|
2,048
|
|
|
|
260,316
|
|
|
|
|
|
|
|
188,864
|
|
|
|
(273,978
|
)
|
Adjustments to purchase price allocation in connection with the
Midway acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(170
|
)
|
Amortization
|
|
|
(1,321
|
)
|
|
|
(14,204
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
Impact of foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 26, 2008
|
|
$
|
861
|
|
|
$
|
613,422
|
|
|
$
|
694
|
|
|
$
|
344,626
|
|
|
$
|
814,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
Amortization
of Intangible Assets
The weighted average amortization period for each type of
intangible is noted in the table above. The weighted average
amortization period for all amortizable intangibles is
30.3 years. The sales order backlog is amortized over one
year, the non-compete agreements are amortized over the life of
the agreements (five years) and the customer base is amortized
based upon estimated attrition rates. Total amortization of all
acquisition-related intangible assets for each of the years
ending December 31, 2008 to 2012, is currently estimated as
follows (in millions):
|
|
|
|
|
2008
|
|
$
|
27.9
|
|
2009
|
|
|
26.1
|
|
2010
|
|
|
26.1
|
|
2011
|
|
|
26.1
|
|
2012
|
|
|
26.1
|
|
If inventories were reported at values approximating current
costs, as would have resulted from using the
first-in,
first-out method, they would have been $65.9 million and
$10.3 million higher at June 26, 2008 and
December 31, 2007, respectively. In addition, after giving
pro forma effect to profit sharing and income taxes, net income
would have been higher by $34.9 million for the six months
ended June 26, 2008 and $1.8 million for the five
months ended June 28, 2007, respectively. No such amounts
were recorded for the one month ended January 30, 2007. For
the six months ended June 26, 2008, the Company experienced
a liquidation of certain LIFO inventories resulting in income of
$15.1 million. For the five months ended June 28,
2007, the Company experienced a liquidation of certain LIFO
inventories resulting in income of $1.6 million. The
liquidation for the one month ended January 30, 2007 was
immaterial.
The Companys inventory is composed of finished goods.
There are no general and administrative costs charged to
inventory.
The significant components of our long-term debt are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 26,
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
Asset-based revolving credit facility
|
|
$
|
204,394
|
|
|
|
$
|
234,146
|
|
Term loan facility
|
|
|
567,813
|
|
|
|
|
569,250
|
|
Junior Term loan facility
|
|
|
450,000
|
|
|
|
|
|
|
Midfield revolving credit facility
|
|
|
51,727
|
|
|
|
|
50,970
|
|
Midfield term loan facility
|
|
|
9,845
|
|
|
|
|
10,228
|
|
Midfield notes payable
|
|
|
967
|
|
|
|
|
3,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,284,746
|
|
|
|
|
868,397
|
|
Less current portion
|
|
|
16,562
|
|
|
|
|
19,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,268,184
|
|
|
|
$
|
848,616
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Based Revolving Credit
Facility:
On January 31, 2007, in
connection with the acquisition of McJunkin by the Goldman Sachs
Funds, MRM entered into a credit agreement and related security
and other agreements for a secured Asset-Based Revolving Credit
Facility with The
F-44
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
CIT Group/Business Credit, Inc. as administrative agent and
collateral agent. The Asset-Based Revolving Credit Facility
provided financing of up to $300.0 million, subject to a
borrowing base equal to at any time the lesser of 85% of
eligible accounts receivable and 85% of net orderly liquidation
value of the eligible inventory, less certain reserves. The
Asset-Based Revolving Credit Facility included borrowing
capacity available for letters of credit and for borrowings on
same-day
notice. At the closing of the acquisition, MRM utilized
$75.0 million of the Asset-Based Revolving Credit Facility
for loans and approximately $3.1 million for letters of
credit.
On October 31, 2007, and concurrent with the close of the
Red Man acquisition, MRM refinanced the initial Asset-Based
Revolving Credit Facility with a new $650.0 million
facility with terms substantially the same as those described
above. At that date, MRM utilized $322.5 million of the new
Asset-Based Revolving Credit Facility to fund a portion of the
Red Man acquisition in addition to refinancing amounts
previously outstanding. In June 2008, the facility limit
increased to $700.0 million.
As of June 26, 2008 and December 31, 2007,
$204.4 million and $234.1 million, respectively, in
borrowings were outstanding under the Asset-Based Revolving
Credit Facility. As of June 26, 2008, MRM had
$490.8 million of unused borrowing availability based on a
borrowing base of $700 million and after giving effect to
$4.8 million used for letters of credit.
The Asset-Based Revolving Credit Facility provides that MRM has
the right at any time to request incremental facilities
commitments, but the lenders are under no obligation to provide
any such additional commitments. The Asset-Based Revolving
Credit Facility permits incremental facilities (together with
any new commitments under the Term Loan Facility discussed
below) up to (1) $150.0 million generally available,
(2) and additional amounts available so long as the secured
leverage ratio as specified in the Asset-Based Revolving Credit
Facility is satisfied. If MRM were to request any such
additional commitments and the existing lenders or new lenders
were to agree to provide such commitments, the Asset-Based
Revolving Credit Facility size could be increased as described
above, but MRMs ability to borrow would still be limited
by the amount of the borrowing base.
Borrowings under the Asset-Based Revolving Credit Facility bear
interest at a rate per annum equal to, at MRMs option,
either (a) a base rate determined by reference to the
greater of (1) the prime rate as quoted in
The Wall
Street Journal
and (2) the federal funds effective rate
plus 1/2 of 1% or (b) a LIBOR rate, subject to certain
adjustments, in each case plus an applicable margin. The
applicable margin in the initial asset revolving credit facility
was 0.75% with respect to base rate borrowings and 1.75% with
respect to LIBOR borrowings. As part of the refinancing, these
were revised to 0.50% and 1.50%, respectively. The applicable
margin is subject to adjustment downward based on the MRMs
leverage ratio. In addition, MRM is required to pay a commitment
fee of 0.375% per annum in respect of the unutilized
commitments. This rate is also subject to adjustment downward
based upon the MRMs leverage. MRM must also pay customary
letter of credit fees and agency fees. The weighted average
interest rate on the revolving loans was 4.21% and 6.53% at
June 26, 2008 and December 31, 2007, respectively.
If at any time the aggregate amount of outstanding loans,
unreimbursed letter of credit drawings and undrawn letters of
credit under the Asset-Based Revolving Credit Facility exceeds
the lesser of (i) the total revolving credit commitments
and (ii) the borrowing base, MRM will be required to repay
outstanding loans or cash collateralize letters of credit in an
aggregate amount equal to such excess, with no reduction of the
commitment amount. If the amount available under the Asset-Based
Revolving Credit Facility is less than 7% of total revolving
credit commitments, or an event of default pursuant to certain
provisions of the credit agreement has occurred, MRM would then
be required to deposit daily in a collection account managed by
the agent under the Asset-Based Revolving Credit
F-45
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
Facility. MRM may voluntarily reduce the unutilized portion of
the commitment amount and repay outstanding loans at any time
without premium or penalty other than customary
breakage costs with respect to LIBOR loans. There is
no scheduled amortization under the Asset-Based Revolving Credit
Facility; the principal amount of the loans outstanding is due
and payable in full on October 31, 2013.
All obligations under the Asset-Based Revolving Credit Facility
are guaranteed by MRMs existing and future wholly owned
domestic subsidiaries. All obligations under MRMs
Asset-Based Revolving Credit Facility, and the guarantees of
those obligations, are secured, subject to certain significant
exceptions, by substantially all of the assets of MRM and the
subsidiaries that have guaranteed the Asset-Based Revolving
Credit Facility, including:
|
|
|
|
|
A first-priority security interest in personal property
consisting of inventory and accounts receivable;
|
|
|
|
A second-priority pledge of certain of the capital stock held by
MRM or any subsidiary guarantor; and
|
|
|
|
A second-priority security interest in, and mortgages on,
substantially all other tangible and intangible assets of MRM
and each subsidiary guarantor.
|
The Asset-Based Revolving Credit Facility contains a number of
covenants that, among other things and subject to certain
significant exceptions, restrict MRMs ability and the
ability of its subsidiaries to:
|
|
|
|
|
Incur additional indebtedness;
|
|
|
|
Pay dividends on MRMs capital stock or the capital stock
of MRMs direct or indirect parent;
|
|
|
|
Make investments, loans, advances or acquisitions;
|
|
|
|
Sell assets, including capital stock of MRMs subsidiaries;
|
|
|
|
Consolidate or merge with another entity;
|
|
|
|
Create liens;
|
|
|
|
Pay, redeem, or amend the terms of subordinated indebtedness;
|
|
|
|
Enter into certain sale-leaseback transactions;
|
|
|
|
Fundamentally or substantively alter the character of the
business conducted by MRM and its subsidiaries; and
|
|
|
|
Enter into agreements that limit (1) the ability of
non-guarantors to pay dividends to MRM or any guarantor or
(2) the ability of MRM or any guarantor to pledge its
assets to secure its obligations under the Asset-Based Revolving
Credit Facility.
|
In addition to other customary exceptions, the covenants
limiting dividends and other restricted payments and prepayments
or redemptions of subordinated indebtedness generally permit the
restricted actions in additional limited amounts, subject to the
satisfaction of certain conditions, principally that MRM must
have at least $50.0 million of pro forma excess
availability under the
Asset-Based
Revolving Credit Facility.
Although the credit agreement governing the Asset-Based
Revolving Credit Facility does not require MRM to comply with
any financial ratio maintenance covenants, if less than 7% of
the then outstanding credit commitments were available to be
borrowed under the Asset-Based Revolving Credit Facility at any
time, MRM would not be permitted to borrow any additional
amounts unless its
F-46
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
pro forma ratio of consolidated EBITDA to consolidated Fixed
Charges (as such terms are defined in the credit agreement) were
at least 1.0 to 1.0. The credit agreement also contains
customary affirmative covenants and events of default.
Term Loan Facility:
On January 31,
2007, in connection with the acquisition of McJunkin by GSCP,
MRM entered into a credit agreement and related security and
other agreements for a $575.0 million Term Loan Facility
with Lehman Commercial Paper as administrative agent and
collateral agent. The full amount of the Term Loan Facility was
borrowed on January 31, 2007.
On October 31, 2007, and concurrent with the close of the
Red Man acquisition, the Term Loan Facility was amended to
permit for the refinancing of the Asset-Based Revolving Credit
Facility, as described above, in addition to revising certain
provisions of the agreement as discussed in more detail below.
These borrowings bear interest at a rate per annum equal to, at
MRMs option, either (a) the greater of the prime rate
and the federal funds rate effective rate plus 0.50%, plus in
either case 2.25%; or (b) LIBOR plus 3.25%. On
June 26, 2008 and December 31, 2007,
$567.8 million and $569.3 million, respectively, were
outstanding under the Term Loan. The weighted average interest
rate on the term loan was 6.13% and 8.08% at June 26, 2008
and December 31, 2007, respectively.
The Term Loan Facility requires MRM to prepay outstanding term
loans with 50% (which percentage will be reduced to 25% if
MRMs total leverage ratio is less than a specified ratio
and will be reduced to 0% if MRMs total leverage ratio is
less than a specified ratio) of its annual excess cash flow (as
defined in the credit agreement). For 2008 and 2007, MRM was not
required to prepay any outstanding term loans pursuant to the
annual excess cash flow requirements.
MRM may voluntarily prepay outstanding loans under the Term Loan
Facility at any time without premium or penalty other than
customary breakage costs with respect to LIBOR
loans. The Term Loan Facility amortizes at a rate of 1.00% per
year with the balance due at January 31, 2014.
All obligations under the Term Loan Facility are unconditionally
guaranteed by MRM and each wholly owned domestic subsidiary of
MRM. All obligations under the Term Loan Facility, and the
guarantees of those obligations, are secured, subject to certain
significant exceptions, by substantially all of the assets of
MRM and the subsidiaries that have guaranteed the Term Loan
Facility, including:
|
|
|
|
|
A second-priority security interest in personal property
consisting of inventory and accounts receivable;
|
|
|
|
A first-priority pledge of certain of the capital stock held by
MRM or any subsidiary guarantor; and
|
|
|
|
A first-priority security interest in, and mortgages on,
substantially all other tangible and intangible assets of the
Company and each subsidiary guarantor.
|
The Term Loan Facility contains a number of negative covenants
that are substantially similar to those governing the
Asset-Based Revolving Credit Facility. The credit agreement also
contains customary affirmative covenants and events of default.
Junior Term Loan Facility:
On
May 22, 2008, McJunkin Red Man Holding Corporation, as the
borrower, entered into a $450 Million Term Loan Credit Agreement
(the Junior Term Loan Facility). The proceeds from
the Junior Term Loan Facility, along with $25 million in
proceeds from revolving loans drawn under the Revolving Credit
Facility, were used to fund a dividend to McJunkin Red Man
Holding Corporations stockholders, including PVF Holdings
LLC. PVF Holdings LLC distributed the proceeds it received from
the dividend to its members, including the Goldman Sachs Funds
and
F-47
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
certain of the Companys directors and members of its
management. The term loans under the Junior Term Loan Facility
are not subject to amortization and the principal of such loans
must be repaid on January 31, 2014.
The term loans under the Junior Term Loan Facility bear interest
at a rate per annum equal to, at the borrowers option,
either (i) the greater of the prime rate and the federal
funds effective rate plus 0.50%, plus in either case 2.25%, or
(ii) LIBOR multiplied by the statutory reserve rate plus
3.25%. On June 26, 2008, $450.0 million was
outstanding under the Junior Term Loan Facility and the interest
rate on these loans was 5.73%.
We may voluntarily prepay term loans under the Junior Term Loan
Facility in whole or in part at our option, without premium or
penalty. After the payment in full of the term loans under the
Term Loan Facility, we will be required to prepay outstanding
term loans under the Junior Term Loan Facility with 100% of the
net cash proceeds of:
|
|
|
|
|
a disposition of any of our or our restricted subsidiaries
business units, assets or other property not in the ordinary
course of business, subject to certain exceptions for permitted
asset sales;
|
|
|
|
a casualty event with respect to collateral for which we or any
of our restricted subsidiaries receives insurance proceeds, or
proceeds of a condemnation award or other compensation;
|
|
|
|
the issuance or incurrence by us or any of our restricted
subsidiaries of indebtedness, subject to certain
exceptions; and
|
|
|
|
any sale-leaseback transaction permitted under the Junior Term
Loan Facility.
|
Also, after the payment in full of the term loans under the Term
Loan Facility, we will be required to prepay the outstanding
term loans under the Junior Term Loan Facility. We must also
prepay the principal amount of the term loans under the Junior
Term Loan Facility with 50% of the cash proceeds received by us
from a Qualified IPO, net of underwriting discounts
and commissions and other related reasonable costs and expenses.
A Qualified IPO is defined as a bona fide
underwritten sale to the public of our common stock or the
common stock of any of our direct or indirect subsidiaries or
our direct or indirect parent companies pursuant to a
registration statement that is declared effective by the SEC or
the equivalent offering on a private exchange or platform.
The Junior Term Loan Facility contains a number of negative
covenants that are substantially similar to those governing the
Asset-Based Revolving Credit Facility. The credit agreement also
contains customary affirmative covenants and events of default.
Midfield Revolving Credit
Facility:
Midfield, the Companys
Canadian subsidiary, has a Canadian dollar revolving credit
facility administered by Bank of America. This facility has a
maximum limit of CAD $150 million (US $148.26 million
as of June 26, 2008) bearing interest at Canadian prime
rate plus a margin of up to 0.25%. The revolver is secured by
substantially all of Midfields personal property assets
including accounts receivable, chattel paper, bank accounts,
general intangibles, inventory, investment property, cash and
insurance proceeds. The balance of the revolver is due at its
maturity date, November 2, 2010.
Midfield Term Loan Facility:
Midfield
has a term loan facility that is due on demand. This facility
bears interest at Canadian prime rate plus a margin of up to
0.5%. The term loan facility is secured by substantially all of
Midfields real property and equipment.
Midfield Notes Payable:
Midfield has
two notes payable pursuant to holdback provisions from recent
acquisitions. These amounts, totaling $1.0 million and
$3.8 million at June 26, 2008 and
F-48
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
December 31, 2007, respectively, are owed to individuals
who became and continue to be shareholders of Midfield supply as
a result of these transactions. These notes were paid in August
2008.
Maturities of Long-Term Debt:
At
June 26, 2008, annual maturities of long-term debt during
the next five fiscal years and thereafter are as follows (in
millions):
|
|
|
|
|
2008
|
|
$
|
16.6
|
|
2009
|
|
|
5.8
|
|
2010
|
|
|
56.8
|
|
2011
|
|
|
5.8
|
|
2012
|
|
|
5.8
|
|
Thereafter
|
|
|
1,194.0
|
|
The above table does not reflect future excess cash flow
prepayments, if any, that may be required under the Term Loan
Facility.
Interest Rate Swaps:
The Company uses
derivative financial instruments to help manage its interest
rate risk exposure. On December 3, 2007, MRM entered into a
floating to fixed interest rate swap agreement, effective
December 31, 2007, for a notional amount of
$700.0 million to limit its exposure to interest rate
increases related to a portion of its floating rate
indebtedness. The interest rate swap agreement terminates after
three years. At June 26, 2008 and December 31, 2007,
the fair value of MRMs interest rate swap agreement was a
loss of approximately $3.2 million and $0.4 million,
respectively, which amount is included in accrued liabilities.
As of the effective date, MRM designated the interest rate swap
as a cash flow hedge.
For cash flow hedges, the effective portion of the gain or loss
on the derivative hedging instrument is reported in other
comprehensive income, while the ineffective portion is recorded
in current earnings as other income or other expense. At
June 26, 2008 and December 31, 2007, $1.6 million
and $0.2 million, respectively, of unrecognized losses, net
of tax, on the interest rate swap agreement is included in other
comprehensive income. During the six months ended June 26,
2008, the Company recognized a hedge ineffectiveness loss of
$0.4 million on the consolidated statements of income.
There was no hedge ineffectiveness at December 31, 2007.
As a result of the swap agreement, MRMs effective fixed
interest rates as to the $700.0 million in floating rate
indebtedness will be 4.868% for associated indebtedness on the
Asset-Based Revolving Credit Facility and 7.118% for associated
indebtedness on the Term Loan Facility, per quarter through 2010
and result in an average fixed rate of 6.672%.
Management evaluates the estimated annual effective income tax
rate for interim periods based on current and forecasted
business levels and activities, including enacted tax laws.
Items unrelated to current year ordinary income are recognized
entirely in the period identified as a discrete item of tax. The
interim period income tax provisions are comprised of tax on
ordinary income at the most recent estimated annual effective
tax rate, adjusted for the effect of discrete items.
The effective tax rates were 36.26% for the six months ended
June 26, 2008, 41.18% for the five months ended
June 28, 2007 and 41.08% for the one month ended
January 30, 2007. These rates differ from the federal
statutory rate of 35% principally as a result of state and
foreign income taxes. The rate for the six months ended
June 26, 2008 is lower than the rates for the five months
ended June 28, 2007 and the one month ended
January 30, 2007 primarily due to lower state taxes.
F-49
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
During the interim period, there were no material changes to the
amount of previously disclosed unrecognized tax benefits.
The Company is involved in various legal proceedings and claims,
both as a plaintiff and a defendant, which arise in the ordinary
course of business. Included in these legal proceedings are
cases where the Company has been named as a defendant in
lawsuits brought against a large number of entities by
individuals seeking damages for injuries allegedly caused by
certain products containing asbestos. Among other things, with
the assistance of accounting and financial consultants, the
Company conducted an analysis of pending and probable
asbestos-related
claims to determine the adequacy of its accrual for these
claims. This analysis consisted of developing per claim
settlement estimates for each category of claim by alleged
disease type based on the Companys historical settlement
experience. These estimates were applied to each of the
Companys pending individual claims. Liability with respect
to mass filings was estimated by determining the number of
individual plaintiffs included in the mass filings likely to
have claims resulting in settlements based on the Companys
historical experience with mass filings. Finally, likely claims
expected to be asserted against the Company over the next
fifteen years were predicted based on public health estimates of
future incidences of asbestos-related diseases in the general
U.S. population and per claim settlement estimates were
applied to those estimated claims. Based on this analysis and
the existence of certain insurance coverage, the Company
believes that its current accruals for pending and probable
asbestos-related litigation are adequate. However, there is a
possibility that resolution of the matters could result in
additional losses in excess of current accruals. Also, there is
a possibility that resolution of certain of the Companys
legal contingencies for which there are no liabilities recorded
could result in a loss. Management is not able to estimate the
amount of such loss, if any. However, in the opinion of the
Company, after consultation with counsel, the ultimate
resolution of all pending matters is not expected to have a
material effect on its financial position, although it is
possible that such resolutions could have a material adverse
impact on the Companys results of operations.
In addition to the foregoing, from time to time the Company is
involved in various other legal and administrative proceedings
that are incidental to its business, including claims relating
to product liability, general negligence, environmental issues,
employment, and other matters. It is not expected that the
ultimate resolution of any of these matters will have a material
adverse impact on the Companys consolidated financial
position or results of operations.
Midfield has issued a financial guarantee in the form of an
irrevocable standby letter of credit for an associated entity in
the amount of $4.9 million which is recorded in the
accompanying balance sheet at its fair value. This letter
expires January 31, 2009 subject to certain renewal
provisions.
|
|
NOTE 8
|
FAIR VALUE
MEASUREMENTS
|
On January 1, 2008, the Company adopted Statement of
Financial Accounting Standard No. 157,
Fair Value
Measurements
(SFAS No. 157), which clarifies the
definition of fair value, establishes a framework for measuring
fair value under accounting principles generally accepted in the
United States, and enhances disclosures about fair value
measurements. In accordance with Financial Accounting Standards
Board Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, the
Company will delay application of SFAS No. 157 for
non-financial assets and non-financial liabilities until
January 1, 2009.
F-50
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
SFAS No. 157 clarified the definition of fair value as
the price that would be received to sell an asset or paid to
transfer a liability (exit price) in an orderly transaction
between market participants at the measurement date.
SFAS 157 establishes a fair value hierarchy for valuation
inputs that gives the highest priority to quoted prices in
active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The fair value hierarchy
established by SFAS No. 157 is as follows:
Level 1:
Quoted prices
(unadjusted) in active markets for identical assets or
liabilities that the entity has the ability to access at the
measurement date.
Level 2:
Significant observable
inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
or indirectly, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, and
other inputs that are observable or can be corroborated by
observable market data.
Level 3:
Significant unobservable
inputs for the asset or liability. Unobservable inputs should
reflect a companys own assumptions about the assumptions
that market participants would use in pricing an asset or
liability (including all assumptions about risk).
The Company used the following methods and significant
assumptions to estimate fair value for assets and liabilities
recorded at fair value.
Assets Held for Sale.
Included in
assets held for sale are certain investments held for sale that
are reported at fair value utilizing Level 1 inputs. The
fair value of these investments held for sale is determined by
obtaining quoted prices on nationally recognized securities
exchanges.
Derivatives.
Derivatives are reported
at fair value utilizing Level 2 inputs. The Company obtains
dealer quotations to value its interest rate swaps.
The following table presents assets and liabilities measured at
fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2008
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Held for Sale (Investments)
|
|
$
|
33,595
|
|
|
$
|
33,595
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (Interest Rate Swaps)
|
|
$
|
3,248
|
|
|
$
|
|
|
|
$
|
3,248
|
|
|
$
|
|
|
Effective January 1, 2008, the Company adopted the
provisions of SFAS No. 159,
The Fair Value Option
for Financial Assets and Financial Liabilities
Including an amendment of FASB Statement No. 115
(SFAS No. 159). SFAS No. 159 permits
entities to choose to measure many financial instruments and
certain other items at fair value at specified election dates.
The Company has not elected to account for any of its assets or
liabilities at fair value and therefore adoption of
SFAS No. 159 on January 1, 2008 did not effect
its financial statements.
F-51
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
|
|
NOTE 9
|
COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
|
Six Months Ended
|
|
|
Five Months Ended
|
|
|
One Month Ended
|
|
|
|
June 26,
|
|
|
June 28,
|
|
|
January 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
Net income
|
|
$
|
75,934
|
|
|
$
|
17,614
|
|
|
$
|
6,596
|
|
Changes in accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale, net of tax
|
|
|
|
|
|
|
|
|
|
|
(3,958
|
)
|
Derivative valuation adjustment, net of tax
|
|
|
(1,386
|
)
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of tax
|
|
|
(1,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
73,507
|
|
|
$
|
17,614
|
|
|
$
|
2,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10
|
STOCK-BASED
COMPENSATION
|
Restricted Stock and Stock Option
Plans:
Effective March 27, 2007, the
Companys Board of Directors approved the formation of the
2007 Restricted Stock Plan and the 2007 Stock Option Plan. The
purpose of these plans is to aid MRM in recruiting and retaining
key employees, directors and consultants of outstanding ability
and to motivate such key employees, directors and consultants to
exert their best efforts on behalf of the Company by providing
incentives in the form of restricted stock and stock options.
The Company expects that it will benefit from the added interest
which such key employees, directors and consultants will have in
the welfare of the Company as a result of their proprietary
interest in the Companys success.
Under the terms of the stock option plan, options may not be
granted at prices less than their fair market value on the date
of the grant, nor for a term exceeding 10 years. Vesting
occurs in
one-third
increments on the third, fourth, and fifth anniversaries of the
date specified in the employees respective option
agreements. The Company expenses the fair value of the stock
option grants on a straight-line basis over the vesting period.
A Black-Scholes option pricing model was used to estimate the
fair value of the stock options granted in 2007 and 2008. For
purposes of measuring compensation, the Company relies on a
calculated value that requires certain assumptions including
volatility based on the appropriate industry sector. Following
are the weighted average assumptions used to estimate the fair
values of options:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Risk-free interest rate
|
|
|
3.19%
|
|
|
|
4.10%
|
|
Dividend yield
|
|
|
0.00%
|
|
|
|
0.00%
|
|
Expected volatility
|
|
|
22.07%
|
|
|
|
22.07%
|
|
Expected lives
|
|
|
6.2 years
|
|
|
|
6.2 years
|
|
F-52
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
A summary of the status of stock option grants under the stock
option plan as of June 26, 2008, and changes during the six
months ended on that date is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Outstanding at January 1, 2008
|
|
|
3,533.46
|
|
|
$
|
2,411.17
|
|
Granted
|
|
|
394.61
|
|
|
|
4,348.19
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(128.37
|
)
|
|
|
(2,411.17
|
)
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 26, 2008
|
|
|
3,799.70
|
|
|
$
|
2,612.34
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 26, 2008
|
|
|
|
|
|
$
|
|
|
Options vested at June 26, 2008
|
|
|
|
|
|
|
|
|
Under the terms of the restricted stock plan, restricted stock
may be granted at the direction of the Board of Directors and
vesting occurs in one-fourth increments on the second, third,
fourth, and fifth anniversaries of the date specified in the
employees respective restricted stock agreements. The
Company expenses the fair value of the restricted stock grants
on a straight-line basis over the vesting period.
The following table summarizes restricted stock activity under
the restricted stock plan as of June 26, 2008, and changes
during the six months ended on that date:
|
|
|
|
|
|
|
Shares
|
|
|
Balance at January 1, 2008
|
|
|
635.52
|
|
Granted
|
|
|
|
|
Forfeited
|
|
|
(41.95
|
)
|
Issued
|
|
|
|
|
|
|
|
|
|
Balance at June 26, 2008
|
|
|
593.57
|
|
|
|
|
|
|
Recognized compensation expense under the stock option and
restricted stock plans is set forth in the table below. There
were no such expenses for the one month ended January 30,
2007.
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Five Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 26,
|
|
|
June 28,
|
|
|
|
2008
|
|
|
2007
|
|
|
Compensation expense Stock options
|
|
$
|
501,000
|
|
|
$
|
80,000
|
|
Restricted stock
|
|
|
139,000
|
|
|
|
39,000
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
$
|
640,000
|
|
|
$
|
119,000
|
|
|
|
|
|
|
|
|
|
|
At June 26, 2008, the Company had $7.3 million and
$1.1 million of unrecognized compensation expense related
to outstanding stock options and restricted stock, respectively.
Restricted Common Units:
In conjunction
with the acquisition of McJunkin by the Goldman Sachs Funds,
certain key MRM employees received restricted common units of
PVF Holdings LLC that vest over a five-year requisite service
period. Compensation expense associated with these restricted
common units totaled $0.6 million for the six months ended
June 26, 2008 and $0.5 million for the five months
ended June 28, 2007 based upon their fair market value at
the date they were
F-53
issued which is being recognized on a straight-line basis over
the vesting period. There was no such expense for the one month
ended January 30, 2007. As of June 26, 2008, the
Company had $4.1 million of unrecognized compensation
expense related to outstanding restricted common units which
will be amortized over a weighted average vesting period of four
years.
Profits Units:
In conjunction with the
acquisition of McJunkin by the Goldman Sachs Funds and the Red
Man acquisition, certain key MRM employees received profits
units in PVF Holdings LLC that vest over a five-year requisite
service period. These units entitle their holders to a share of
any distributions made by PVF Holdings LLC once common unit
holders have received a return of all capital contributed to PVF
Holdings LLC. Compensation expense associated with these profits
units totaled $1.6 million for the six months ended
June 26, 2008 and $0.7 million for the five months
ended June 28, 2007 based upon their fair market value at
the date they were issued which is being amortized on a
straight-line basis over the vesting period. There was no such
expense for the one month ended January 30, 2007. As of
June 26, 2008, the Company had $13.8 million and of
unrecognized compensation expense related to outstanding profits
units which will be amortized over a weighted average vesting
period of five years.
|
|
NOTE 11
|
EARNINGS PER
SHARE
|
Basic earnings per share are computed based on the
weighted-average number of common shares outstanding, excluding
any dilutive effects of stock options and restricted stock.
Diluted earnings per share are computed based on the
weighted-average number of common shares outstanding including
any dilutive effect of stock options and restricted stock. The
dilutive effect of stock options and restricted stock are
calculated under the treasury stock method. Earnings per share
are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
|
Six Months
|
|
|
Five Months
|
|
|
One Month
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 26,
|
|
|
June 28,
|
|
|
January 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
Net income (in thousands)
|
|
$
|
75,934
|
|
|
$
|
17,614
|
|
|
$
|
6,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic shares outstanding
|
|
|
309,421
|
|
|
|
102,594
|
|
|
|
17,510
|
|
Effect of dilutive securities
|
|
|
613
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average dilutive shares outstanding
|
|
|
310,034
|
|
|
|
102,792
|
|
|
|
17,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
245.41
|
|
|
$
|
171.69
|
|
|
$
|
376.70
|
|
Diluted
|
|
$
|
244.92
|
|
|
$
|
171.36
|
|
|
$
|
376.70
|
|
Stock option grants are disregarded in this calculation if they
are determined to be anti-dilutive. At June 26, 2008, the
Companys anti-dilutive stock options totaled 3,800. At
June 28, 2007, the Companys anti-dilutive stock
options totaled 1,169. There were no stock options outstanding
at January 30, 2007.
F-54
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
McJunkin Corporation
Charleston, West Virginia
We have audited the accompanying consolidated balance sheets of
McJunkin Corporation and subsidiaries as of December 31,
2006 and 2005, and the related consolidated statements of
income, shareholders equity, and cash flows for the years
then ended. These financial statements are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of McJunkin Corporation and subsidiaries as of
December 31, 2006 and 2005, and the consolidated results of
their operations and their cash flows for the years then ended
in conformity with accounting principles generally accepted in
the United States of America.
/s/
Schneider Downs
& Co., Inc
Columbus, Ohio
January 13, 2007
F-55
CONSOLIDATED
BALANCE SHEETS
McJUNKIN
CORPORATION AND SUBSIDIARIES
(Dollars in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,748
|
|
|
$
|
5,865
|
|
Receivables, less allowances of $2,015 and $1,743
|
|
|
168,877
|
|
|
|
163,775
|
|
Inventories
|
|
|
225,304
|
|
|
|
189,209
|
|
Other current assets
|
|
|
3,122
|
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
401,051
|
|
|
|
361,391
|
|
INVESTMENTS AND OTHER ASSETS
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
PrimeEnergy and other oil and gas
|
|
|
40,396
|
|
|
|
32,226
|
|
Real estate and other
|
|
|
589
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
40,985
|
|
|
|
32,675
|
|
Notes receivable
|
|
|
1,835
|
|
|
|
2,187
|
|
Cash value of life insurance
|
|
|
1,160
|
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,980
|
|
|
|
37,132
|
|
FIXED ASSETS
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
4,392
|
|
|
|
4,411
|
|
Buildings and building improvements
|
|
|
21,416
|
|
|
|
21,325
|
|
Equipment
|
|
|
43,143
|
|
|
|
42,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,951
|
|
|
|
68,138
|
|
Allowances for depreciation
|
|
|
(41,743
|
)
|
|
|
(41,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
27,208
|
|
|
|
26,229
|
|
PROPERTY HELD UNDER CAPITAL LEASES
|
|
|
2,104
|
|
|
|
2,283
|
|
INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
6,274
|
|
|
|
6,274
|
|
Other intangible assets, net of accumulated amortization of
$2,702 and $2,425
|
|
|
382
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,656
|
|
|
|
6,933
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
480,999
|
|
|
$
|
433,968
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable trade
|
|
$
|
130,864
|
|
|
$
|
145,296
|
|
Accrued expenses and other liabilities
|
|
|
46,471
|
|
|
|
45,220
|
|
Customer prepayments
|
|
|
4,715
|
|
|
|
6,536
|
|
Dividends payable
|
|
|
|
|
|
|
26,216
|
|
Income taxes payable
|
|
|
2,500
|
|
|
|
8,516
|
|
Deferred income taxes
|
|
|
3,998
|
|
|
|
203
|
|
Current portion of long-term obligations:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
210
|
|
Capital leases
|
|
|
167
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
188,715
|
|
|
|
232,345
|
|
LONG-TERM OBLIGATIONS
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
13,035
|
|
|
|
2,885
|
|
Capital leases
|
|
|
3,635
|
|
|
|
3,802
|
|
Other liabilities
|
|
|
1,799
|
|
|
|
2,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,469
|
|
|
|
8,977
|
|
DEFERRED INCOME TAXES
|
|
|
15,627
|
|
|
|
12,389
|
|
MINORITY INTEREST IN McJUNKIN APPALACHIAN OILFIELD SUPPLY
COMPANY
|
|
|
15,601
|
|
|
|
11,459
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Capital stock, par value $700:
|
|
|
|
|
|
|
|
|
Class A common voting authorized 37,860; issued
and outstanding 16,940
|
|
|
11,858
|
|
|
|
11,858
|
|
Class B common nonvoting authorized 5,000;
issued and outstanding 570
|
|
|
399
|
|
|
|
399
|
|
Retained earnings
|
|
|
206,044
|
|
|
|
137,192
|
|
Other comprehensive income, net of deferred income taxes of
$14,759 and $11,529
|
|
|
24,286
|
|
|
|
19,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,587
|
|
|
|
168,798
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
480,999
|
|
|
$
|
433,968
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-56
CONSOLIDATED
STATEMENTS OF INCOME
McJUNKIN
CORPORATION AND SUBSIDIARIES
(Dollars in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,713,679
|
|
|
$
|
1,445,770
|
|
Increase in fair market values of derivatives
|
|
|
|
|
|
|
499
|
|
Other income
|
|
|
2,615
|
|
|
|
2,361
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUES
|
|
|
1,716,294
|
|
|
|
1,448,630
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown separately below)
|
|
|
1,394,294
|
|
|
|
1,177,091
|
|
Selling, general and administrative
|
|
|
173,948
|
|
|
|
155,717
|
|
Profit sharing
|
|
|
15,064
|
|
|
|
13,144
|
|
Depreciation and amortization
|
|
|
3,936
|
|
|
|
3,743
|
|
Interest
|
|
|
2,845
|
|
|
|
2,707
|
|
Minority interest in McJunkin Appalachian
|
|
|
4,142
|
|
|
|
2,774
|
|
Amortization of intangibles
|
|
|
277
|
|
|
|
337
|
|
Other expenses
|
|
|
3,874
|
|
|
|
3,993
|
|
|
|
|
|
|
|
|
|
|
TOTAL COSTS AND EXPENSES
|
|
|
1,598,380
|
|
|
|
1,359,506
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
117,914
|
|
|
|
89,124
|
|
Income tax provision
|
|
|
48,340
|
|
|
|
36,583
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
69,574
|
|
|
$
|
52,541
|
|
|
|
|
|
|
|
|
|
|
Earnings per share Class A, basic
|
|
$
|
3,972.08
|
|
|
$
|
2,952.12
|
|
Earnings per share Class A, diluted
|
|
$
|
3,972.08
|
|
|
$
|
2,952.12
|
|
Weighted average shares Class A, basic
|
|
|
16,940
|
|
|
|
16,940
|
|
Weighted average shares Class A, diluted
|
|
|
16,940
|
|
|
|
16,940
|
|
Earnings per share Class B, basic
|
|
$
|
4,012.08
|
|
|
$
|
4,442.12
|
|
Earnings per share Class B, diluted
|
|
$
|
4,012.08
|
|
|
$
|
4,442.12
|
|
Weighted average shares Class B, basic
|
|
|
570
|
|
|
|
570
|
|
Weighted average shares Class B, diluted
|
|
|
570
|
|
|
|
570
|
|
Dividends per common share, Class A
|
|
$
|
40
|
|
|
$
|
1,490
|
|
Dividends per common share, Class B
|
|
$
|
80
|
|
|
$
|
2,980
|
|
See notes to consolidated financial statements.
F-57
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
McJUNKIN CORPORATION AND SUBSIDIARIES
Years Ended December 31, 2006 and 2005
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
Balances at January 1, 2005
|
|
|
16,940
|
|
|
$
|
11,858
|
|
|
|
570
|
|
|
$
|
399
|
|
|
$
|
111,592
|
|
|
$
|
8,469
|
|
|
$
|
132,318
|
|
Net income for the year 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,541
|
|
|
|
|
|
|
|
52,541
|
|
Unrealized and realized gain in
PrimeEnergy-net
of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,880
|
|
|
|
10,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,541
|
|
|
|
10,880
|
|
|
|
63,421
|
|
Cash dividends on common stock
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On Class A, $1,490 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,242
|
)
|
|
|
|
|
|
|
(25,242
|
)
|
On Class B, $2,980 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,699
|
)
|
|
|
|
|
|
|
(1,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
16,940
|
|
|
|
11,858
|
|
|
|
570
|
|
|
|
399
|
|
|
|
137,192
|
|
|
|
19,349
|
|
|
|
168,798
|
|
Net income for the year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,574
|
|
|
|
|
|
|
|
69,574
|
|
Unrealized and realized gain in
PrimeEnergy-net
of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,937
|
|
|
|
4,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,574
|
|
|
|
4,937
|
|
|
|
74,511
|
|
Cash dividends on common stock
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On Class A, $40 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(677
|
)
|
|
|
|
|
|
|
(677
|
)
|
On Class B, $80 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
16,940
|
|
|
$
|
11,858
|
|
|
|
570
|
|
|
$
|
399
|
|
|
$
|
206,044
|
|
|
$
|
24,286
|
|
|
$
|
242,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-58
CONSOLIDATED
STATEMENTS OF CASH FLOWS
McJUNKIN
CORPORATION AND SUBSIDIARIES
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
CASH PROVIDED BY (USED IN) OPERATIONS
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
69,574
|
|
|
$
|
52,541
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,936
|
|
|
|
3,743
|
|
Deferred income taxes
|
|
|
3,802
|
|
|
|
(4,905
|
)
|
Minority interest in McJunkin Appalachian
|
|
|
4,142
|
|
|
|
2,774
|
|
Amortization of intangibles
|
|
|
277
|
|
|
|
337
|
|
Increase in fair market values of derivatives
|
|
|
|
|
|
|
(499
|
)
|
Provision for losses on receivables
|
|
|
414
|
|
|
|
90
|
|
Reduction of inventory loss provision
|
|
|
(260
|
)
|
|
|
(233
|
)
|
Non-operating gains and other items not providing cash
|
|
|
(571
|
)
|
|
|
(1,001
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,516
|
)
|
|
|
(53,444
|
)
|
Inventories
|
|
|
(35,835
|
)
|
|
|
(36,386
|
)
|
Income taxes
|
|
|
(6,016
|
)
|
|
|
6,823
|
|
Other current assets
|
|
|
(580
|
)
|
|
|
(65
|
)
|
Accounts payable
|
|
|
(14,432
|
)
|
|
|
47,694
|
|
Accrued expenses and other current liabilities
|
|
|
(583
|
)
|
|
|
12,916
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATIONS
|
|
|
18,352
|
|
|
|
30,385
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Fixed asset purchases net of proceeds from disposals
|
|
|
(4,960
|
)
|
|
|
(7,725
|
)
|
Other investment and notes receivable transactions
|
|
|
1,698
|
|
|
|
1,024
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(3,262
|
)
|
|
|
(6,701
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from (Payments on) long-term obligations
|
|
|
9,731
|
|
|
|
(11,319
|
)
|
Dividends paid
|
|
|
(26,938
|
)
|
|
|
(9,765
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
|
(17,207
|
)
|
|
|
(21,084
|
)
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash
|
|
|
(2,117
|
)
|
|
|
2,600
|
|
Cash beginning of year
|
|
|
5,865
|
|
|
|
3,265
|
|
|
|
|
|
|
|
|
|
|
CASH END OF YEAR
|
|
$
|
3,748
|
|
|
$
|
5,865
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-59
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
|
|
NOTE A
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Business Operations:
McJunkin
Corporation and its subsidiaries (the Company) are national
distributors of pipe, valves, and fittings (PVF), with locations
in principal industrial centers. Major customers represent the
chemical, petroleum refining and other segments of the raw
materials processing industry and the construction industry. PVF
product lines and their share of total sales for 2006 and 2005
include carbon steel pipe (approximately 33% and 34%) and
stainless steel and carbon steel valves (approximately 20% and
21%). Products are obtained from a broad range of suppliers.
Basis of Presentation:
The preparation
of financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. The
consolidated financial statements include the accounts of
McJunkin Corporation and its wholly-owned and majority-owned
subsidiaries. The residual ownership in the equity and income of
McJunkin Appalachian Oilfield Supply Company (approximately 14%)
is reflected as minority interest. All significant intercompany
transactions have been eliminated. Certain 2005 amounts have
been reclassified to conform to 2006 presentation. Such
reclassifications did not impact net income or
shareholders equity.
Financial Instruments:
Financial
instruments that potentially could subject the Company to
concentrations of credit risk consist principally of trade
accounts and notes receivable. The Company minimizes such risk
by closely monitoring extensions of trade credit. Sales to
industries in 2006 and 2005 in which the Company has significant
receivables were gas utility (15% and 17%), petroleum refining
(14% in both years), chemical processing (12% in both years),
and contractors (12% in both years). The Company estimates
losses for uncollectible accounts based on the aging of the
accounts receivable and the evaluation of the likelihood of
collection. Credit losses relating to customers in these
industries historically have been insignificant.
The Company sells to a large,
U.S.-owned,
multi-national, energy company in Nigeria through its
wholly-owned subsidiary, McJunkin-Nigeria Limited. The
collection of the receivables generated by these sales could be
negatively impacted by such factors as changes in Nigerian or
worldwide economic or political conditions. Credit losses
relating to sales in Nigeria have been insignificant. Total net
assets invested in Nigeria at December 31, 2006 and 2005,
approximated $2,956,000 and $5,205,000.
The Company believes that the carrying values of all significant
assets and liabilities, which meet the definition of financial
instruments, approximate their fair values.
Income Taxes:
Deferred income taxes are
provided under the liability method. The liability method
requires that deferred tax assets and liabilities be determined
based on differences between the financial reporting and tax
bases of assets and liabilities using the tax rate expected to
be in effect when the taxes will actually be paid or refunds
received.
Insurance:
The Company is self-insured
for portions of employee healthcare and maintains a deductible
program as it relates to workers compensation, automobile
liability, and general liability claims including, but not
limited to, product liability claims, which are secured by
various letters of credit totaling $3,195,000. Commercially
comprehensive catastrophic coverage is maintained. The
companys liability and related expenses for claims are
estimated based upon past experience. The companys
historical claim data is used to project anticipated losses. The
reserves are deemed by the company to be sufficient to cover
outstanding claims including those incurred but not reported as
of the estimation date.
F-60
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
Inventories:
Inventories are valued at
the lower of cost (principally
last-in,
first-out method) or market.
Investments:
The Company has equity
investments in certain oil and gas interests that are either
thinly traded in the over-the-counter market or are not publicly
traded. Such investments, considered available for sale, are
carried at estimated fair value. Unrealized gains and losses on
available-for-sale securities are recognized in comprehensive
income to the extent they are material. Total accumulated gains,
net of deferred taxes, in comprehensive income are $24,286,000
at December 31, 2006.
The thinly traded nature of PrimeEnergy stock results in
significant fluctuations in the stock price. Accordingly, the
proceeds from any sale of the stock could be significantly less
than the December 31, 2006 carrying value, $40,217,000. An
officer of the Company serves as a director of PrimeEnergy.
Real estate investments, primarily limited partnerships, are
generally carried at the lower of cost or estimated realizable
value.
Fixed Assets:
Land, buildings and
equipment are stated on the basis of cost. For financial
statement purposes, depreciation is computed over the estimated
useful lives of the assets by the straight-line method;
accelerated depreciation and cost recovery methods are used for
income tax purposes.
Certain long-term lease transactions relating to the financing
of land and buildings are accounted for as installment
purchases. These properties are capitalized as leased facilities
and amortized on a straight-line basis over their lease terms.
The corresponding lease rental obligations represent the present
value of future lease payments.
Derivative Instruments:
The Company had
an interest rate swap, which expired in December 2005, and
collar, which expired in September 2006, that were carried at
fair value as either assets or liabilities on the balance sheet.
Changes in the fair value of the derivative instruments were
recognized in current earnings in the year of change.
Retirement Plans:
Employees with at
least six months of service participate in the Companys
profit sharing plan. Contributions to the plan are based on the
earnings of the Company, as defined in the plan document.
Employees may also participate in the McJunkin Savings Plan,
whereby a portion of the individuals base earnings may be
deferred and partially matched by the Company, pursuant to
section 401(k) of the Internal Revenue Code. The
Companys matching portion under the 401(k) plan
approximated $837,000 and $830,000 in 2006 and 2005.
Revenue Recognition:
The Company
records sales revenue upon shipment of goods or performance of
services. Shipping costs are included in cost of goods sold in
the consolidated statements of income.
Intangibles:
The Company tests its
goodwill and intangible assets for impairment annually. The
impairment tests are performed at the distribution operations
reporting level of the Company, which holds 100% of the
consolidated intangible assets. At December 31, 2006 and
2005, the Company had no impairment in the carrying value of its
intangible assets.
Goodwill carried by the Company is not amortized for financial
reporting purposes, but is eligible for deduction for income tax
purposes. The Company amortizes intangible assets with finite
lives, such as non-compete agreements, trade names, and customer
lists and relationships over the legal or estimated lives of the
individual assets, principally from one to six years.
F-61
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
Stock Split:
All prior period capital
stock and applicable share amounts have been retroactively
adjusted to reflect a
5-for-1
split of the Companys capital stock effective
October 4, 2005.
If inventories were reported at values approximating current
costs, as would have resulted from using the
first-in,
first-out method, they would have been $74,414,000 and
$62,188,000 higher at December 31, 2006 and 2005. In
addition, after giving pro forma effect to profit sharing and
income taxes, net income would have been higher by $7,947,000 in
2006 and $13,114,000 in 2005.
The Companys inventory is composed of finished goods.
There are no general and administrative costs charged to
inventory.
The Company maintains lines of credit that include an unsecured
multi-bank revolving lending agreement totaling
$60 million. In addition, McJunkin Appalachian, which is
financed on a stand-alone basis with no guarantees provided by
McJunkin Corporation, maintains its own long-term revolving
credit/term loan agreement totaling $7.5 million. These
long-term loan agreements contain covenants that require
maintenance of minimum tangible net worth and other financial
ratios. Such covenants could restrict investments outside the
Companys primary line of business, capital expenditures,
and dividend payments.
The Company has a $50 million trade receivables
securitization facility with a group of financial institutions
and uses a special-purpose, wholly-owned, consolidated
subsidiary, McJunkin Receivables Corporation (MRC), for the sole
purpose of buying substantially all of the trade accounts
receivable of the Company, other than McJunkin Appalachian,
McJunkin-Nigeria and McJunkin-Puerto Rico. Under these
facilities, the Company transfers all eligible accounts
receivable to MRC, which in turn sells an undivided ownership
interest in the receivables into commercial paper conduits
administered by the banks. This agreement is accounted for as a
secured borrowing; thus, all receivables outstanding under the
program and corresponding debt are recognized in the
consolidated balance sheet. The assets of MRC are available to
satisfy the claims of the financial institutions to the extent
of the securitized debt. The Company services the receivables
and retains an interest in the receivables subordinate to the
amount borrowed under the agreement. MRC retains the risk of
credit loss on the receivables and, accordingly, the full amount
of the allowance for doubtful accounts has been reflected on the
consolidated balance sheets. The credit losses and delinquencies
relating to these receivables were not material in 2006 and 2005.
The conduits obtain the funds to purchase interests in
receivables by selling commercial paper to third-party
investors. The facility provides that as accounts receivable are
collected, MRC can elect to have the commercial paper conduits
reinvest the proceeds in new accounts receivable. Fundings under
the facility are limited to the lesser of a funding base of
eligible receivables, as defined in the agreement, or
$50 million. Amounts outstanding under the agreement as of
December 31, 2006, were $2 million. There were no
amounts outstanding at the end of 2005. Due to the current
nature of the Companys retained interest in the
receivables, the book value of the receivables represents the
best estimate of the fair market value. This three-year
agreement bears interest at a margin over A1P1 commercial paper
rates.
The facility requires the Company to comply with various
affirmative or negative covenants including, among other things,
accounts receivable delinquency, dilution, and days sales
outstanding ratios and maintenance of a minimum $5 million
net worth in MRC. The securitization agreement
F-62
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
contains certain restrictive covenants, including further sale
or placement of liens on accounts receivable, adherence to
collection policies, restrictions concerning mergers, and
commingling of funds between MRC and the Company. The financial
institutions may terminate the facility upon the occurrence of,
and failure to cure, termination events including violations of
representations, warranties and covenants. The commercial paper
conduits, in addition to their rights to collect payments from
that portion of the interest in the accounts receivable owned by
them, also have rights to collect payments from that portion of
the ownership interest in the accounts receivable that is owned
by MRC.
The total trade receivables pledged as collateral under this
agreement at December 31, 2006 and 2005, were $121,641,000
and $119,692,000.
Maturities of long-term debt are $2,000,000 in 2009 and
$11,035,000 in 2010, including certain amounts that are due on
demand but excluded from current liabilities because the Company
intends to replace such borrowings with funds available under
existing, unused long-term lines of credit. At December 31,
2006, the Company, exclusive of McJunkin Appalachian, had unused
short-term and long-term lines of credit of $10,765,000 and
$99,700,000; McJunkin Appalachian had unused short-term and
long-term lines of credit of $5 million and
$7.5 million.
The Company entered into an interest rate swap agreement in 2000
and interest rate collar agreement in 2001 to reduce its
exposure to potential interest rate increases. The swap
agreement, which expired in 2005, enabled the Company to make
fixed rate (6.39%) payments and receive floating rate (one-month
LIBOR) payments on a notional amount of $10 million. The
collar agreement, which expired in 2006, enabled the Company to
make fixed rate (ceiling rate of 5.50% and a floor rate of
4.08%) payments and receive floating rate (one-month LIBOR)
payments on a notional amount of $10 million. Only interest
payments, not the notional amounts, were exchanged. The
differences between the amounts exchanged in 2006 and 2005 were
not significant. The Companys interest cost exposure was
limited to the difference between the 5.24% (weighted average)
and a lower floating interest rate, if any, applied to the
notional amounts then outstanding. Management believes it
mitigated counter party credit risk by entering into these
agreements only with major financial institutions. There were no
accumulated derivative liabilities at December 31, 2006 and
2005.
The Company paid interest of $2,831,000 and $2,630,000 in 2006
and 2005.
The Companys long-term debt consists of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $000s)
|
|
|
Revolving credit/term loan agreement at a variable rate between
LIBOR and prime, due in 2010
|
|
$
|
8,300
|
|
|
$
|
2,500
|
|
Short-term debt expected to be refinanced on a long-term basis
at a variable rate between LIBOR and prime, due in 2010
|
|
|
2,735
|
|
|
|
385
|
|
Other long-term obligations
|
|
|
|
|
|
|
210
|
|
Three-year asset securitization at a variable rate based on
commercial paper due in 2009
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,035
|
|
|
|
3,095
|
|
Less current portion
|
|
|
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,035
|
|
|
$
|
2,885
|
|
|
|
|
|
|
|
|
|
|
F-63
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
The Company leases land and buildings at various locations from
Hansford Associates and Appalachian Leasing. Certain officers
and directors of the Company participate in the ownership of
Hansford Associates and Appalachian Leasing. Most of these
leases are renewable for various periods through 2026 and
contain clauses for escalation of lease payments, payment of
real estate taxes, maintenance, insurance, and certain other
operating expenses of the properties. Leases with unrelated
parties contain similar provisions. Lease amortization was
$179,000 in 2006 and 2005.
Property held under capital leases in the balance sheets
consists of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $000s)
|
|
|
Land and buildings
|
|
$
|
4,881
|
|
|
$
|
4,881
|
|
Allowances for amortization
|
|
|
(2,777
|
)
|
|
|
(2,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,104
|
|
|
$
|
2,283
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments under capital leases aggregate to
$11,088,000, of which $3,608,000 represents interest and
$3,678,000 represents escalation and executory costs. The
present value of net minimum lease payments is $3,802,000, all
applicable to Hansford Associates. Annual payments under capital
leases are $949,000 for years 2007 through 2011.
Rental expense under operating leases amounted to $8,836,000 in
2006 and $8,070,000 in 2005, including $1,534,000 in 2006 and
$1,474,000 in 2005 applicable to leases with Hansford Associates
and $153,000 in 2006 and $154,000 in 2005 applicable to leases
with Appalachian Leasing. Future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year aggregate to
$19,061,000 and include leases applicable to Hansford Associates
($3,902,000) and leases applicable to Appalachian Leasing
($180,000). Annual operating lease payments are $7,848,000,
$6,616,000, $2,237,000, $956,000, and $626,000 for years 2007
through 2011.
|
|
NOTE E
|
FINANCIAL
INSTRUMENTS
|
In the normal course of business, the Company invests in various
financial assets and incurs various financial liabilities. The
Companys financial assets and liabilities are recorded in
the consolidated balance sheets at historical cost, which
approximates fair value.
Investments:
Investments are carried at
fair market value based on quoted market prices.
Short-Term and Long-Term
Borrowings:
Borrowings under the credit
facilities have variable rates that reflect currently available
terms and conditions for similar debt. The carrying amount of
this debt is a reasonable estimate of its fair value.
Leases:
Management estimated the fair
value of the Companys lease obligations using discounted
cash flow analysis based on the Companys current lease
rates for similar leases, and determined that the fair value is
not materially different from their carrying values.
Derivatives:
The Company utilized
interest rate swaps and collars to reduce its exposure to
potential interest rate increases. Changes in fair values of
derivative instruments were based upon independent market quotes.
F-64
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
Income taxes included in the consolidated statements of income
consist of:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(in $000s)
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
36,514
|
|
|
$
|
34,075
|
|
Deferred
|
|
|
3,129
|
|
|
|
(4,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
39,643
|
|
|
|
30,038
|
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
8,024
|
|
|
|
7,413
|
|
Deferred
|
|
|
673
|
|
|
|
(868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
8,697
|
|
|
|
6,545
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION
|
|
$
|
48,340
|
|
|
$
|
36,583
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate varied from the statutory
federal income tax rate for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(in $000s)
|
|
|
Federal tax expense at statutory rates
|
|
$
|
41,270
|
|
|
$
|
31,193
|
|
State taxes
|
|
|
5,653
|
|
|
|
4,254
|
|
Non-deductible sales expenses
|
|
|
409
|
|
|
|
372
|
|
Other
|
|
|
1,008
|
|
|
|
764
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION
|
|
$
|
48,340
|
|
|
$
|
36,583
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
41.0
|
%
|
|
|
41.0
|
%
|
|
|
|
|
|
|
|
|
|
The Company paid $50,553,000 and $34,665,000 in 2006 and 2005
for federal and state taxes.
F-65
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
Significant components of the Companys current deferred
tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(in $000s)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable valuation
|
|
$
|
797
|
|
|
$
|
689
|
|
Real estate and investment bases differences
|
|
|
86
|
|
|
|
312
|
|
Expenses deductible as paid
|
|
|
3,684
|
|
|
|
3,453
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
4,567
|
|
|
|
4,454
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Inventory valuation
|
|
|
(6,464
|
)
|
|
|
(2,612
|
)
|
Accelerated depreciation and amortization
|
|
|
(2,969
|
)
|
|
|
(2,905
|
)
|
Investment basis difference
|
|
|
(14,759
|
)
|
|
|
(11,529
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(24,192
|
)
|
|
|
(17,046
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(19,625
|
)
|
|
$
|
(12,592
|
)
|
|
|
|
|
|
|
|
|
|
The Company is involved in various legal proceedings and claims,
both as a plaintiff and a defendant, which arise in the ordinary
course of business. Included in these legal proceedings are
cases where the Company has been named as a defendant in
lawsuits brought against a large number of entities by
individuals seeking damages for injuries allegedly caused by
certain products containing asbestos. Among other things, with
the assistance of accounting and financial consultants, the
Company conducted an analysis of pending and probable
asbestos-related
claims to determine the adequacy of its accrual for these
claims. This analysis consisted of developing per claim
settlement estimates for each category of claim by alleged
disease type based on the Companys historical settlement
experience. These estimates were applied to each of the
Companys pending individual claims. Liability with respect
to mass filings was estimated by determining the number of
individual plaintiffs included in the mass filings likely to
have claims resulting in settlements based on the Companys
historical experience with mass filings. Finally, likely claims
expected to be asserted against the Company over the next
fifteen years were predicted based on public health estimates of
future incidences of certain asbestos-related diseases in the
general U.S. population and per claim settlement estimates
were applied to those estimated claims. Based on this analysis
and the existence of certain insurance coverage, the Company
believes that its current accruals for pending and probable
asbestos-related litigation are adequate. However, there is a
possibility that resolution of these matters could result in
additional losses in excess of current accruals. Also, there is
a possibility that resolution of certain of the Companys
legal contingencies for which there are no liabilities recorded
could result in a loss. Management is not able to estimate the
amount of such loss, if any. However, in the opinion of the
Company, after consultation with counsel, the ultimate
resolution of all pending matters is not expected to have a
material effect on its financial position, although it is
possible that such resolutions could have a material adverse
impact on net income and cash flows.
F-66
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
|
|
NOTE H
|
SUBSEQUENT
EVENT
|
On December 4, 2006, McJunkin entered into a definitive
agreement (the Merger Agreement) to be acquired by McJ Holding
Corporation (ParentCo), a wholly owned subsidiary of McJ Holding
LLC (HoldCo). Both ParentCo and HoldCo were formed by Goldman
Sachs Capital Partners (GSCP) for purposes of facilitating this
acquisition. On January 12, 2007, McJunkins
shareholders voted to approve the Merger Agreement. Under the
terms of the Merger Agreement, McJunkins shareholders will
exchange their shares in McJunkin for cash and ownership units
of HoldCo in a transaction valued at approximately
$1.065 billion, including associated fees and refinanced
debt. At the conclusion of the transaction, McJunkin
shareholders will own an approximate 40% interest in HoldCo with
GSCP and their affiliates holding the remaining interest. The
transaction is expected to close on or about January 30,
2007.
It is anticipated that the acquisition will be financed with a
term loan of $575 million, asset-based revolver borrowings
of $75 million, existing capital leases of
$3.6 million and an equity investment of approximately
$411 million, which includes equity rolled over from
existing McJunkin shareholders of approximately
$169 million.
Under the provisions of the Merger Agreement, certain of the
Companys assets will be liquidated subsequent to closing
and distributed to McJunkins current shareholders. These
include the investment in PrimeEnergy as well as certain real
estate holdings. At December 31, 2006, these assets had a
net book value of approximately $27.1 million.
F-67
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
McJunkin Corporation
Charleston, West Virginia
We have audited the consolidated financial statements of
McJunkin Corporation and subsidiaries as of December 31,
2006 and 2005, and for the years then ended, and have issued our
report thereon dated January 13, 2007. Our audits also
included the consolidated financial statement schedule of the
Company listed in the accompanying schedule. This consolidated
financial statement schedule is the responsibility of the
Companys management. Our responsibility is to express an
opinion based on our audits. In our opinion, the consolidated
financial statement schedule as of and for the years ended
December 31, 2006 and 2005, when considered in relation to
the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
/s/ Schneider
Downs & Co., Inc.
Columbus, Ohio
January 13, 2007
F-68
Schedule II
Valuation and Qualifying Accounts Worksheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(B) Balance
|
|
|
(C) Additions
|
|
|
|
|
|
(E) Balance
|
|
|
|
|
|
|
at Beginning
|
|
|
Charged to
|
|
|
|
|
|
at end
|
|
|
|
|
(A) Description (1)
|
|
of Period
|
|
|
Costs and Expenses
|
|
|
(D) Deductions (1)
|
|
|
of Period
|
|
|
|
|
|
Allowance for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
$
|
1,722,000
|
|
|
$
|
90,000
|
|
|
$
|
68,654
|
|
|
$
|
1,743,346
|
|
|
|
|
|
2006
|
|
$
|
1,743,346
|
|
|
$
|
414,000
|
|
|
$
|
142,346
|
|
|
$
|
2,015,000
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes write off of uncollectible accounts receivable, net of
recoveries.
|
F-69
Report of
Independent Auditors
To the Board of
Directors and Stockholders
Red Man Pipe & Supply Co.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, comprehensive
income, preferred stock and stockholders equity, and cash
flows present fairly, in all material respects, the financial
position of Red Man Pipe and Supply Co. and Subsidiaries (the
Company) at October 31, 2006 and 2007, and the
results of their operations and their cash flows for each of the
three years in the period ended October 31, 2007 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
February 15, 2008
F-70
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
October 31,
2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars, except share amounts)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
457
|
|
|
$
|
13,866
|
|
Accounts receivable, less allowance for doubtful accounts of
$2,204 and $1,755 in 2006 and 2007, respectively
|
|
|
303,629
|
|
|
|
329,073
|
|
Inventories
|
|
|
336,714
|
|
|
|
329,272
|
|
Income tax receivable
|
|
|
5,473
|
|
|
|
|
|
Other current assets
|
|
|
929
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
647,202
|
|
|
|
672,454
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
29,931
|
|
|
|
39,583
|
|
Goodwill
|
|
|
76,198
|
|
|
|
91,077
|
|
Intangible assets, net of accumulated amortization of $4,047 and
$8,913 in 2006 and 2007, respectively
|
|
|
28,422
|
|
|
|
30,034
|
|
Investments
|
|
|
6,689
|
|
|
|
5,057
|
|
Other assets
|
|
|
2,558
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
791,000
|
|
|
$
|
838,325
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Operating lines of credit
|
|
$
|
27,028
|
|
|
$
|
|
|
Trade accounts payable
|
|
|
187,162
|
|
|
|
209,513
|
|
Accrued liabilities
|
|
|
63,043
|
|
|
|
41,988
|
|
Income taxes payable
|
|
|
3,457
|
|
|
|
3,427
|
|
Notes payable
|
|
|
6,939
|
|
|
|
3,910
|
|
Deferred revenue
|
|
|
1,488
|
|
|
|
|
|
Term loans due on demand
|
|
|
3,975
|
|
|
|
10,519
|
|
Deferred income tax liabilities
|
|
|
22,721
|
|
|
|
28,974
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
315,813
|
|
|
|
298,331
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
207,418
|
|
|
|
31,434
|
|
Payable to minority interest shareholders
|
|
|
28,009
|
|
|
|
25,718
|
|
Deferred income tax liabilities
|
|
|
5,923
|
|
|
|
7,826
|
|
Other long-term liability (Note 2)
|
|
|
|
|
|
|
125,113
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
557,163
|
|
|
|
488,422
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 7 and 9)
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
49,423
|
|
|
|
76,064
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, $2,500 par value, 2,000 shares
authorized, none issued and outstanding as of October 31,
2006 and 2007
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value,
50,000,000 shares authorized, 144,831 and 143,976 issued
and outstanding as of October 31, 2006 and 2007,
respectively
|
|
|
2
|
|
|
|
2
|
|
Class B common stock, $0.01 par value,
50,000,000 shares authorized, 34,344 issued and outstanding
as of October 31, 2006 and 2007
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
2,480
|
|
|
|
8,159
|
|
Retained earnings
|
|
|
176,091
|
|
|
|
258,274
|
|
Accumulated other comprehensive income
|
|
|
6,343
|
|
|
|
7,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,916
|
|
|
|
273,839
|
|
Treasury stock, at cost
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
184,414
|
|
|
|
273,839
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
791,000
|
|
|
$
|
838,325
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-71
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
Years Ended
October 31, 2005, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars)
|
|
|
Sales
|
|
$
|
1,224,174
|
|
|
$
|
1,815,345
|
|
|
$
|
1,981,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
1,023,030
|
|
|
|
1,551,118
|
|
|
|
1,632,320
|
|
Selling, general and administrative expenses
|
|
|
100,211
|
|
|
|
172,192
|
|
|
|
186,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,123,241
|
|
|
|
1,723,310
|
|
|
|
1,818,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
100,933
|
|
|
|
92,035
|
|
|
|
163,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,431
|
)
|
|
|
(15,024
|
)
|
|
|
(20,641
|
)
|
Other, net
|
|
|
973
|
|
|
|
3,317
|
|
|
|
(2,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,458
|
)
|
|
|
(11,707
|
)
|
|
|
(23,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
93,475
|
|
|
|
80,328
|
|
|
|
139,820
|
|
Income tax expense
|
|
|
34,208
|
|
|
|
26,498
|
|
|
|
57,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,267
|
|
|
|
53,830
|
|
|
|
82,248
|
|
Non-controlling interest
|
|
|
|
|
|
|
176
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before discontinued operations
|
|
|
59,267
|
|
|
|
53,654
|
|
|
|
82,183
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations, net of EPSP and
income tax (Note 4)
|
|
|
528
|
|
|
|
(2,177
|
)
|
|
|
|
|
Gain on sale of discontinued operations, net of EPSP and income
tax
|
|
|
|
|
|
|
8,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
59,795
|
|
|
$
|
59,647
|
|
|
$
|
82,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-72
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
Years Ended
October 31, 2005, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars)
|
|
|
Net income
|
|
$
|
59,795
|
|
|
$
|
59,647
|
|
|
$
|
82,183
|
|
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in value of cash flow derivative instruments used as cash
flow hedges
|
|
|
(743
|
)
|
|
|
|
|
|
|
|
|
Reclassification derivative settlements
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
|
248
|
|
|
|
6,095
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
60,526
|
|
|
$
|
65,742
|
|
|
$
|
83,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-73
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
Years Ended
October 31, 2005, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C
|
|
|
Voting
|
|
|
Non-Voting
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Class A
|
|
|
Class B
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Income
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(in thousands of dollars, except per share amounts)
|
|
|
Balances at October 31, 2004
|
|
|
|
|
|
$
|
|
|
|
|
146
|
|
|
$
|
2
|
|
|
|
34
|
|
|
$
|
|
|
|
$
|
2,628
|
|
|
$
|
56,649
|
|
|
$
|
(483
|
)
|
|
|
(1
|
)
|
|
$
|
(87
|
)
|
|
$
|
58,709
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,795
|
|
Acquisition of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(61
|
)
|
|
|
(61
|
)
|
Retirement of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
148
|
|
|
|
|
|
Gain on derivative instruments designated and qualifying as cash
flow hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
|
483
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at October 31, 2005
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
2
|
|
|
|
34
|
|
|
|
|
|
|
|
2,480
|
|
|
|
116,444
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
119,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,647
|
|
Acquisition of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(502
|
)
|
|
|
(502
|
)
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,095
|
|
|
|
|
|
|
|
|
|
|
|
6,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at October 31, 2006
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
2
|
|
|
|
34
|
|
|
|
|
|
|
|
2,480
|
|
|
|
176,091
|
|
|
|
6,343
|
|
|
|
(1
|
)
|
|
|
(502
|
)
|
|
|
184,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,183
|
|
Retirement of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
502
|
|
|
|
|
|
Shareholder contributions (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,181
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at October 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
144
|
|
|
$
|
2
|
|
|
|
34
|
|
|
$
|
|
|
|
$
|
8,159
|
|
|
$
|
258,274
|
|
|
$
|
7,404
|
|
|
|
|
|
|
$
|
|
|
|
$
|
273,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
F-74
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
Years Ended
October 31, 2005, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
59,795
|
|
|
$
|
59,647
|
|
|
$
|
82,183
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,916
|
|
|
|
8,300
|
|
|
|
9,680
|
|
Write-off of obsolete inventories
|
|
|
2,289
|
|
|
|
3,383
|
|
|
|
4,363
|
|
Gain on disposal of assets
|
|
|
(60
|
)
|
|
|
(83
|
)
|
|
|
(2,336
|
)
|
Impairment loss on goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
5,149
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
963
|
|
Equity in earnings of unconsolidated subsidiary
|
|
|
(705
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued operations
|
|
|
|
|
|
|
(16,585
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
15,364
|
|
|
|
(2,056
|
)
|
|
|
7,214
|
|
Minority interest
|
|
|
|
|
|
|
176
|
|
|
|
66
|
|
Other, net
|
|
|
(271
|
)
|
|
|
(277
|
)
|
|
|
|
|
Decrease (increase) in assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(59,120
|
)
|
|
|
(63,380
|
)
|
|
|
(8,626
|
)
|
Income tax receivable
|
|
|
135
|
|
|
|
|
|
|
|
5,008
|
|
Inventories
|
|
|
(65,164
|
)
|
|
|
(98,085
|
)
|
|
|
18,724
|
|
Other assets
|
|
|
(1,799
|
)
|
|
|
(1,563
|
)
|
|
|
3,162
|
|
Increase (decrease) in liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
30,528
|
|
|
|
53,027
|
|
|
|
(22,937
|
)
|
Income tax payable
|
|
|
1,223
|
|
|
|
1,936
|
|
|
|
(329
|
)
|
Other current liabilities
|
|
|
|
|
|
|
(736
|
)
|
|
|
|
|
Other long-term liabilities
|
|
|
2,450
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(11,419
|
)
|
|
|
(56,459
|
)
|
|
|
102,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(5,801
|
)
|
|
|
(14,468
|
)
|
|
|
(12,193
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
347
|
|
|
|
1,285
|
|
|
|
3,673
|
|
Proceeds from disposal of subsidiary
|
|
|
|
|
|
|
35,220
|
|
|
|
|
|
Business acquisitions
|
|
|
(45,874
|
)
|
|
|
(12,784
|
)
|
|
|
(3,747
|
)
|
Advance to related parties
|
|
|
|
|
|
|
(4,877
|
)
|
|
|
|
|
Repayment of advances to unconsolidated subsidiaries
|
|
|
957
|
|
|
|
|
|
|
|
|
|
Purchases of investment
|
|
|
|
|
|
|
(879
|
)
|
|
|
|
|
Other, net
|
|
|
(40
|
)
|
|
|
|
|
|
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(50,411
|
)
|
|
|
3,497
|
|
|
|
(12,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-75
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years Ended October 31, 2005, 2006 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars)
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances on long-term debt
|
|
|
1,143,106
|
|
|
|
1,403,024
|
|
|
|
1,353,302
|
|
Payments on long-term debt
|
|
|
(1,093,917
|
)
|
|
|
(1,338,977
|
)
|
|
|
(1,398,620
|
)
|
Extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(120,027
|
)
|
Advances on operating lines of credit
|
|
|
371
|
|
|
|
|
|
|
|
|
|
Payments on operating lines of credit
|
|
|
(396
|
)
|
|
|
(2,665
|
)
|
|
|
(27,606
|
)
|
Advances on notes payable
|
|
|
20,450
|
|
|
|
1,757
|
|
|
|
|
|
Advances from affiliates
|
|
|
|
|
|
|
|
|
|
|
120,027
|
|
Advances to affiliate
|
|
|
|
|
|
|
|
|
|
|
2,504
|
|
Repayments of term loans
|
|
|
(675
|
)
|
|
|
(1,619
|
)
|
|
|
|
|
Repayment of notes payable
|
|
|
|
|
|
|
(20,369
|
)
|
|
|
(7,087
|
)
|
Advances (payments) to minority interest shareholders
|
|
|
(7,974
|
)
|
|
|
13,087
|
|
|
|
(6,238
|
)
|
Acquisition of treasury stock
|
|
|
(61
|
)
|
|
|
(502
|
)
|
|
|
|
|
Repayments to shareholders
|
|
|
|
|
|
|
(918
|
)
|
|
|
|
|
Capital contributions
|
|
|
|
|
|
|
|
|
|
|
6,181
|
|
Financing costs
|
|
|
|
|
|
|
|
|
|
|
(898
|
)
|
Other
|
|
|
|
|
|
|
(155
|
)
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
60,904
|
|
|
|
52,663
|
|
|
|
(78,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
18
|
|
|
|
(161
|
)
|
|
|
1,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(908
|
)
|
|
|
(460
|
)
|
|
|
13,409
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
1,825
|
|
|
|
917
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
917
|
|
|
$
|
457
|
|
|
$
|
13,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow data
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
7,228
|
|
|
$
|
18,133
|
|
|
$
|
21,961
|
|
Income taxes paid
|
|
|
18,144
|
|
|
|
30,436
|
|
|
|
45,118
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-76
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
October 31,
2005, 2006 and 2007
|
|
1.
|
Summary of
Significant Accounting Policies and Nature of
Operations
|
Nature of
Operations
Red Man Pipe & Supply Co. (the Company) is
a distributor of tubular goods, including oil country tubular
goods and line pipe, and operates service and supply centers
which distribute maintenance, repair and operating products
utilized primarily in the energy industry as well as industrial
products consisting primarily of line pipe, valves, fittings and
flanges. The Company distributes products and tubular goods
through service and supply centers and sales locations
strategically located close to the major hydrocarbon producing
and refining areas of the United States and Canada.
Additionally, the Company distributes its products and tubular
goods to customers in various locations outside of North America.
Principles of
Consolidation
The accompanying consolidated financial statements include the
accounts of Red Man Pipe & Supply Co. and its
majority-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Investments that are not wholly owned, but where we exercise
control, are fully consolidated with the equity held by minority
owners reflected as minority interest in the accompanying
financial statements. Investments in unconsolidated affiliates,
over which we exercise significant influence, but not control,
are accounted for by the equity method. Investments in which we
exercise no control or significant influence are accounted for
under the cost method.
Cash
Equivalents
The Company considers all highly liquid investments with
maturities of three months or less at the date of purchase to be
cash equivalents.
Derivatives
and Hedging
The Company follows Financial Accounting Standard No. 133
(including subsequent amendments)
Accounting for Derivative
Instruments and Hedging Activities
. These statements require
all derivatives to be recognized on the balance sheet and
measured at fair value. If a derivative is designated as a cash
flow hedge, the Company is required to measure the effectiveness
of the hedge, or the degree that the gain (loss) for the hedging
instrument offsets the loss (gain) on the hedged item, at each
reporting period. The effective portion of the gain (loss) on
the derivative instrument is recognized in other comprehensive
income as a component of equity and, subsequently, reclassified
into earnings when the forecasted transaction affects earnings.
The ineffective portion of a derivatives change in fair
value is required to be recognized in earnings immediately.
Derivatives that do not qualify for hedge treatment under FAS
133 must be recorded at fair value with gains (losses)
recognized in earnings in the period of change. There were no
derivatives outstanding at October 31, 2006 and 2007.
Insurance
The Company is self-insured for portions of employee healthcare,
maintained a large deductible program for Automobile Collision,
and maintains a guaranteed cost program as it relates to Workers
Compensation, Automobile Liability, and General Liability,
including but not limited to Product Liability.
Under our Property & Casualty Program, we have an Umbrella
Liability policy that covers liabilities in excess of
$1 million. We also have Excess Liability coverage for
liabilities in excess of $25 million.
F-77
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
Inventories
The Company accounts for inventories using the
Last-In,
First-Out (LIFO) method. The majority of the
Companys inventories are valued at the lower of LIFO cost
or market. If the LIFO method of valuing inventories were not
used, total inventories would have been $70.0 and
$62.0 million higher at October 31, 2006 and 2007,
respectively. However, certain of the Companys
Canadian-based inventories, totaling $73.6 million and
$79.1 million at October 31, 2006 and 2007,
respectively, are valued utilizing the lower of cost or market
method. The Companys inventory is composed of finished
goods. There are no general and administrative costs charged to
inventory.
During 2007, inventory quantities were reduced. This reduction
resulted in a liquidation of LIFO inventory quantities carried
at lower costs prevailing in prior years as compared with the
current cost of purchases, the effect of which decreased costs
of products sold by approximately $28.3 million in 2007.
There were no LIFO liquidations in 2005 and 2006.
Property,
Plant and Equipment
Property, plant and equipment are recorded at cost and include
expenditures for facilities as well as significant improvements
to existing facilities. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is reflected in
income for the period. Maintenance and repairs are charged to
expense as incurred.
Depreciation and amortization are computed utilizing both
straight-line and accelerated methods over the estimated useful
lives of the property. The ranges of estimated useful lives for
financial reporting are as follows:
|
|
|
|
|
|
|
Years
|
|
|
Buildings and improvements
|
|
|
5 -- 40
|
|
Machinery, shop equipment and vehicles
|
|
|
5 -- 12
|
|
Furniture, fixtures and office equipment
|
|
|
3 -- 7
|
|
Leasehold improvements
|
|
|
5 -- 15
|
|
Depreciation expense from continuing operations for the years
ended October 31, 2005, 2006 and 2007 was $2,828,000,
$4,770,000 and $5,971,000, respectively.
Revenue
Recognition
The Company recognizes revenue as products are shipped or
accepted by the customer.
The results of discontinued operations
(Note 4) include manufacturing revenue generated on
long-term fixed price contracts. Revenue on these contracts is
recognized on the percentage of completion basis. The Company
progress bills the customers based upon the contract terms. When
the amount that is billed is greater than the revenue that is
recognized based upon the percentage of completion, deferred
revenue is recognized. Anticipated losses are provided for in
the period incurred.
Rental, service and other revenues are recorded when such
services are performed and collectibility is reasonably assured.
Income
Taxes
The Company follows the provisions of Statement of Financial
Accounting Standards No. 109,
Accounting for Income
Taxes
(SFAS No. 109). SFAS No.
109 requires the measurement of deferred tax assets and
liabilities based on the future tax consequences attributable to
the differences between
F-78
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
As the result of a recent FASB deferral, FIN 48,
Accounting for Uncertainty in Income Taxes
(FIN 48) is effective for the Company for
fiscal years beginning after December 15, 2007. FIN 48
prescribes a two-step model for how companies should recognize
and measure uncertain tax positions. FIN 48 also requires
several new disclosures. The Company is assessing the impact
FIN 48 will have on our financial statements.
Treasury
Stock
The Company utilizes the cost method to account for its treasury
stock acquisitions and dispositions.
Freight
The Company follows
EITF 00-10
Accounting for Shipping and Handling Fees and Costs.
Accordingly, all out-bound shipping and handling costs are
reflected in cost of goods sold and all freight reimbursements
billed to customers are reflected in revenues.
Comprehensive
Income
The Company follows Statement of Financial Accounting Standards
No. 130,
Reporting Comprehensive Income
(SFAS No. 130). SFAS 130
established rules for the reporting and display of comprehensive
income and its components. Comprehensive income includes gains
and losses on hedging activities.
Foreign
Currency Translation and Transactions
Gains and losses from balance sheet translation of operations
outside of the United States where the applicable foreign
currency is the functional currency is included as a component
of accumulated other comprehensive income within
stockholders equity. Gains and losses resulting from
foreign currency transactions are recognized currently in the
consolidated statements of operations.
Goodwill and
Other Intangible Assets
Goodwill represents the excess of cost over the fair value of
net assets acquired. Recorded goodwill balances are not
amortized but, instead, evaluated for impairment annually or
more frequently if circumstances indicate that an impairment may
exist. The goodwill valuation, which is prepared each fiscal
year, is largely influenced by projected future cash flows and,
therefore, is significantly impacted by estimates and judgments.
Intangible assets are initially recorded at cost. Amortization
is provided using the straight-line method over 3 to
10 years which is intended to amortize the cost of assets
over their estimated useful lives. The carrying value of
intangible assets are reviewed for possible impairment whenever
events or changes in circumstances indicate the carrying amount
may not be recoverable.
As a result of the Companys annual impairment analysis,
impairment losses of $3,954,000 related to goodwill and
$1,195,000 related to intangibles were recognized in 2007 (2006:
$0). The impairment charge was recorded in Other, net in the
Consolidated Statement of Operations.
F-79
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair Value
Measurements
In September 2006, the FASB issued Statement 157,
Fair Value
Measurements
, which establishes a framework for measuring
fair value and requires additional disclosures about fair value
measurements. The Company does not believe this pronouncement
will have a material impact on our financial statement. The
provisions of this statement are effective for fiscal years
beginning after November 15, 2007.
On July 6, 2007 Red Man Pipe & Supply Co. and its
Shareholders, collectively entered into a definitive agreement
to be acquired by a subsidiary of McJunkin Corporation
(McJunkin). The Companys Shareholders approved
the Merger Agreement and the transaction closed on
October 31, 2007. In exchange for all of the outstanding
stock of the Company, Shareholders received cash and other
considerations. In conjunction with this Merger Agreement
certain Shareholders exchanged some of their shares for common
units in McJ Holding LLC, the ultimate parent corporation of
McJunkin Corporation. McJ Holding LLC is majority-owned by
Goldman Sachs Capital Partners and their affiliates. In
connection with this merger, the combined company has been
renamed McJunkin Red Man Corporation. The cash consideration to
be ultimately paid to the shareholders of the company
approximates $1.1 billion, less debt and certain
transaction expenses, and is subject to a working capital
adjustment and any additional consideration related to
McJunkins right to purchase the remaining equity of the
Companys majority-owned Canadian subsidiary, Midfield
Supply ULC (Midfield). As part of the agreement
McJunkin loaned the Company $120,027,000 in order to pay off the
Companys existing Revolving credit facility. McJunkin also
agreed to accept the obligation arising from certain transaction
expenses and from the termination of the Phantom Stock plan.
This amounted to $6,181,000 of capital contributions.
On June 2, 2006, the Company purchased certain assets from
Bear Tubular, Inc., for $4,613,000 in cash. The summary of the
purchase price allocation is as follows:
|
|
|
|
|
|
|
(In thousands of dollars)
|
|
|
Inventory
|
|
$
|
2,553
|
|
Property, plant and equipment
|
|
|
260
|
|
Goodwill
|
|
|
1,800
|
|
|
|
|
|
|
|
|
$
|
4,613
|
|
|
|
|
|
|
In 2006, through a series of transactions, Red Man
Pipe & Supply Canada Ltd. (Red Man Canada)
acquired 100% interest in four separate companies. The
consideration paid consisted of
F-80
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
$8,171,000 of cash and $246,000 of share capital in one of the
Companys majority-owned subsidiaries. The summary of the
total purchase allocation is as follows:
|
|
|
|
|
|
|
(In thousands of dollars)
|
|
|
Current assets
|
|
$
|
12,170
|
|
Property, plant and equipment
|
|
|
2,213
|
|
Goodwill
|
|
|
4,195
|
|
Intangibles
|
|
|
2,615
|
|
Current liabilities
|
|
|
(11,053
|
)
|
Long-term debt
|
|
|
(1,723
|
)
|
|
|
|
|
|
|
|
$
|
8,417
|
|
|
|
|
|
|
On June 14, 2005, the Company formed Red Man Canada.
Through a series of transactions Red Man Canada acquired
21,975 shares (51%) of Midfield. The shares were acquired
for $45,874,000. The summary of the purchase price allocation is
as follows:
|
|
|
|
|
|
|
(In thousands of dollars)
|
|
|
Assets acquired
|
|
|
|
|
Accounts receivable
|
|
$
|
54,585
|
|
Inventory
|
|
|
37,285
|
|
Property and equipment
|
|
|
23,154
|
|
Intangible assets
|
|
|
27,106
|
|
Goodwill
|
|
|
67,469
|
|
Other assets
|
|
|
2,527
|
|
|
|
|
|
|
|
|
|
212,126
|
|
|
|
|
|
|
Liabilities assumed
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(56,989
|
)
|
Debt and notes payable
|
|
|
(31,710
|
)
|
Payable to shareholders
|
|
|
(22,125
|
)
|
Minority interest
|
|
|
(45,609
|
)
|
Deferred income tax liabilities
|
|
|
(7,757
|
)
|
Other liabilities
|
|
|
(2,062
|
)
|
|
|
|
|
|
|
|
|
(166,252
|
)
|
|
|
|
|
|
Purchase price
|
|
$
|
45,874
|
|
|
|
|
|
|
On May 1, 2007, the Company acquired 100% of the
outstanding shares of Northern Boreal in exchange for cash and
shares. Northern Boreal operates an oilfield supply store.
Consolidated earnings of Northern Boreal since acquisition date
have been included in these financial statements.
On April 3, 2007, the Company acquired 100% of the
outstanding shares of Hagan Oilfield Supply Ltd., and affiliated
companies (1236564 and 1048025) in
exchange for cash and shares. Consolidated earnings of Hagan
since acquisition date have been included in these financial
statements. The Company subsequently amalgamated the operations
of the three companies on November 1, 2007, into Hagan
Oilfield Supply Ltd (Hagan), which operates three
oilfield supply stores.
F-81
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
The consideration paid and the fair values of the net assets
acquired are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern
|
|
|
|
|
|
|
Hagan
|
|
|
Boreal
|
|
|
Total
|
|
|
|
(in thousands of dollars)
|
|
|
Consideration paid
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,882
|
|
|
$
|
2,773
|
|
|
$
|
4,655
|
|
Shares issued in Midfield Supply ULC
|
|
|
217
|
|
|
|
820
|
|
|
|
1,037
|
|
Notes payable
|
|
|
701
|
|
|
|
1,495
|
|
|
|
2,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,800
|
|
|
$
|
5,088
|
|
|
$
|
7,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
98
|
|
|
$
|
3,812
|
|
|
$
|
3,910
|
|
Property, plant and equipment
|
|
|
127
|
|
|
|
244
|
|
|
|
371
|
|
Goodwill
|
|
|
2,045
|
|
|
|
2,638
|
|
|
|
4,683
|
|
Intangible assets
|
|
|
610
|
|
|
|
1,167
|
|
|
|
1,777
|
|
Current liabilities
|
|
|
(80
|
)
|
|
|
(2,773
|
)
|
|
|
(2,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,800
|
|
|
$
|
5,088
|
|
|
$
|
7,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 30, 2006, a subsidiary of the Company, Nusco Pipe
and Supply ULC, disposed of its manufacturing business located
in Nisku, Alberta, Canada, as well as its 80% interest in Nusco
Northern Manufacturing Ltd. and its wholly owned subsidiary
Moes. The Company received proceeds of $41,106,000
consisting of cash of $35,220,000, warrants with an estimated
fair value of $308,000 and an assumption of long-term debt of
$5,578,000.
The carrying amounts of the disposed assets relating to this
sale are as follows:
|
|
|
|
|
|
|
(in thousands
|
|
|
|
of dollars)
|
|
|
Current assets
|
|
$
|
5,790
|
|
Property, plant and equipment
|
|
|
14,760
|
|
Goodwill
|
|
|
7,943
|
|
Intangibles
|
|
|
297
|
|
Current liabilities
|
|
|
(130
|
)
|
Minority interest
|
|
|
(2,416
|
)
|
Long-term liabilities
|
|
|
(1,724
|
)
|
|
|
|
|
|
|
|
$
|
24,520
|
|
|
|
|
|
|
F-82
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
The results of operations for the discontinued operations were
as follows:
|
|
|
|
|
|
|
|
|
|
|
June 15, 2005
|
|
|
November 1, 2005
|
|
|
|
to
|
|
|
to
|
|
|
|
October 31, 2005
|
|
|
June 30, 2006
|
|
|
|
(in thousands of dollars)
|
|
|
Revenue
|
|
$
|
15,170
|
|
|
$
|
28,031
|
|
Cost of sales
|
|
|
(10,819
|
)
|
|
|
(21,880
|
)
|
Expenses
|
|
|
(2,494
|
)
|
|
|
(4,608
|
)
|
Amortization
|
|
|
|
|
|
|
(540
|
)
|
Bonuses
|
|
|
(1,032
|
)
|
|
|
(3,326
|
)
|
Other income
|
|
|
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
825
|
|
|
|
(1,876
|
)
|
Provision for current income taxes
|
|
|
(297
|
)
|
|
|
(301
|
)
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations
|
|
$
|
528
|
|
|
$
|
(2,177
|
)
|
|
|
|
|
|
|
|
|
|
Comparative figures have been restated as a result of these
discontinued operations.
On November 1, 2006, the Companys 100% owned
subsidiary, Midfield Supply USA Ltd. disposed of all of its
working capital assets with proceeds equal to book value ($888)
and plant and equipment with proceeds equal to net book value
($5) to the Companys majority shareholder. Midfield Supply
USA Ltd. ceased operating at this time.
|
|
5.
|
Property, Plant
and Equipment
|
Property, plant and equipment consists of the following as of
October 31, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands
|
|
|
|
of dollars)
|
|
|
Land
|
|
$
|
3,802
|
|
|
$
|
4,300
|
|
Buildings and improvements
|
|
|
11,140
|
|
|
|
16,172
|
|
Machinery, shop equipment and vehicles
|
|
|
11,840
|
|
|
|
24,178
|
|
Furniture, fixtures and office equipment
|
|
|
24,455
|
|
|
|
21,254
|
|
Leasehold improvements
|
|
|
1,763
|
|
|
|
2,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,000
|
|
|
|
68,900
|
|
Less: Accumulated depreciation and amortization
|
|
|
23,069
|
|
|
|
29,317
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,931
|
|
|
$
|
39,583
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Operating Lines
of Credit
(in thousands of dollars)
|
The Company has one Canadian dollar line of credit with Bank of
America, which is further described in Note 7.
In 2006 bank indebtedness consisted of three Canadian dollar and
one U.S. dollar revolving lines of credit. The Canadian
dollar lines of credit had a maximum limit of $30,000 bearing
interest to Canadian prime rate plus 0.625%, a maximum limit of
$25,000 bearing interest at prime plus 0.5% and a maximum limit
of $1,500 bearing interest at prime plus 0.5%. The
U.S. dollar line of credit had
F-83
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
a maximum of $250 US, bearing interest at 5.875%. All of these
lines of credit were fully repaid in the current year.
|
|
7.
|
Long-Term Debt,
Notes Payable and Term Loans
|
Long-term debt, notes payable and term loans as of
October 31, 2006 and 2007 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars)
|
|
|
Revolving credit facility(A)
|
|
$
|
207,418
|
|
|
$
|
|
|
Notes payable(B)
|
|
|
6,939
|
|
|
|
3,910
|
|
Term loans due on demand(C)
|
|
|
3,975
|
|
|
|
41,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,332
|
|
|
|
45,863
|
|
Less: Current portion
|
|
|
10,914
|
|
|
|
14,429
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
207,418
|
|
|
$
|
31,434
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
At October 31, 2006, the Credit Facility, as amended and
restated, permitted the Company to borrow amounts up to the
lesser of (i) $260 million or (ii) an amount
equal to the borrowing base plus the outstanding balance on the
term loan portion. On the revolving credit portion of the Credit
Facility, the Company is permitted to borrow amounts up to the
lesser of (i) $260 million or (ii) an amount
equal to the borrowing base amount. The borrowing base amount is
determined through a computation of eligible accounts receivable
and inventories as defined in the Credit Facility. The amount of
unused borrowings available under the Credit Facility at
October 31, 2006 was $52.6 million. The borrowings
under the revolving credit portion of the Credit Facility bear
an interest rate equal to the lesser of the Eurodollar rate, as
defined in the Credit Facility plus a margin based upon the
average daily availability and a fixed charge coverage ratio, as
defined in the Credit Facility or the maximum legal rate
permitted by applicable state or federal law, as defined in the
Credit Facility. The term loan portion of the Credit Facility
bears interest at (i) the lesser of the banks
Eurodollar margin plus the Eurodollar base rate, as defined in
the Credit Facility, or the maximum legal rate permitted by
applicable state or federal law, as defined in the Credit
Facility or (ii) the lesser of the banks base rate
margin, plus the base rate, as defined by the Credit Facility,
or the maximum legal rate permitted by applicable state or
federal law, as defined by the Credit Facility. The term loan
was paid off in 2006. The Company pays a fee on the unused
portion of the Credit Facility equal to 0.25% per year.
Additionally, the Company will pay a fee equal to 2.5% per annum
of the face amount of the letters of credit outstanding during
the month, for which letter of credit guarantees have been
issued. As discussed in Note 2, the Credit Facility was
paid off on October 31, 2007, using funds loaned from
McJunkin Corporation.
|
The amended and restated credit agreement contained customary
restrictions and limitations on the Companys ability to
incur liens, incur additional debt, make investments or engage
in transactions with affiliates, make capital expenditures, and
pay dividends or make other distributions. The Company was also
subject to financial covenants which included a total leverage
and a fixed charge ratio.
F-84
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
(B) Notes payable
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars)
|
|
|
Due to related parties
|
|
$
|
5,154
|
|
|
$
|
3,910
|
|
Unsecured note payable
|
|
|
1,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,939
|
|
|
$
|
3,910
|
|
|
|
|
|
|
|
|
|
|
The amounts due to related parties are unsecured, bear interest
at varying rates from 0% to 8% per annum, and are due on demand,
with no fixed terms of repayment. The parties are related due to
some common directors, or they are shareholders of the Company.
(C) Revolver and term loans
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of dollars)
|
|
|
Borrowings under line of credit with interest at prime plus
margin of 0.25%, due in October 2010(D)
|
|
$
|
|
|
|
$
|
31,434
|
|
Revolving term loan facility with interest at prime plus margin
of up to 0.5% (6.75% at October 31, 2007), due on
February 28, 2008
|
|
|
|
|
|
|
10,420
|
|
Term loan payable in monthly installments of $57,107 including
interest at Canadian bank prime plus 1.25%
|
|
|
3,787
|
|
|
|
|
|
Other
|
|
|
188
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,975
|
|
|
$
|
41,953
|
|
|
|
|
|
|
|
|
|
|
|
|
(D)
|
On November 2, 2006, Midfield entered into a loan and
security agreement for a CAD150 million revolving credit
facility. As of October 31, 2007, $31.4 million of
borrowings were outstanding under the facility and the unused
borrowing capacity was approximately $125.8 million.
Midfield must pay a monthly fee with respect to unutilized
revolving loan commitments equal to amounts ranging from 0.25%
to 0.375%, depending upon average borrowing levels for the
previous quarter. The facility provides for borrowings up to
CAD150 million, subject to adjustments based on the
borrowing base and less the aggregate letters of credit
outstanding under the facility. Letters of credit may be issued
under the facility subject to certain conditions, including a
CAD10 million sub-limit. The revolving loan has a maturity
date of November 2, 2010. All letters of credit issued
under the facility must expire at least 20 business days prior
to November 2, 2010.
|
The revolving credit facility bears interest with various
variable interest rate options. Midfield can elect a variable
rate based upon either the Canadian prime rate or Canadian
Dollar Bankers Acceptance rate (Canadian BA).
If the Canadian prime rate is elected, the rate ranges from
prime rate to prime rate plus 0.25%, depending upon average
borrowing levels for the previous quarter. If the Company elects
the Canadian BA rate, the rate ranges from Canadian BA rate plus
1.25% to 1.75%, depending upon borrowing levels for the previous
quarter.
The revolving credit facility is secured by substantially all of
the personal property of Midfield, with a carrying value of
$317.3 million at October 31, 2007. Provisions
contained in the revolving credit facility require Midfield to
maintain certain financial ratios and limit capital
expenditures. At
F-85
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
October 31, 2007, the Company was in compliance with all
such debt covenants. Prior to October 31, 2007, Midfield
obtained waivers for various events of default under its
revolving credit facility, including events of default for not
providing financial statements when due and making capital
expenditures in excess of certain limits.
The CAD150 million facility is subject to an inter-creditor
agreement which relates to, among other things, priority of
liens and proceeds of sale of collateral.
Aggregate future principal maturities of long-term debt as of
October 31, 2007, are as follows:
|
|
|
|
|
|
|
(in thousands
|
|
|
|
of dollars)
|
|
|
Year ending October 31,
|
|
|
|
|
2008
|
|
$
|
10,519
|
|
2009
|
|
|
|
|
2010
|
|
|
31,434
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,953
|
|
|
|
|
|
|
During February 2003, the Company entered into a swap agreement
and swapped $50 million at a variable rate
(LIBOR) for a fixed rate of 3.88%. This derivative
instrument was settled monthly on the first day of the
month and terminated in October 2005. This derivative
qualified as a cash flow hedge under FAS 133. The fair
value of this derivative instrument at October 31, 2005 was
approximately $0. This instrument expired effective
October 31, 2005.
Common
Stock
The Company has two classes of common stock. One class consists
of 50,000,000 authorized shares of $.01 par value voting
Class A Common stock. As of October 31, 2006 and 2007,
there were 144,831 and 143,976 shares, issued and
outstanding, respectively. The other class consists of
50,000,000 authorized shares of $.01 par value nonvoting
Class B Common Stock. As of October 31, 2006 and 2007,
there were 34,344 shares issued and outstanding.
Preferred
Stock
The Company also has 2,000 authorized shares of $2,500 par
value redeemable Class C Preferred Stock. As of
October 31, 2002, there were 2,000 preferred shares issued
and outstanding, and there were no preferred shares issued or
outstanding as of October 31, 2006 and 2007. The
Class C Preferred Stock is nonvoting and subordinate to
indebtedness of the Company, but bears full preference to the
Common Stock as to dividends and to redemption in the event of
liquidation of the Company. On November 30, 1999, certain
rights and privileges relating to the Class C Preferred
Stock were amended. Effective April 1, 2000, the Preferred
Stock bears an annual dividend of 8%, payable quarterly,
beginning on June 30, 2000. Effective April 1, 2002,
the preferred stock annual dividend rate was increased to 9% per
annum, payable quarterly, beginning on July 1, 2002.
Dividends paid on Class C Preferred Stock were $0, $0 and
$0 during 2005, 2006 and 2007, respectively.
F-86
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
In September 2003, the Company redeemed the 2,000 shares of
Class C Preferred Stock for $5,000,000.
Incentive
Stock Plan
In December 1997, the Company established the Red Man
Pipe & Supply Co. Incentive Stock Plan (the
Incentive Plan) in which officers, employees and
directors are eligible to participate. The Incentive Plan
authorizes the grant of incentive stock options, non-qualified
stock options and awards of restricted stock. Incentive stock
options may only be awarded to employees and the exercise price
may not be less than the fair market value of the Class A
common stock on the date of grant (or 110% of such fair market
value if granted to employees who own more than 10% of the
combined voting power of all classes of the stock of the
Company). The exercise price of non-qualified stock options
shall be determined by the Board of Directors or its committee
and shall not be less than the fair market value of the
Class A Common Stock on the date of grant. The vesting
period for all options will be determined by the Board of
Directors or its committees at the time of the grant. The
incentive stock option may not be exercised after the expiration
of 10 years from the date of grant (or 5 years if
granted to employees who own more than 10% of the combined
voting power of all classes of stock of the Company). No options
have been granted under the Incentive Plan. In connection with
the Merger Agreement (Note 2), the Incentive Stock Plan was
terminated on October 31, 2007.
A restricted stock award will consist of shares of Class A
Common Stock that are nontransferable or subject to risk of
forfeiture until specific conditions are met. The restrictions
will lapse in accordance with the schedule or other conditions
as determined by the Board of Directors or its committee. During
the restriction period, the recipient of restricted stock will
have certain rights as a shareholder, including the right to
vote the stock and receive dividends. No awards have been
granted under the Incentive Plan. In connection with the Merger
Agreement (Note 2), the Incentive Stock Plan was terminated
on October 31, 2007.
Phantom Stock
Plan
In April 2003, the Company established the Red Man
Pipe & Supply Co. Phantom Stock Plan (the
Phantom Plan) in which officers and key employees
are eligible to participate. The Plan authorizes the grant of up
to 5,000 shares of phantom stock. The shares are credited
to the participants accounts and are eligible for
redemption payment after vesting at a price per share based upon
the annual stock valuation. As of October 31, 2005,
1,957 shares had been granted under the Phantom Plan and
have a redemption value of approximately $750,000, upon vesting
in years 2012 through 2027. Selling, general and administrative
expenses include compensation expense related to the Phantom
Plan of $84,000, $426,000 and $2,482,000 for the periods ended
October 31, 2005, 2006 and 2007, respectively. In
connection with the Merger Agreement (Note 2), the Phantom
Plan was terminated on October 31, 2007, in exchange for an
agreement to pay Phantom Plan participants a total of $3,075,000.
The Company occupies facilities and operates motor vehicles
under long-term operating leases that expire during the fiscal
years ending 2005 through 2014. Certain of these leases are
subject to renewal or purchase options and escalation clauses.
The following is a schedule by year of future minimum lease
payments required under the operating leases that have initial
or remaining noncancelable lease terms as of October 31,
2007;
F-87
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
|
|
|
|
|
|
|
|
|
Year ending
October 31
|
|
(In thousands of
dollars)
|
|
|
|
|
|
2008
|
|
$
|
10,676
|
|
|
|
|
|
2009
|
|
|
7,618
|
|
|
|
|
|
2010
|
|
|
4,774
|
|
|
|
|
|
2011
|
|
|
3,508
|
|
|
|
|
|
2012
|
|
|
3,871
|
|
|
|
|
|
Thereafter
|
|
|
1,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
31,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense on all operating leases amounted to approximately
$5,700,000, $8,043,000 and $10,457,000 in 2005, 2006 and 2007,
respectively.
The components of income (loss) from continuing operations and
before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands of dollars)
|
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
91,209
|
|
|
$
|
74,918
|
|
|
$
|
141,881
|
|
Non-United
States
|
|
|
2,266
|
|
|
|
5,410
|
|
|
|
(2,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) before income taxes
|
|
$
|
93,475
|
|
|
$
|
80,328
|
|
|
$
|
139,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of income tax expense, from continuing
operations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands of dollars)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax expense
|
|
$
|
16,312
|
|
|
$
|
21,791
|
|
|
$
|
42,632
|
|
State tax expense
|
|
|
2,324
|
|
|
|
3,542
|
|
|
|
6,198
|
|
Non-United
States
|
|
|
208
|
|
|
|
59
|
|
|
|
2,456
|
|
Deferred tax expense
|
|
|
15,364
|
|
|
|
1,106
|
|
|
|
6,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,208
|
|
|
$
|
26,498
|
|
|
$
|
57,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-88
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
The components of the net deferred tax asset (liability) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands of dollars)
|
|
|
Current deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
(18,367
|
)
|
|
$
|
(22,627
|
)
|
Accounts receivable
|
|
|
(3,461
|
)
|
|
|
(4,103
|
)
|
Vacation accrual
|
|
|
663
|
|
|
|
710
|
|
Accrued insurance
|
|
|
394
|
|
|
|
318
|
|
Red Man Canada interest
|
|
|
(2,181
|
)
|
|
|
(3,987
|
)
|
Phantom stock
|
|
|
231
|
|
|
|
715
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax (liabilities)
|
|
$
|
(22,721
|
)
|
|
$
|
(28,974
|
)
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
(1,847
|
)
|
|
$
|
(3,136
|
)
|
Intangible assets
|
|
|
(4,048
|
)
|
|
|
(4,690
|
)
|
Other
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax (liabilities)
|
|
$
|
(5,924
|
)
|
|
$
|
(7,826
|
)
|
|
|
|
|
|
|
|
|
|
The difference between the effective tax rate and the
U.S. federal statutory rate was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Federal statutory rate
|
|
|
34.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income tax
|
|
|
4.6
|
|
|
|
4.3
|
|
|
|
4.8
|
|
Nondeductible expenses
|
|
|
1.0
|
|
|
|
0.7
|
|
|
|
0.3
|
|
Foreign sales corporation
|
|
|
(1.3
|
)
|
|
|
(1.5
|
)
|
|
|
(0.1
|
)
|
Non-United
States
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
0.9
|
|
Other
|
|
|
(1.7
|
)
|
|
|
(3.3
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
36.6
|
%
|
|
|
32.9
|
%
|
|
|
41.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Employee Benefit
Plans
|
The Red Man Pipe & Supply Co. Retirement Savings Plan
(the Plan) incorporates the provisions of
Section 401(k) of the Internal Revenue Code. The Plan
covers all employees in the United States who have attained the
age of twenty-one (21). Participants are allowed to contribute a
portion of their salary with employer matching contributions
based on the contributions of the participants. The employer
matching contributions were approximately $927,000, $1,081,000
and $1,215,000 for the years ended October 31, 2005, 2006
and 2007, respectively.
|
|
12.
|
Related Party
Transactions
|
The Company leases certain equipment from Prideco, a partnership
related by common ownership and control. The Company also leases
certain buildings from Prideco. Amounts paid to Prideco for
building and equipment rental were $2,205,000, $2,695,000 and
$3,086,000 for the years ended October 31, 2005, 2006 and
2007, respectively.
F-89
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
A stockholder leases a supply and service center to the Company
for use in its operations. The stated term of the lease will
expire in January 2008. The aggregate lease payments made to the
stockholder were $13,200 in each of fiscal years ended
October 31, 2005, 2006 and 2007.
In connection with the Companys acquisition of 51% of the
shares of Midfield Supply ULC, a Shareholders Agreement
between Red Man Pipe & Supply Canada, LTD., the 51%
majority shareholder of Midfield Supply ULC, and Midfield
Holdings (Alberta) LTD., the 49% minority interest shareholder
of Midfield Supply ULC was created. This agreement, among other
things, stipulates how profits of Midfield Supply ULC are
shared. Midfield Holdings (Alberta) LTDs portion of the
profits are accrued and subsequently paid to shareholders of
Midfield Holdings (Alberta) LTD, who are also employees of
Midfield Supply ULC, via a formal Employee Profit Sharing Plan
(EPSP). In connection with the EPSP, $22,186,000 and
$8,212,000 is accrued as of October 31, 2006 and 2007,
respectively, and is included in selling, general and
administrative expenses. Red Man Pipe & Supply Canada,
LTDs portion of the profits were accrued and subsequently
paid via an after-tax dividend, which has been eliminated in
consolidation.
In connection with the EPSP payments, from time to time the
minority shareholder makes loans to the Company. These
subordinated notes payable are unsecured, bear interest at 8%
and have no fixed terms of repayment. Amounts payable to
minority interest shareholders were $28,009,000 and $25,718,000
as of October 31, 2006 and 2007, respectively, for amounts
loaned to the Company.
The Company has unsecured advances to a related entity, Europump
Systems Inc. (Europump), with no fixed terms of
repayment bearing interest at 8% per annum in 2006 and 0% in
2007. The outstanding balance on the advances was $4,940,000 and
$2,921,000 at October 31, 2006 and 2007, respectively. The
Company has also issued a financial guarantee in the form of an
irrevocable standby letter of credit for Europump for an amount
up to CAD5,000,000 (2006: CAD0), to support a line of credit
that Europump has established with its bank. The expiry date of
the letter of credit is January 31, 2008, subject to an
automatic renewal of one year unless such bank elects not to
renew this letter of credit.
|
|
13.
|
Concentration of
Credit Risk and Sources of Supply
|
Most of the Companys business activity is with customers
in the oil and gas industry. In the normal course of business
the Company grants credit to these customers. Trade accounts
receivable are primarily from these customers. The Company
generally does not require collateral on its trade receivables.
During 2005, 2006 and 2007, the Company did not have sales to
any customers in excess of 10% of gross sales.
A substantial portion of the Companys tubular goods is
purchased from two manufacturers. The Company has no long-term
supply contracts with these manufacturers which would assure the
Company of a continued supply of tubular products in the future.
Although the Company believes there are numerous manufacturers
having the capacity to supply its tubular products, the loss of
one of these major suppliers could have a material adverse
effect on the Companys business, financial condition or
results of operations.
F-90
Shares
McJUNKIN RED MAN HOLDING
CORPORATION
Common Stock
Goldman, Sachs &
Co.
Lehman Brothers
JPMorgan
Deutsche Bank
Securities
Robert W. Baird &
Co.
Credit Suisse
Stephens Inc.
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses
of Issuance and Distribution.
|
The following table sets forth the costs and expenses to be paid
by the Registrant in connection with the sale of the shares of
common stock being registered hereby. All amounts are estimates
except for the SEC registration fee, the Financial Industry
Regulatory Authority (FINRA) filing fee and the New
York Stock Exchange listing fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
29,475
|
|
FINRA filing fee
|
|
|
75,500
|
|
The New York Stock Exchange listing fee
|
|
|
250,000
|
|
Accounting fees and expenses
|
|
|
850,000
|
|
Legal fees and expenses
|
|
|
3,500,000
|
|
Printing and engraving expenses
|
|
|
650,000
|
|
Blue Sky qualification fees and expenses
|
|
|
10,000
|
|
Transfer agent and registrar fees and expenses
|
|
|
10,000
|
|
Miscellaneous expenses
|
|
|
25,025
|
|
Total
|
|
$
|
5,400,000
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Section 145 of the Delaware General Corporation Law
authorizes a court to award, or a corporations board of
directors to grant, indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as
amended (the Securities Act).
As permitted by the Delaware General Corporation Law, the
Registrants Certificate of Incorporation includes a
provision that eliminates the personal liability of its
directors for monetary damages for breach of fiduciary duty as a
director, except for liability:
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|
for any breach of the directors duty of loyalty to the
Registrant or its stockholders;
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|
|
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for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
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|
under section 174 of the Delaware General Corporation Law
regarding unlawful dividends and stock purchases; or
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|
|
for any transaction for which the director derived an improper
personal benefit.
|
As permitted by the Delaware General Corporation Law, the
Registrants Bylaws provide that:
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|
the Registrant is required to indemnify its directors and
officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to very limited exceptions;
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the Registrant may indemnify its other employees and agents to
the fullest extent permitted by the Delaware General Corporation
Law, subject to very limited exceptions;
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|
the Registrant is required to advance expenses, as incurred, to
its directors and officers in connection with a legal proceeding
to the fullest extent permitted by the Delaware General
Corporation Law, subject to very limited exceptions;
|
II-1
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|
|
the Registrant may advance expenses, as incurred, to its
employees and agents in connection with a legal
proceeding; and
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|
|
the rights conferred in the Bylaws are not exclusive.
|
The Registrant may enter into Indemnity Agreements with each of
its current directors and officers to give these directors and
officers additional contractual assurances regarding the scope
of the indemnification set forth in the Registrants
Certificate of Incorporation and to provide additional
procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or
employee of the Registrant regarding which indemnification is
sought, nor is the Registrant aware of any threatened litigation
that may result in claims for indemnification.
The indemnification provisions in the Registrants
Certificate of Incorporation and Bylaws and any Indemnity
Agreements entered into between the Registrant and each of its
directors and officers may be sufficiently broad to permit
indemnification of the Registrants directors and officers
for liabilities arising under the Securities Act.
The Registrant and its subsidiaries are covered by liability
insurance policies which indemnify their directors and officers
against loss arising from claims by reason of their legal
liability for acts as such directors, officers or trustees,
subject to limitations and conditions as set forth in the
policies.
The underwriting agreement to be entered into among the Company,
the selling stockholder and the underwriters will contain
indemnification and contribution provisions.
Stephen W. Lake, senior corporate vice president, general
counsel and corporate secretary of our company, holds an
employed lawyers professional liability policy with Ace
American Insurance Company, insuring him against liability which
he may incur in his capacity as an officer of our company. The
policy provides for $2 million of coverage with a $10,000
deductible.
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Item 15.
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Recent Sales
of Unregistered Securities.
|
Issuances of
Shares of Common Stock
We issued shares of common stock to PVF Holdings LLC over the
period from November 29, 2006 to July 7, 2008. Set
forth below is a summary of all issuances made to PVF Holdings
LLC during such period. All issuances of common stock to PVF
Holdings LLC were exempt from registration in accordance with
Section 4(2) of the Securities Act of 1933 and
Rule 506 of Regulation D. PVF Holdings LLC was and is
an accredited investor within the meaning of
Regulation D, owned principally and controlled by the
Goldman Sachs Funds, and all issuances of common stock to PVF
Holdings LLC were made on a private placement basis without
general solicitation.
The Company was incorporated on November 29, 2006, and on
such date the Company issued 100 shares of common stock to
PVF Holdings LLC at a nominal purchase price of $1.00 per share.
On January 31, 2007, in connection with the Companys
acquisition of the entity now known as McJunkin Red Man
Corporation (and its affiliate McJunkin Appalachian Oilfield
Supply Company), the Company issued 102,111.5960 shares of
common stock to PVF Holdings LLC at a purchase price of
$3,933.81 per share in exchange for $202,712,226.29 in cash,
2,763.0177 shares of common stock of McJunkin Corporation
and 1,441.33 shares of common stock of McJunkin Appalachian
Oilfield Supply Company.
On March 27, 2007, in connection with investments in PVF
Holdings LLC made by a new director and a new employee of the
Company, the Company issued 381.5277 shares of common stock
to PVF Holdings at a purchase price of $3,933.81 in exchange for
a cash contribution of $500,857.14 and $1,000,000 in the form of
a
10-year
promissory note.
On October 31, 2007, in connection with our business
combination with Red Man Pipe & Supply Co., the
Company issued 196,917.8360 shares of common stock to PVF
Holdings LLC at a purchase
II-2
price of $3,933.81 per share in exchange for a cash
contribution of $671,028,298 in cash and 23,584 shares of
Red Man Pipe & Supply Co.
On November 29, 2007, in connection with investments in PVF
Holdings LLC made by select employees of Red Man
Pipe & Supply Co. (now a subsidiary of the Company),
the Company issued 227.9818 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $896,837.18.
On November 30, 2007, in connection with an investment in
PVF Holdings LLC made by a newly appointed director of the
Company, the Company issued 127.1033 shares of common stock
to PVF Holdings LLC at a purchase price of $3,933.81 per share
in exchange for a cash contribution of $500,000.
On December 14, 2007, in connection with an investment in
PVF Holdings LLC made by an executive officer of the Company,
the Company issued 25.4207 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $100,000.
On January 7, 2008, in connection with an investment in PVF
Holdings made by a new executive officer of the Company, the
Company issued 0.2179 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $857.14.
On January 9, 2008, in connection with an investment in PVF
Holdings made by an executive officer of the Company, the
Company issued 0.2179 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $857.14.
On January 15, 2008, in connection with investments in PVF
Holdings LLC made by select employees of the Companys
Canadian subsidiary, the Company issued 9,389.4973 shares
of common stock to PVF Holdings LLC at a purchase price of
$3,933.81 per share in exchange for a cash contribution of
$4,806,769.37 and a deferred capital contribution of
$32,129,724.47.
On February 8, 2008, in connection with an investment in
PVF Holdings LLC made by a new executive officer of the Company,
the Company issued 50.8413 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $200,000.
On March 24, 2008, in connection with an investment in PVF
Holdings LLC made in December 2007 by a recently appointed
director of the Company, the Company issued 254.2066 shares
of common stock to PVF Holdings LLC at a purchase price of
$3,933.81 per share in exchange for a cash contribution of
$1,000,000.
On April 10, 2008, in accordance with the stock purchase
agreement executed in connection with our business combination
with Red Man Pipe & Supply Co., it was determined that
the shareholders of Red Man Pipe & Supply Co. were
owed $6,680,251.39 as part of the purchase price adjustment. As
a result, on April 10, 2008, PVF Holdings LLC issued
1,698.1634 common units (at $3,933.81 per unit), equal to the
aggregate dollar amount of $6,680,251.39, to the shareholders of
Red Man Pipe & Supply Co. In connection with this
issuance, the Company issued 1,698.1634 shares of common
stock to PVF Holdings LLC at a price of $3,933.81 per share.
On May 14, 2008, in connection with an investment in PVF
Holdings LLC made by two directors of the Company, the Company
issued 0.4358 shares of common stock to PVF Holdings LLC at
a purchase price of $3,933.81 per share in exchange for a cash
contribution of $1,714.28.
On May 16, 2008, in accordance with the stock purchase
agreement executed in connection with our business combination
with Red Man Pipe & Supply Co., it was determined that
the shareholders of Red Man Pipe & Supply Co. were
owed $343,194.72 as part of an additional purchase price
adjustment. As a result, on May 16, 2008, PVF Holdings LLC
issued 87.2423 common
II-3
units (at $3,933.81 per unit), equal to the aggregate dollar
amount of $343,194.72, to the shareholders of Red Man
Pipe & Supply Co. In connection with this issuance,
the Company issued 87.2423 shares of common stock to PVF
Holdings LLC at a price of $3,933.81 per share.
On July 7, 2008, in connection with an investment in PVF
Holdings LLC made by a new director of the Company, the Company
issued 68.9942 shares of common stock to PVF Holdings LLC
at a purchase price of $4,348.19 per share in exchange for a
cash contribution of $300,000.
On September 10, 2008, the Company issued
340.4379 shares of common stock to its newly hired chief
executive officer in exchange for a cash contribution of
$3,000,000 at a purchase price per share of $8,812.18. The
issuance of common stock to our newly-hired chief executive
officer was exempt from registration in accordance with
Rule 701 of the Securities Act of 1933.
Stock Option
and Restricted Stock Awards
As of September 10, 2008, we had outstanding stock options
to purchase 7,198.9429 shares of our common stock and
569.4220 shares of restricted stock outstanding in
connection with awards made to certain of our employees and
directors in connection with services provided as our employees
and directors. These numbers take into account forfeitures as a
result of the termination of certain grantees employment.
All of these awards of restricted stock and stock options were
exempt from registration in accordance with Rule 701 or
Section 4(2) of the Securities Act of 1933. The dates of
grant and recipients of such awards are more fully described
below.
On March 27, 2007, we granted options to acquire
1,169.3502 shares of our common stock under the McJ Holding
Corporation 2007 Stock Option Plan (the Stock Option
Plan) to certain employees of McJunkin Corporation at an
exercise price of $3,933.81 per share (which was subsequently
reduced to $2,411.17 in connection with our recapitalization in
May 2008). On March 27, 2007 we also granted
317.7575 shares of restricted stock under the McJ Holding
Corporation 2007 Restricted Stock Plan (the Restricted
Stock Plan) to certain employees of McJunkin Corporation.
On December 21, 2007 and January 23, 2008, we granted
options to acquire 800.7505 shares of our common stock to
certain employees of our subsidiary Midfield Supply ULC under
the McJunkin Red Man Holding Corporation 2007 Stock Option Plan
(Canada), a sub-plan of the Stock Option Plan, at an exercise
price of $3,933.81 per share (which was subsequently reduced to
$2,411.17 in connection with our recapitalization in May 2008).
On December 21, 2007, we granted options to acquire
1,410.8460 shares of our common stock to certain employees
of Red Man Pipe & Supply Co. under the Stock Option
Plan. In addition to grants made to employees, on
December 21, 2007 we granted options to acquire
76.2620 shares of our common stock to each of two recently
appointed directors in connection with their service on our
board of directors. All of the options to acquire shares of our
common stock described in this paragraph had an exercise price
of $3,933.81 per share, which was subsequently reduced to
$2,411.17 per share in connection with our recapitalization in
May 2008. On December 21, 2007 we also granted
317.7581 shares of restricted stock under the Restricted
Stock Plan to certain employees of Red Man Pipe &
Supply Co.
On February 8, 2008, we granted options to acquire
38.1310 shares of our common stock to one of our employees
under the Stock Option Plan at an exercise price of $3,933.81
per share (which was also reduced to $2,411.17 per share in
connection with our recapitalization in May 2008).
On June 16, 2008, we granted options to acquire
216.0650 shares of our common stock to certain of our
employees under the Stock Option Plan at an exercise price of
$4,348.19 per share.
On June 19, 2008, we granted options to acquire
114.9904 shares of our common stock to one of our employees
under the Stock Option Plan at an exercise price of $4,348.19
per share.
II-4
On August 13, 2008 we granted options to purchase
27.1208 shares of our common stock to each of two of our
employees under the Stock Option Plan with an exercise price of
$5,530.81 per share.
On September 10, 2008 we granted options to purchase
3,517.8582 shares of our common stock with an exercise
price of $8,812.18 per share to our newly hired chief executive
officer.
The amounts of our common stock, restricted stock and stock
options described in this Item 15 do not take into account
the for split of our common stock which
will occur prior to the pricing of this offering.
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Item 16.
|
Exhibits and
Financial Statement Schedules.
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(a) The following exhibits are filed herewith:
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Number
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Exhibit Title
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|
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1
|
.1*
|
|
Form of Underwriting Agreement.
|
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2
|
.1
|
|
Agreement and Plan of Merger, dated as of December 4, 2006,
by and among McJunkin Corporation, McJ Holding Corporation and
Hg Acquisition Corp.
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2
|
.1.1
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McJunkin Contribution Agreement, dated as of December 4,
2006, by and among McJunkin Corporation, McJ Holding LLC and
certain shareholders of McJunkin Corporation.
|
|
2
|
.1.2
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|
McApple Contribution Agreement, dated as of December 4,
2006, among McJunkin Corporation, McJ Holding LLC and certain
shareholders of McJunkin Appalachian Oilfield Supply Company.
|
|
2
|
.2
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|
Stock Purchase Agreement, dated as of April 5, 2007, by and
between McJunkin Development Corporation, Midway-Tristate
Corporation and the other parties thereto.
|
|
2
|
.2.1
|
|
Assignment Agreement, dated as of April 27, 2007, by and
among McJunkin Development Corporation, McJunkin Appalachian
Oilfield Supply Company, Midway-Tristate Corporation, and John
A. Selzer, as Representative of the Shareholders.
|
|
2
|
.3
|
|
Stock Purchase Agreement, dated as of July 6, 2007, by and
among West Oklahoma PVF Company, Red Man Pipe & Supply
Co., the Shareholders listed on Schedule 1 thereto, PVF
Holdings LLC, and Craig Ketchum, as Representative of the
Shareholders.
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|
2
|
.3.1
|
|
Contribution Agreement, dated July 6, 2007, by and among
McJ Holding LLC and certain shareholders of Red Man Pipe &
Supply Co.
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2
|
.3.2
|
|
Amendment No. 1 to Stock Purchase Agreement, dated as of
October 24, 2007, by and among West Oklahoma PVF Company,
Red Man Pipe & Supply Co., and Craig Ketchum, as
Representative of the Shareholders.
|
|
2
|
.3.3
|
|
Joinder Agreement and Amendment No. 2 to the Stock Purchase
Agreement, dated as of October 31, 2007, by and among West
Oklahoma PVF Company, Red Man Pipe & Supply Co., PVF
Holdings LLC, Craig Ketchum, as Representative of the
Shareholders, and the other parties thereto.
|
|
3
|
.1*
|
|
Form of Amended and Restated Certificate of Incorporation of
McJunkin Red Man Holding Corporation.
|
|
3
|
.2*
|
|
Form of Amended and Restated Bylaws of McJunkin Red Man Holding
Corporation.
|
|
4
|
.1*
|
|
Specimen Common Stock Certificate.
|
|
5
|
.1
|
|
Form of opinion of Fried, Frank, Harris, Shriver &
Jacobson LLP.
|
|
10
|
.1
|
|
Revolving Loan Credit Agreement, dated as of October 31,
2007, by and among McJunkin Red Man Corporation and the other
parties thereto.
|
|
10
|
.1.1
|
|
Joinder Agreement, dated as of June 10, 2008, by and among
The Huntington National Bank, McJunkin Red Man Corporation and
The CIT Group/Business Credit, Inc.
|
|
10
|
.1.2
|
|
Joinder Agreement, dated as of June 10, 2008, by and among
JP Morgan Chase Bank, N.A., McJunkin Red Man Corporation and The
CIT Group/Business Credit, Inc.
|
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10
|
.1.3
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|
Joinder Agreement, dated as of June 10, 2008, by and among
TD Bank, N.A., McJunkin Red Man Corporation and The CIT
Group/Business Credit, Inc.
|
II-5
|
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Number
|
|
Exhibit Title
|
|
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10
|
.1.4
|
|
Joinder Agreement, dated as of June 10, 2008, by and among
United Bank Inc., McJunkin Red Man Corporation and The CIT
Group/Business Credit, Inc.
|
|
10
|
.2
|
|
Revolving Loan Security Agreement, dated as of October 31,
2007, by and among McJunkin Red Man Corporation and the other
parties thereto.
|
|
10
|
.3
|
|
Term Loan Credit Agreement, dated as of January 31, 2007,
by and among McJunkin Red Man Corporation and the other parties
thereto.
|
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10
|
.3.1
|
|
First Amendment to Term Loan Credit Agreement, dated as of
October 31, 2007, by and among McJunkin Red Man Corporation
and the other parties thereto.
|
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10
|
.4
|
|
Term Loan Pledge Agreement, dated as of January 31, 2007,
by and among McJunkin Red Man Corporation, Lehman Commercial
Paper Inc., and the other parties thereto.
|
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10
|
.4.1
|
|
Supplement No. 1 to Term Loan Pledge Agreement, dated as of
April 30, 2007, by and among McJunkin Red Man Corporation,
Lehman Commercial Paper Inc., and the other parties thereto.
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10
|
.4.2
|
|
Supplement No. 2 to Term Loan Pledge Agreement, dated as of
April 30, 2007, by and among McJunkin Red Man Corporation,
Lehman Commercial Paper Inc., and the other parties thereto.
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10
|
.4.3
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Supplement No. 3 to Term Loan Pledge Agreement, dated as of
October 31, 2007, by and among McJunkin Red Man
Corporation, Lehman Commercial Paper Inc., and the other parties
thereto.
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10
|
.5
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|
Term Loan Security Agreement, dated as of January 31, 2007,
by and among McJunkin Red Man Corporation, Lehman Commercial
Paper Inc., and the other parties thereto.
|
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10
|
.5.1
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|
Supplement No. 1 to Term Loan Security Agreement, dated as
of April 30, 2007, by and among McJunkin Red Man
Corporation, Lehman Commercial Paper Inc., and the other parties
thereto.
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10
|
.5.2
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Supplement No. 2 to Term Loan Security Agreement, dated as
of October 31, 2007, by and among McJunkin Red Man
Corporation, Lehman Commercial Paper Inc., and the other parties
thereto.
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|
10
|
.6
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|
Term Loan Credit Agreement, dated as of May 22, 2008, by
and among McJunkin Red Man Holding Corporation and the other
parties thereto.
|
|
10
|
.7
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Term Loan Pledge Agreement, dated as of May 22, 2008, by
and between McJunkin Red Man Holding Corporation and Lehman
Commercial Paper Inc.
|
|
10
|
.8
|
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Term Loan Security Agreement, dated as of May 22, 2008, by
and between McJunkin Red Man Holding Corporation and Lehman
Commercial Paper Inc.
|
|
10
|
.9
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|
Loan and Security Agreement, dated as of November 2, 2006,
by and among Midfield Supply ULC and the other parties thereto.
|
|
10
|
.9.1
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|
Consent and First Amendment to the Loan and Security Agreement,
dated as of April 26, 2007, by and among Midfield Supply
ULC and the other parties thereto.
|
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10
|
.9.2
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|
Second Amendment to the Loan and Security Agreement, dated as of
May 17, 2007, by and among Midfield Supply ULC and the
other parties thereto.
|
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10
|
.9.3
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|
Third Amendment, Consent and Waiver to the Loan and Security
Agreement, dated as of October 31, 2007, by and among
Midfield Supply ULC and the other parties thereto.
|
|
10
|
.9.4
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Fourth Amendment to the Loan and Security Agreement, dated as of
April 28, 2008, by and among Midfield Supply ULC and the
other parties thereto.
|
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10
|
.10
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Letter Agreement, dated as of May 17, 2007, by and between
Alberta Treasury Branches and Midfield Supply ULC.
|
|
10
|
.10.1
|
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Amendment to Letter Agreement, dated as of October 10,
2007, by and between Alberta Treasury Branches and Midfield
Supply ULC.
|
|
10
|
.11
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|
Letter Agreement, dated as of September 24, 2008, by and
among H.B. Wehrle, III, PVF Holdings LLC and McJunkin Red Man
Corporation.
|
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10
|
.12
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|
Employment Agreement of Craig Ketchum.
|
|
10
|
.13
|
|
Employment Agreement of James F. Underhill.
|
|
10
|
.14
|
|
Employment Agreement of David Fox, III.
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|
10
|
.15
|
|
Employment Agreement of Dee
Paige.
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II-6
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Number
|
|
Exhibit Title
|
|
|
10
|
.16
|
|
Employment Agreement of Stephen D. Wehrle.
|
|
10
|
.17
|
|
McJ Holding Corporation 2007 Stock Option Plan.
|
|
10
|
.17.1
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement.
|
|
10
|
.18
|
|
McJ Holding Corporation 2007 Restricted Stock Plan.
|
|
10
|
.18.1
|
|
Form of McJunkin Red Man Holding Corporation Restricted Stock
Award Agreement.
|
|
10
|
.19
|
|
McJunkin Red Man Holding Corporation 2007 Stock Option Plan
(Canada).
|
|
10
|
.19.1
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Canada) (for plan participants who are parties
to non-competition agreements).
|
|
10
|
.19.2
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Canada) (for plan participants who are not
parties to non-competition agreements).
|
|
10
|
.20
|
|
McJunkin Red Man Corporation Deferred Compensation Plan.
|
|
10
|
.21
|
|
Indemnity Agreement, dated as of December 4, 2006, by and
among McJunkin Red Man Holding Corporation, Hg Acquisition
Corp., McJunkin Red Man Corporation, and certain shareholders of
McJunkin Red Man Corporation named therein.
|
|
10
|
.22
|
|
Management Stockholders Agreement, dated as of March 27,
2007, by and among PVF Holdings LLC, McJunkin Red Man Holding
Corporation, and the other parties thereto.
|
|
10
|
.22.1
|
|
Amendment No. 1 to the Management Stockholders Agreement,
dated as of December 21, 2007, executed by PVF Holdings LLC.
|
|
10
|
.22.2
|
|
Amendment No. 2 to the Management Stockholders Agreement,
dated as of December 26, 2007, executed by PVF Holdings LLC.
|
|
10
|
.23
|
|
Phantom Shares Surrender Agreement, Release and Waiver, dated as
of October 30, 2007, by and among Red Man Pipe &
Supply Co., PVF Holdings LLC, and Jeffrey Lang.
|
|
10
|
.24
|
|
Phantom Shares Surrender Agreement, Release and Waiver, dated as
of October 30, 2007, by and among Red Man Pipe &
Supply Co., PVF Holdings LLC, and Dee Paige.
|
|
10
|
.25*
|
|
Form of Second Amended and Restated Limited Liability Company
Agreement of PVF Holdings LLC.
|
|
10
|
.26*
|
|
Form of Registration Rights Agreement by and among McJunkin Red
Man Holding Corporation and PVF Holdings LLC.
|
|
10
|
.27
|
|
Amended and Restated Limited Liability Company Operating
Agreement of Red Man Distributors LLC, dated as of
September 18, 2008.
|
|
10
|
.28
|
|
Amended and Restated Services Agreement, dated as of
September 18, 2008, by and between McJunkin Red Man
Corporation and Red Man Distributors LLC.
|
|
10
|
.29
|
|
Employment Agreement of Andrew Lane.
|
|
10
|
.30
|
|
Subscription Agreement, dated as of September 10, 2008, by
and among McJunkin Red Man Holding Corporation, Andrew Lane, and
PVF Holdings LLC.
|
|
10
|
.31
|
|
McJunkin Red Man Holding Corporation Nonqualified Stock Option
Agreement, dated as of September 10, 2008, by and among
McJunkin Red Man Holding Corporation, PVF Holdings LLC, and
Andrew Lane.
|
|
16
|
|
|
Letter from Schneider Downs & Co., Inc.
|
|
21
|
.1
|
|
List of Subsidiaries of McJunkin Red Man Holding Corporation.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP.
|
|
23
|
.2
|
|
Consent of Schneider Downs & Co., Inc.
|
|
23
|
.3
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
23
|
.4
|
|
Consent of Fried, Frank, Harris, Shriver & Jacobson
LLP (included in Exhibit 5.1).
|
|
24
|
.1**
|
|
Power of Attorney.
|
|
|
|
*
|
|
To be filed by amendment.
|
(b) None.
II-7
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 14 above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective; and
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized in the City of Tulsa, State of Oklahoma, on
September 26, 2008.
McJUNKIN RED MAN HOLDING CORPORATION
By:
/s/
Andrew
Lane
Andrew
Lane
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/
Andrew
Lane
Andrew
Lane
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Chief Executive Officer and Director
(Principal Executive Officer)
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September 26, 2008
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*
James
F. Underhill
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Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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September 26, 2008
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/s/
Craig
Ketchum
Craig
Ketchum
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Chairman of the Board of Directors
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September 26, 2008
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*
Rhys
J. Best
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Director
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September 26, 2008
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*
Henry
Cornell
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Director
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September 26, 2008
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*
Christopher
A.S. Crampton
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Director
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September 26, 2008
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*
John
F. Daly
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Director
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September 26, 2008
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*
Harry
K. Hornish, Jr.
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Director
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September 26, 2008
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*
Sam
B. Rovit
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Director
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September 26, 2008
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*
H.B.
Wehrle, III
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Director
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September 26, 2008
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*By:
/s/
Craig
Ketchum
Craig
Ketchum, as attorney-in-fact
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II-9
Exhibit 10.1
EXECUTION VERSION
$650,000,000
REVOLVING LOAN CREDIT AGREEMENT
Dated as of October 31, 2007
among
MCJUNKIN CORPORATION,
as the Borrower
The Several Lenders
from Time to Time Parties Hereto
GOLDMAN SACHS CREDIT PARTNERS L.P. and
LEHMAN BROTHERS INC.,
as Co-Lead Arrangers and Joint Bookrunners
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Administrative Agent and Co-Collateral Agent
BANK OF AMERICA, N.A.,
as Co-Collateral Agent and Syndication Agent,
and
JPMORGAN CHASE BANK, N.A., WACHOVIA BANK, N. A. and PNC BANK, NATIONAL ASSOCIATION,
as Co-Documentation Agents
TABLE OF CONTENTS
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Page
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SECTION 1. DEFINITIONS
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2
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1.1 Defined Terms
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2
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1.2 Other Interpretive Provisions
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48
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1.3 Accounting Terms; Exchange Rates
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|
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48
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1.4 Rounding
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|
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49
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|
1.5 References to Agreements, Laws, Etc
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49
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|
|
SECTION 2. AMOUNT AND TERMS OF CREDIT
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49
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2.1 Commitments
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|
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49
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2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings
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51
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2.3 Notice of Borrowing
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|
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51
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2.4 Disbursement of Funds
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|
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52
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|
2.5 Repayment of Loans; Evidence of Debt
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|
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53
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|
2.6 Conversions and Continuations
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|
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53
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2.7
Pro Rata
Borrowings
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|
|
54
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|
2.8 Interest
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|
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54
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|
2.9 Interest Periods
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|
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55
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|
2.10 Increased Costs, Illegality, etc
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|
|
56
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|
2.11 Compensation
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|
|
58
|
|
2.12 Change of Lending Office
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|
|
58
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|
2.13 Notice of Certain Costs
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|
|
58
|
|
2.14 Incremental Facilities
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|
|
59
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|
2.15 Protective Advances
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|
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60
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|
|
|
|
|
|
SECTION 3. LETTERS OF CREDIT
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|
|
61
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|
|
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|
|
|
3.1 Letters of Credit
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|
|
61
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|
3.2 Letter of Credit Requests
|
|
|
62
|
|
3.3 Letter of Credit Participations
|
|
|
62
|
|
3.4 Agreement to Repay Letter of Credit Drawings
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|
|
65
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|
3.5 Increased Costs
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|
|
66
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|
3.6 New or Successor Letter of Credit Issuer
|
|
|
66
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|
3.7 Role of the Letter of Credit Issuer
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|
|
67
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|
|
|
|
|
|
SECTION 4. FEES; COMMITMENTS
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|
|
68
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|
|
|
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|
|
4.1 Fees
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|
|
68
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|
4.2 Voluntary Reduction of Revolving Credit Commitments
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|
|
69
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|
4.3 Mandatory Termination of Commitments
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|
|
69
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|
-i-
TABLE OF CONTENTS
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Page
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SECTION 5. PAYMENTS
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|
|
69
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|
|
|
|
|
|
5.1 Voluntary Prepayments
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|
|
69
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|
5.2 Mandatory Prepayments
|
|
|
70
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|
5.3 Method and Place of Payment
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|
|
71
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|
5.4 Net Payments
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|
|
71
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|
5.5 Computations of Interest and Fees
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|
|
74
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|
5.6 Limit on Rate of Interest
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|
|
74
|
|
|
|
|
|
|
SECTION 6. CONDITIONS PRECEDENT TO INITIAL BORROWING
|
|
|
75
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|
|
|
|
|
|
6.1 Credit Documents
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|
|
75
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|
6.2 [Reserved]
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|
|
75
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|
6.3 Legal Opinions
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|
|
75
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|
6.4 First Amendment to Term Loan Credit Agreement and Intercreditor Agreement
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|
|
75
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|
6.5 Equity Investments; Existing Indebtedness
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|
|
76
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|
6.6 Closing Certificates
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|
|
76
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|
6.7 Organizational Documents; Incumbency
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|
|
76
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|
6.8 Fees
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|
|
76
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|
6.9 Representations and Warranties
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|
|
76
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|
6.10 Related Agreements
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|
|
76
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|
6.11 Solvency Certificate
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|
|
76
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|
6.12 Historical Financial Statements
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|
|
76
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|
6.13 Red Man Transaction
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|
|
76
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|
6.14 Insurance
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|
|
77
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|
6.15 Pro Forma Financial Statements
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|
|
77
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|
6.16 Borrowing Base Certificate
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|
|
77
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|
6.17 Initial Borrowings
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|
|
77
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|
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|
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|
|
SECTION 7. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS
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|
|
77
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|
|
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|
|
7.1 No Default; Representations and Warranties; Excess Availability
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|
|
77
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|
7.2 Notice of Borrowing; Letter of Credit Request
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|
|
78
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|
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|
|
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
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|
|
78
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|
|
|
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|
|
8.1 Corporate Status
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|
|
78
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|
8.2 Corporate Power and Authority
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|
|
78
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|
8.3 No Violation
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|
|
78
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|
8.4 Litigation
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|
|
79
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|
8.5 Margin Regulations
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|
|
79
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|
8.6 Governmental Approvals
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|
|
79
|
|
8.7 Investment Company Act
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|
|
79
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|
-ii-
TABLE OF CONTENTS
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Page
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8.8 True and Complete Disclosure
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|
|
79
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|
8.9 Financial Condition; Financial Statements
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|
|
80
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|
8.10 Tax Returns and Payments
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|
|
80
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|
8.11 Compliance with ERISA
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|
|
80
|
|
8.12 Subsidiaries
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|
|
81
|
|
8.13 Intellectual Property
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|
|
81
|
|
8.14 Environmental Laws
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|
|
81
|
|
8.15 Properties
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|
|
82
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|
8.16 Solvency
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|
|
82
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|
|
|
|
|
|
SECTION 9. AFFIRMATIVE COVENANTS
|
|
|
82
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|
|
|
|
|
|
9.1 Information Covenants
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|
|
82
|
|
9.2 Books, Records and Inspections
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|
|
86
|
|
9.3 Maintenance of Insurance
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|
|
87
|
|
9.4 Payment of Taxes
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|
|
87
|
|
9.5 Consolidated Corporate Franchises
|
|
|
87
|
|
9.6 Compliance with Statutes, Regulations, etc
|
|
|
88
|
|
9.7 ERISA
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|
|
88
|
|
9.8 Maintenance of Properties
|
|
|
88
|
|
9.9 Transactions with Affiliates
|
|
|
88
|
|
9.10 End of Fiscal Years; Fiscal Quarters
|
|
|
89
|
|
9.11 Additional Guarantors and Grantors
|
|
|
89
|
|
9.12 [Intentionally Omitted.]
|
|
|
90
|
|
9.13 Use of Proceeds
|
|
|
90
|
|
9.14 Appraisals; Field Examinations
|
|
|
90
|
|
9.15 Interest Rate Protection
|
|
|
90
|
|
9.16 Collateral Access Agreements
|
|
|
90
|
|
9.17 Further Assurances
|
|
|
90
|
|
|
|
|
|
|
SECTION 10. NEGATIVE COVENANTS
|
|
|
91
|
|
|
|
|
|
|
10.1 Limitation on Indebtedness
|
|
|
91
|
|
10.2 Limitation on Liens
|
|
|
96
|
|
10.3 Limitation on Fundamental Changes
|
|
|
98
|
|
10.4 Limitation on Sale of Assets
|
|
|
99
|
|
10.5 Limitation on Investments
|
|
|
102
|
|
10.6 Limitation on Dividends
|
|
|
104
|
|
10.7 Limitations on Debt Payments and Amendments
|
|
|
106
|
|
10.8 Limitations on Sale Leasebacks
|
|
|
107
|
|
10.9 [Reserved]
|
|
|
107
|
|
10.10 Changes in Business
|
|
|
107
|
|
10.11 Burdensome Agreements
|
|
|
107
|
|
-iii-
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
SECTION 11. EVENTS OF DEFAULT
|
|
|
108
|
|
|
|
|
|
|
11.1 Payments
|
|
|
108
|
|
11.2 Representations, etc
|
|
|
108
|
|
11.3 Covenants
|
|
|
108
|
|
11.4 Default Under Other Agreements
|
|
|
109
|
|
11.5 Bankruptcy, etc
|
|
|
109
|
|
11.6 ERISA
|
|
|
109
|
|
11.7 Guarantee
|
|
|
110
|
|
11.8 [Reserved]
|
|
|
110
|
|
11.9 Security Agreement
|
|
|
110
|
|
11.10 [Intentionally Omitted]
|
|
|
110
|
|
11.11 Judgments
|
|
|
110
|
|
11.12 Change of Control
|
|
|
110
|
|
11.13 Subordination
|
|
|
110
|
|
|
|
|
|
|
SECTION 12. [RESERVED]
|
|
|
111
|
|
|
|
|
|
|
SECTION 13. THE ADMINISTRATIVE AGENT
|
|
|
111
|
|
|
|
|
|
|
13.1 Appointment
|
|
|
111
|
|
13.2 Delegation of Duties
|
|
|
112
|
|
13.3 General Immunity
|
|
|
113
|
|
13.4 Reliance by Agents
|
|
|
114
|
|
13.5 Notice of Default
|
|
|
114
|
|
13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders
|
|
|
114
|
|
13.7 Indemnification
|
|
|
115
|
|
13.8 Agents in their Individual Capacity
|
|
|
115
|
|
13.9 Successor Agents
|
|
|
116
|
|
13.10 Withholding Tax
|
|
|
116
|
|
13.11 REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS
|
|
|
116
|
|
|
|
|
|
|
SECTION 14. MISCELLANEOUS
|
|
|
117
|
|
|
|
|
|
|
14.1 Amendments and Waivers
|
|
|
117
|
|
14.2 Notices
|
|
|
119
|
|
14.3 No Waiver; Cumulative Remedies
|
|
|
119
|
|
14.4 Survival of Representations and Warranties
|
|
|
120
|
|
14.5 Payment of Expenses and Taxes
|
|
|
120
|
|
14.6 Successors and Assigns; Participations and Assignments
|
|
|
121
|
|
14.7 Replacements of Lenders under Certain Circumstances
|
|
|
124
|
|
-iv-
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
14.8 Adjustments; Set-off
|
|
|
125
|
|
14.9 Counterparts
|
|
|
126
|
|
14.10 Severability
|
|
|
126
|
|
14.11 Integration
|
|
|
126
|
|
14.12 GOVERNING LAW
|
|
|
126
|
|
14.13 Submission to Jurisdiction; Waivers
|
|
|
126
|
|
14.14 Acknowledgments
|
|
|
127
|
|
14.15
WAIVERS OF JURY TRIAL
|
|
|
127
|
|
14.16 Confidentiality
|
|
|
127
|
|
14.17 Direct Website Communications
|
|
|
128
|
|
14.18 USA PATRIOT Act
|
|
|
130
|
|
|
|
|
|
|
SECTION 15. LIMITATION ON PERMITTED DISCRETION; SPECIAL
PROVISIONS REGARDING ACCOUNTS, INVENTORY, AND APPLICATION OF COLLATERAL PROCEEDS
|
|
|
130
|
|
|
|
|
|
|
15.1 Accounts and Account Collections
|
|
|
130
|
|
15.2 Limitation on Permitted Discretion
|
|
|
132
|
|
-v-
|
|
|
SCHEDULES
|
|
|
|
Schedule 1.1(A)
|
|
Existing Letters of Credit
|
Schedule 1.1 (B)
|
|
Initial Borrowing Base Guarantors
|
Schedule 1.1 (C)
|
|
Commitments and Addresses of Lenders
|
Schedule 1.1 (D)
|
|
Excluded Subsidiaries
|
Schedule 1.1(E)
|
|
Initial Cost Savings
|
Schedule 1.1(F)
|
|
Non-Core Assets
|
Schedule 8.12
|
|
Subsidiaries
|
Schedule 9.9
|
|
Closing Date Affiliate Transactions
|
Schedule 9.17(C)
|
|
Post-Closing Actions
|
Schedule 10.1
|
|
Closing Date Indebtedness
|
Schedule 10.2
|
|
Closing Date Liens
|
Schedule 10.5
|
|
Closing Date Investments
|
Schedule 10.11
|
|
Closing Date Restrictions
|
Schedule 14.2
|
|
Notice Addresses
|
|
|
|
EXHIBITS
|
|
|
|
|
|
Exhibit C
|
|
Form of Guarantee
|
Exhibit D
|
|
[Intentionally Omitted]
|
Exhibit E
|
|
Form of Perfection Certificate
|
Exhibit F
|
|
[Intentionally Omitted]
|
Exhibit G
|
|
Form of Security Agreement
|
Exhibit H
|
|
Form of Letter of Credit Request
|
Exhibit I-1
|
|
Form of Legal Opinion of Simpson Thacher & Bartlett LLP
|
Exhibit I-2
|
|
Form of Legal Opinions of Local Counsel
|
Exhibit J
|
|
Form of Closing Certificate
|
Exhibit K
|
|
Form of Assignment and Acceptance
|
Exhibit L
|
|
Form of Promissory Note (Revolving Credit Loans and
Swingline Loans)
|
Exhibit M
|
|
Form of Joinder Agreement
|
Exhibit N
|
|
Form of Borrowing Base Certificate
|
Exhibit O
|
|
Form of Intercreditor Agreement
|
-vi-
REVOLVING LOAN CREDIT AGREEMENT dated as of October 31, 2007, among MCJUNKIN CORPORATION, a
West Virginia corporation (the
Borrower
), the lending institutions from time to time
parties hereto (each a
Lender
and, collectively, the
Lenders
), Goldman Sachs
Credit Partners L.P. (
GSCP
) and Lehman Brothers Inc., as Co-Lead Arrangers and Joint
Bookrunners, The CIT Group/Business Credit, Inc. (
CIT
), as Administrative Agent and
Co-Collateral Agent, Bank of America, N.A (
Bank of America
), as Co-Collateral Agent, Bank
of America, as Syndication Agent and JPMorgan Chase Bank, N.A., Wachovia Bank, N.A. and PNC Bank,
National Association, as Co-Documentation Agents (such term and each other capitalized term used
but not defined in this introductory statement having the meaning provided in
Section 1
).
WHEREAS, pursuant to the Stock Purchase Agreement (as amended from time to time in accordance
therewith, the
Red Man Transaction Agreement
), dated as of July 6, 2007, among McJ
Holding LLC, a Delaware limited liability company (
McJ Holding
) (for purposes of Sections
2.3(c) and 10.4 only), Red-Man Pipe and Supply Company, an Oklahoma corporation (
Red
Man
), West Oklahoma PVF Company, a Delaware corporation (
Buyer
) and the shareholders
of Red Man, Buyer will acquire all of the outstanding capital stock of Red Man (the
Red Man
Transaction
);
WHEREAS, to fund, in part, the Red Man Transaction, (a) the Sponsors and certain other
investors (including the Management Investors) will contribute an amount in cash to McJ Holding
(the
Equity Contribution
) in exchange for Stock and Stock Equivalents (which cash will be
contributed to McJ Holding Corporation and in turn to the Borrower in exchange for common and/or
preferred Stock), and (b) certain equity investments in Red Man held by existing shareholders of
Red Man will be rolled over as equity of McJ Holding (the
Rollover Equity
and together
with the Equity Contribution, the
Equity Investments
), which together with the amount of
the Equity Contribution, shall be no less than an amount (the
Minimum Equity Investment
Amount
) equal to 30% of the pro forma capitalization of the Borrower and McJ Holding on the
Closing Date (after giving effect to the Transactions);
WHEREAS, in connection herewith, the requisite lenders under the Term Loan Credit Agreement
(as defined below) will enter into an amendment to the Term Loan Credit Agreement and the
Intercreditor Agreement (as defined below) and the senior secured term loans (the
Term
Loans
) under the Term Loan Credit Agreement shall remain outstanding;
WHEREAS, in connection with the foregoing, the Borrower has requested that the Lenders extend
credit in the form of Revolving Credit Loans made available to the Borrower at any time and from
time to time prior to the Revolving Credit Maturity Date, in an aggregate principal amount at any
time outstanding not in excess of the aggregate of $650,000,000
plus
the amount of New Revolving
Credit Commitments (as defined below) less the sum of (i) the aggregate Letters of Credit
Outstanding at such time and (ii) the aggregate principal amount of all Swingline Loans outstanding
at such time. The Borrower has requested (a) the Letter of Credit Issuer to issue Letters of
Credit at any time and from time to time prior to the L/C Maturity Date, in an aggregate face
amount at any time outstanding not in excess of $60,000,000 and (b) to deem the letters of credit
identified on
Schedule 1.1(a)
hereto (the
Existing Letters of Credit
) to be
Letters of Credit for all purposes under this Agreement. The Borrower has requested the Swingline
Lender to extend credit in the form of Swingline Loans at any time and
from time to time prior to the Swingline Maturity Date, in an aggregate principal amount at
any time outstanding not in excess of $60,000,000;
WHEREAS, the repayment of the Revolving Credit Loans will be secured by perfected security
interests in and liens upon substantially all of the Accounts and Inventory and certain personal
property relating to such Accounts and Inventory of the Borrower and each Guarantor, and the
repayment of the Term Loans will be secured by perfected security interests in and liens upon
substantially all of the personal property and certain real property of the Borrower and each
Guarantor. The respective rights and priorities of the Lenders and the lenders under the Term Loan
Agreement to such collateral will be as set forth in the Intercreditor Agreement;
WHEREAS, the proceeds of up to $450,000,000 of Revolving Credit Loans will be used by the
Borrower, together with the net proceeds of the Equity Investments, on the Closing Date (x) to
finance the repayment of (i) substantially all of the existing indebtedness of Red Man and its
subsidiaries (the
Red Man Group
) (other than existing indebtedness of Midfield Supply
Co., a Nova Scotia unlimited liability company and its subsidiaries) and (ii) the Borrower under
its existing Revolving Loan Agreement dated as of January 31, 2007 (the
Existing Revolving
Credit Agreement
) (collectively, the
Debt Repayment
), (y) to effect the Red Man
Transaction and (z) to pay Transaction Expenses. Proceeds of Revolving Credit Loans and Swingline
Loans will be used by the Borrower on or after the Closing Date for working capital and other
general corporate purposes (including Permitted Acquisitions). Letters of Credit will be used by
the Borrower for general corporate purposes; and
WHEREAS, the Lenders and Letter of Credit Issuer are willing to make available to the Borrower
such revolving credit and letter of credit facilities upon the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained
herein, the parties hereto hereby agree as follows:
SECTION 1.
Definitions
1.1
Defined Terms
. (a) As used herein, the following terms shall have the meanings
specified in this
Section 1.1
unless the context otherwise requires (it being understood
that defined terms in this Agreement shall include in the singular number the plural and in the
plural the singular):
ABR
shall mean, for any day, a rate
per annum
(rounded upwards, if necessary, to the
next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day or (b) the
Federal Funds Effective Rate in effect on such day plus
1
/
2
of 1%. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening
of business on the effective day of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
ABR Loan
shall mean each Loan bearing interest at the rate provided in
Section
2.8(a)
and, in any event, shall include all Swingline Loans.
Account
has the meaning assigned to such term in the Security Agreement.
-2-
Account Debtor
means any Person obligated on an Account.
Acquired EBITDA
shall mean, with respect to any Acquired Entity or Business, any
Converted Restricted Subsidiary (any of the foregoing, a
Pro Forma Entity
) for any
period, the amount for such period of Consolidated EBITDA of such Pro Forma Entity (determined
using such definitions as if references to the Borrower and its Subsidiaries therein were to such
Pro Forma Entity and its Subsidiaries), all as determined on a consolidated basis for such Pro
Forma Entity in accordance with GAAP.
Acquired Entity or Business
shall have the meaning provided in the definition of the
term Consolidated EBITDA.
Activation Notice
shall have the meaning provided in
Section 15.1(d)(i)
.
Adjusted Total Revolving Credit Commitment
shall mean at any time the Total
Revolving Credit Commitment less the aggregate Revolving Credit Commitments of all Defaulting
Lenders.
Administrative Agent
shall mean CIT, as the administrative agent for the Lenders
under this Agreement and the other Credit Documents, or any successor administrative agent pursuant
to
Section 13
.
Administrative Agents Office
shall mean in respect of all Credit Events for the
account of the Borrower, the office of the Administrative Agent located at 505 Fifth Avenue, New
York City, New York, or such other office as the Administrative Agent may hereafter designate in
writing as such to the other parties hereto.
Administrative Questionnaire
shall have the meaning provided in
Section
14.6(b)
.
Affiliate
shall mean, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common control with such Person.
A Person shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power (a) to vote 20% or more of the securities having ordinary voting power for
the election of directors of such corporation or (b) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of voting securities, by
contract or otherwise.
Agent Parties
shall have the meaning provided in
Section 14.17(c)
.
Agents
shall mean each Co-Lead Arranger, each Co-Collateral Agent, each
Co-Documentation Agent, the Administrative Agent and the Syndication Agent.
Aggregate Revolving Credit Outstandings
shall have the meaning provided in
Section 5.2(b)
.
Agreement
shall mean this Revolving Loan Credit Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
-3-
Applicable ABR Margin
shall mean at any date, with respect to each ABR Loan that is
a Revolving Credit Loan or a Swingline Loan, the applicable percentage
per annum
set forth below
based upon the Status in effect on such date:
|
|
|
|
|
Applicable ABR Margin for
|
Status
|
|
Revolving Credit Loans and Swingline Loans
|
Level I Status
|
|
0.50%
|
Level II Status
|
|
0.25%
|
Level III Status
|
|
0.00%
|
Notwithstanding the foregoing, the term Applicable ABR Margin shall mean, with respect to
all ABR Loans, 0.50%
per annum
, during the period from and including the Closing Date to but
excluding the Trigger Date.
Applicable Amount
shall mean, at any time (the Reference Time), an amount equal to
(a) the sum, without duplication, of:
(i) an amount (which shall not be less than zero) equal to 50% of Consolidated Net Income
commencing on the Original Closing Date and ending on the last day of the most recent fiscal
quarter for which Section 9.1 Financials have been delivered (taken as one accounting period); and
(ii) the amount of any capital contributions (other than the Equity Investments) made in cash
to, or any proceeds of an equity issuance received by, the Borrower from and including the Business
Day immediately following the Original Closing Date through and including the Reference Time,
including proceeds from the issuance of Stock or Stock Equivalents of any direct or indirect parent
of the Borrower but excluding the cash portion of the Minimum Equity Investment Amount,
minus
(b) the sum, without duplication, of:
(iii) the aggregate amount of Investments made pursuant to
Section 10.5(g)(ii)(y)
or
10.5(i)(ii)(y)
since the Original Closing Date and prior to the Reference Time;
(iv) the aggregate amount of dividends pursuant to
Section 10.6(c)(ii)
since the
Original Closing Date and prior to the Reference Time; and
(v) the aggregate amount of prepayments, repurchases and redemptions of Subordinated
Indebtedness pursuant to
Section 10.7(a)(i)(y)
since the Original Closing Date and prior to
the Reference Time.
-4-
Applicable LIBOR Margin
shall mean at any date, with respect to each LIBOR Loan that
is a Revolving Credit Loan, the applicable percentage
per annum
set forth below based upon the
Status in effect on such date:
|
|
|
|
|
Applicable LIBOR Margin for
|
Status
|
|
Revolving Credit Loans
|
Level I Status
|
|
1.50%
|
Level II Status
|
|
1.25%
|
Level III Status
|
|
1.00%
|
Notwithstanding the foregoing, the term Applicable LIBOR Margin shall mean, with respect to
all LIBOR Loans, 1.50%
per annum
, during the period from and including the Closing Date to but
excluding the Trigger Date.
Approved Fund
shall have the meaning provided in
Section 14.6
.
Asset Sale Prepayment Event
shall mean any Disposition of Collateral pursuant to
Section 10.4(b)
.
Assignment and Acceptance
shall mean an assignment and acceptance substantially in
the form of
Exhibit K
.
Authorized Officer
shall mean the President, the Chief Financial Officer, the
Treasurer or any other senior officer of the Borrower designated as such in writing to the
Administrative Agent by the Borrower.
Available Commitment
shall mean an amount equal to the excess, if any, of (a) the
amount of the Total Revolving Credit Commitment over (b) the sum of (i) the aggregate principal
amount of all Revolving Credit Loans (but not Swingline Loans) then outstanding and (ii) the
aggregate Letters of Credit Outstanding at such time.
Bankruptcy Code
shall have the meaning provided in
Section 11.5
.
Blocked Accounts
shall have the meaning provided in
Section 15.1(c)
.
Board
shall mean the Board of Governors of the Federal Reserve System of the United
States (or any successor).
Borrower
shall have the meaning provided in the preamble to this Agreement.
Borrowing
shall mean and include (a) the incurrence of Swingline Loans from the
Swingline Lender on a given date and (b) the incurrence of one Type of Revolving Credit Loan on a
given date (or resulting from conversions on a given date) having, in the case of LIBOR Revolving
Credit Loans, the same Interest Period (
provided
that
ABR Loans incurred pursuant
to
Section 2.10(b)
shall be considered part of any related Borrowing of LIBOR Revolving
Credit Loans).
-5-
Borrowing Base
shall mean at any time, an amount equal to the sum of, without
duplication:
(a) the aggregate of all Incorporated Borrowing Bases, minus
(b) subject to
Section 15.2
, effective (i) immediately upon or (ii) five (5) Business
Days after, in the case of Reserves which would cause the aggregate amount of the Lenders
Revolving Credit Exposures at such time to exceed the lesser of the Total Revolving Credit
Commitment and the Borrowing Base then in effect, in each case, notification thereof to Borrower by
the Collateral Agent, any and all Reserves established or modified from time to time by the
Collateral Agent in the exercise of its Permitted Discretion.
The Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base
Certificate theretofore delivered to the Collateral Agent and the Administrative Agent with such
adjustments as Administrative Agent and Collateral Agent deem appropriate in their Permitted
Discretion to assure that the Borrowing Base is calculated in accordance with the terms of this
Agreement.
Borrowing Base Certificate
shall mean a certificate, executed by a Financial Officer
of Borrower, substantially in the form of (or in such other form as may be mutually agreed upon by
Borrower, Administrative Agent and Collateral Agent), and containing the information prescribed by,
Exhibit N, delivered to the Administrative Agent and the Collateral Agent setting forth Borrowers
calculation of the Borrowing Base.
Borrowing Base Guarantor
shall mean each Subsidiary of Borrower (a) listed on
Schedule 1.1(b) and (b) each other Subsidiary of Borrower (i) which (A) is organized in a State
within the United States, (B) is currently able to prepare all collateral reports in a comparable
manner to the Borrowers reporting procedures and (C) has executed and delivered to Collateral
Agent such joinder agreements to Security Documents as Collateral Agent has reasonably requested
and (ii) if the aggregate value (or Cost in the case of Inventory) of Accounts and Inventory of
such Subsidiary is in excess of $20,000,000 and only to the extent reasonably requested by the
Collateral Agent, for which the Collateral Agent has received and approved, in its reasonable
discretion, a collateral audit and Inventory Appraisal conducted by an independent appraisal firm
reasonably acceptable to Collateral Agent;
provided
, that if no collateral audit and
Inventory Appraisal is delivered to and approved by the Collateral Agent with respect to the
Accounts and Inventory of such Subsidiary, then the lowest recovery rates from the current
Inventory Appraisal shall apply to the Accounts and Inventory of such Subsidiary.
Business Day
shall mean (a) for all purposes other than as covered by clause (b)
below, any day excluding Saturday, Sunday and any day that shall be in The City of New York a legal
holiday or a day on which banking institutions are authorized by law or other governmental actions
to close and (b) with respect to all notices and determinations in connection with, and payments of
principal and interest on, LIBOR Loans, any day which is a Business Day described in clause (a) and
which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar
market.
Buyer
shall have the meaning provided in the recitals to this Agreement.
-6-
Capital Lease
shall mean, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is
required to be, accounted for as a capital lease on the balance sheet of that Person.
Capitalized Lease Obligations
shall mean, as applied to any Person, all obligations
under Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount
thereof accounted for as liabilities in accordance with GAAP.
Cash Collateral Account
shall mean a collateral account in the form of a deposit
account established and maintained by the Collateral Agent for the benefit of the Secured Parties
from the funds collected in the Collection Account that have not either been released to the
Borrower or applicable Guarantor or applied immediately to outstanding Obligations.
Cash Dominion Event
shall mean the occurrence of any one of the following events:
(i) Excess Availability shall be less than 7% of the then existing Total Revolving Credit
Commitment for any period of five (5) consecutive Business Days or (ii) an Event of Default
pursuant to Sections 11.1, 11.3(a) (but only to the extent such Event of Default was caused by a
breach of Sections 10.5, 10.6, 10.7 and 10.10 and the Administrative Agent or the Required Lenders
have reasonably determined (by written notice to the Borrower) to effect a Cash Dominion Event as a
result of such breach) or 11.5 shall occur and be continuing; provided, that, to the extent that
the Cash Dominion Event has occurred due to clause (i) of this definition, if Excess Availability
shall be equal to or greater than 7% of the then existing Total Revolving Credit Commitment for at
least thirty (30) consecutive days, the Cash Dominion Event shall be deemed to be over. At any
time that a Cash Dominion Event shall be deemed to be over or otherwise cease to exist, the
Collateral Agent shall take such actions, including delivering such notices and directions to
depositary institutions at which Blocked Accounts are established, to terminate the cash sweeps and
other transfers existing pursuant to Section 15.1(d) as a result of any Activation Notice or other
notices or directions given by Collateral Agent during the existence of such Cash Dominion Event.
Cash Management System
shall have the meaning provided in
Section 15.1(d)
.
Casualty Event
shall mean, with respect to any Collateral, any loss of or damage to,
or any condemnation or other taking by a Governmental Authority of, such property for which such
Collateral for which the Borrower or any of its Restricted Subsidiaries receives insurance
proceeds, or proceeds of a condemnation award or other compensation.
Change in Law
shall mean (a) the adoption of any law, treaty, order, policy, rule or
regulation after the date of this Agreement, (b) any change in any law, treaty, order, policy, rule
or regulation or in the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by the Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental or quasi
governmental authority (whether or not having the force of law).
Change of Control
shall mean and be deemed to have occurred if (a) the Sponsors
shall at any time not own, in the aggregate, directly or indirectly, beneficially and of record, at
least 35% of the voting power of the outstanding Voting Stock of Borrower (other than as the result
of
-7-
one or more widely distributed offerings of the common Stock of the Borrower or any direct or
indirect parent thereof, in each case whether by the Borrower, such parent, or the Sponsors); or
(b) any person, entity or group (within the meaning of
Section 13(d)
or
14(d)
of
the Securities Exchange Act of 1934, as amended) shall at any time have acquired direct or indirect
beneficial ownership of a percentage of the voting power of the outstanding Voting Stock of
Borrower that exceeds the percentage of the voting power of such Voting Stock then beneficially
owned, in the aggregate, by the Sponsors, unless, in the case of either clause (a) or (b) above,
the Sponsors have, at such time, the right or the ability by voting power, contract or otherwise to
elect or designate for election at least a majority of the board of directors of Borrower; or (c)
Continuing Directors shall not constitute at least a majority of the board of directors of the
Borrower.
Class
, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are Revolving Credit Loans, New Revolving Loans or
Swingline Loans and, when used in reference to any Commitment, refers to whether such Commitment is
a Revolving Credit Commitment or a New Revolving Credit Commitment.
Closing Date
shall mean the date of the initial Borrowing hereunder.
Code
shall mean the Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated and rulings issued thereunder. Section references to the Code are to
the Code, as in effect at the date of this Agreement, and any subsequent provisions of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
Co-Collateral Agent
shall mean (a) CIT, a New York corporation, as collateral agent
for the Lenders and the other Secured Parties and (b) Bank of America, as collateral agent for the
Lenders and the other Secured Parties.
Co-Collateral Agent Fee Letters
shall mean (a) that certain confidential fee letter
by and between CIT and the Borrower and (b) that certain confidential fee letter by and between
Bank of America and the Borrower.
Co-Documentation Agent
shall mean JPMorgan Chase Bank, N.A., Wachovia Bank, N.A. and
PNC Bank, National Association, in each case as co-documentation agent for the Lenders under this
Agreement and the other Credit Documents.
Co-Lead Arrangers
shall mean Goldman Sachs Credit Partners L.P. and Lehman Brothers
Inc.
Collateral
shall have the meaning provided in the Security Agreement or any other
Security Document, as applicable.
Collateral Access Agreement
means a landlord waiver, bailee letter or other access
agreement reasonably acceptable to the Administrative Agent.
Collateral Agent
shall mean, collectively or individually as the context requires,
CIT, as a Co-Collateral Agent, and Bank of America, as a Co-Collateral Agent.
Collection Account
shall have the meaning provided in
Section 15.1(d)(i)
.
-8-
Commitment Fee Rate
shall mean, with respect to the Available Commitment on any day,
the rate
per annum
set forth below opposite the Status in effect on such day:
|
|
|
Status
|
|
Commitment Fee Rate
|
Level I Status
|
|
0.375%
|
Level II Status
|
|
0.25%
|
Level III Status
|
|
0.25%
|
Notwithstanding the foregoing, the term Commitment Fee Rate shall mean 0.375% during the
period from and including the Closing Date to but excluding the Trigger Date.
Commitments
shall mean, with respect to each Lender (to the extent applicable), such
Lenders Revolving Credit Commitment and New Revolving Credit Commitment.
Communications
shall have the meaning provided in
Section 14.17(a)
.
Concentration Account
shall have the meaning provided in
Section 15.1(d)(i)
.
Concentration Account Bank
shall have the meaning provided in
Section
15.1(d)(i)
.
Confidential Information
shall have the meaning provided in
Section 14.16
.
Confidential Information Memorandum
shall mean the Confidential Information
Memorandum of the Borrower dated as of October 2, 2007, delivered to the Lenders in connection with
this Agreement.
Consolidated EBITDA
shall mean, for any period, Consolidated Net Income for such
period,
plus
:
(a) without duplication and to the extent already deducted (and not added back) in arriving at
such Consolidated Net Income, the sum of the following amounts for such period:
(i) total interest expense and to the extent not reflected in such total interest
expense, any losses on hedging obligations or other derivative instruments entered into for
the purpose of hedging interest rate risk, net of interest income and gains on such hedging
obligations, and costs of surety bonds in connection with financing activities,
(ii) provision for taxes based on income, profits or capital of the Borrower and the
Restricted Subsidiaries, including state, franchise and similar taxes and foreign
withholding taxes paid or accrued during such period,
(iii) depreciation and amortization,
(iv) Non-Cash Charges,
-9-
(v) extraordinary losses and unusual or non-recurring charges, severance, relocation
costs and curtailments or modifications to pension and post-retirement employee benefit
plans,
(vi) restructuring charges or reserves (including restructuring costs related to
acquisitions after the date hereof and to closure and/or consolidation of facilities),
(vii) any deductions attributable to minority interests (including the minority
interest portion of Midfield Supply ULCs employee profit sharing plan),
(viii) the amount, if any, of management, monitoring, consulting and advisory fees and
related expenses paid to the Sponsors,
(ix) any costs or expenses incurred by the Borrower or a Restricted Subsidiary pursuant
to any management equity plan or stock option plan or any other management or employee
benefit plan or agreement or any stock subscription or shareholder agreement, to the extent
that such costs or expenses are funded with cash proceeds contributed to the capital of the
Borrower or net cash proceeds of an issuance of Stock or Stock Equivalents of the Borrower;
and
(x) (A) for any period that includes a fiscal quarter occurring prior to fifth fiscal
quarter occurring after the Original Closing Date, the cost savings described on Schedule
1.1(e)(A), and (B) for any period that includes a fiscal quarter occurring after the Closing
Date, the amount of net cost savings projected by the Borrower in good faith to be realized
as a result of specified actions taken by the Borrower and its Restricted Subsidiaries in
connection with the Transactions (calculated on a Pro Forma Basis as though such cost
savings had been realized on the first day of such period), net of the amount of actual
benefits realized during such period from such actions,
provided
that
(1)
such cost savings are reasonably identifiable, factually supportable and not duplicative of
the cost savings added pursuant to clause (x)(A), (2) such actions are taken on or prior to
the third anniversary of the Closing Date, (3) no cost savings shall be added pursuant to
this clause (x) to the extent duplicative of any expenses or charges relating to such cost
savings that are included in clause (vi) above with respect to such period and (4) the
aggregate amount of cost savings added pursuant to this clause (x)(B) shall not exceed 5% of
the amount of Consolidated EBITDA computed pursuant to the most recently delivered Section
9.1 Financials for any period consisting of four consecutive quarters,
less
(b) without duplication and to the extent included in arriving at such Consolidated Net
Income, the sum of the following amounts for such period:
(i) extraordinary gains and unusual or non-recurring gains,
(ii) non-cash gains (excluding any non-cash gain to the extent it represents the
reversal of an accrual or reserve for a potential cash item that reduced Consolidated Net
Income in any prior period),
-10-
(iii) gains on asset sales (other than asset sales in the ordinary course of business),
(iv) any net after-tax income from the early extinguishment of Indebtedness or hedging
obligations or other derivative instruments, and
(v) all gains from investments recorded using the equity method,
in each case, as determined on a consolidated basis for the Borrower and the Restricted
Subsidiaries in accordance with GAAP;
provided
that, to the extent included in Consolidated
Net Income,
(A) there shall be excluded in determining Consolidated EBITDA currency translation
gains and losses related to currency remeasurements of Indebtedness or intercompany balances
(including the net loss or gain resulting from Hedge Agreements for currency exchange risk),
(B) there shall be excluded in determining Consolidated EBITDA for any period any
adjustments resulting from the application of Statement of Financial Accounting Standards
No. 133, and
(C) there shall be included in determining Consolidated EBITDA for any period, without
duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by
the Borrower or any Restricted Subsidiary during such period (including Red Man but not the
Acquired EBITDA of any related Person, property, business or assets to the extent not so
acquired) to the extent not subsequently sold, transferred, abandoned or otherwise disposed
by the Borrower or such Restricted Subsidiary (each such Person, property, business or asset
acquired and not subsequently so disposed of, an
Acquired Entity or Business
) and
the Acquired EBITDA of any Unrestricted Subsidiary that is converted into a Restricted
Subsidiary during such period (each, a
Converted Restricted Subsidiary
), based on
the actual Acquired EBITDA of such Acquired Entity or Business or Converted Restricted
Subsidiary for such period (including the portion thereof occurring prior to such
acquisition or conversion) and (B) an adjustment in respect of each Acquired Entity or
Business equal to the amount of the Pro Forma Adjustment with respect to such Acquired
Entity or Business for such period (including the portion thereof occurring prior to such
acquisition) as specified in a Pro Forma Adjustment Certificate and delivered to the Lenders
and the Administrative Agents and (C) there shall be excluded in determining Consolidated
EBITDA for any period the Disposed EBITDA of any Person, property, business or asset (other
than an Unrestricted Subsidiary) sold, transferred, abandoned or otherwise disposed of,
closed or classified as discontinued operations by the Borrower or any Restricted Subsidiary
during such period (each such Person, property, business or asset so sold or disposed of, a
Sold Entity or Business
), and the Acquired EBITDA of any Restricted Subsidiary
that is converted into an Unrestricted Subsidiary during such period (each, a
Converted
Unrestricted Subsidiary
) based on the actual Disposed EBITDA of such Sold Entity or
Business or Converted Restricted Subsidiary for such period (including the portion thereof
occurring prior to such sale, transfer or disposition or conversion).
-11-
Consolidated Fixed Charge Coverage Ratio
shall mean, for any Test Period, the ratio
of (a) Consolidated EBITDA for such Test Period to (b) Consolidated Fixed Charges for such Test
Period.
Consolidated Fixed Charges
means, for any period, the sum, without duplication, of
(a) Consolidated Interest Expense, (b) scheduled payments of principal on Consolidated Total Debt,
(c) the aggregate of all unfinanced capital expenditures of Borrower and its Restricted
Subsidiaries during such period determined on a consolidated basis and (d) the portion of taxes
attributable to Borrower and its Restricted Subsidiaries based on income actually paid in cash and
provisions for cash income taxes.
Consolidated Interest Expense
shall mean, for any period, the sum of (i) the cash
interest expense (including that attributable to Capital Leases in accordance with GAAP), net of
cash interest income, of the Borrower and the Restricted Subsidiaries on a consolidated basis in
accordance with GAAP with respect to all outstanding Indebtedness of the Borrower and the
Restricted Subsidiaries, including all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers acceptance financing and net costs under Hedge Agreements
(other than currency swap agreements, currency future or option contracts and other similar
agreements) and (ii) any cash payments made during such period in respect of obligations referred
to in clause (b) below relating to Funded Debt that were amortized or accrued in a previous period
(other than any such obligations resulting from the discounting of Indebtedness in connection with
the application of purchase accounting in connection with the Transaction or any Permitted
Acquisition), but excluding, however, (a) amortization of deferred financing costs and any other
amounts of non-cash interest, (b) the accretion or accrual of discounted liabilities during such
period, and (c) all non-recurring cash interest expense consisting of liquidated damages for
failure to timely comply with registration rights obligations and financing fees, all as calculated
on a consolidated basis in accordance with GAAP and excluding, for the avoidance of doubt, any
interest in respect of items excluded from Indebtedness in the proviso to the definition thereof,
provided
that (a) except as provided in clause (b) below, there shall be excluded from
Consolidated Interest Expense for any period the cash interest expense (or cash interest income) of
all Unrestricted Subsidiaries for such period to the extent otherwise included in Consolidated
Interest Expense, (b) there shall be included in determining Consolidated Interest Expense for any
period the cash interest expense (or income) of any Acquired Entity or Business acquired during
such period and of any Converted Restricted Subsidiary converted during such period, in each case
based on the cash interest expense (or income) of such Acquired Entity or Business or Converted
Restricted Subsidiary for such period (including the portion thereof occurring prior to such
acquisition or conversion) assuming any Indebtedness incurred or repaid in connection with any such
acquisition or conversion had been incurred or prepaid on the first day of such period, and (c)
there shall be excluded from determining Consolidated Interest Expense for any period the cash
interest expense (or income) of any Sold Entity or Business disposed of during such period, based
on the cash interest expense (or income) relating to any Indebtedness relieved, retired or repaid
in connection with any such disposition of such Sold Entity or Business for such period (including
the portion thereof occurring prior to such disposal) assuming such debt relieved, retired or
repaid in connection with such disposition had been relieved, retired or repaid on the first day of
such period. Notwithstanding anything to the contrary contained herein, for purposes of determining
Consolidated Interest Expense for any period ending prior to the first anniversary of the Closing
Date, Consolidated Interest Expense
-12-
shall be an amount equal to actual Consolidated Interest Expense from the Closing Date through
the date of determination multiplied by a fraction the numerator of which is 365 and the
denominator of which is the number of days from the Closing Date through the date of determination.
Consolidated Net Income
shall mean, for any period, the net income (loss) of the
Borrower and the Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, excluding, without duplication, (a) extraordinary items for such period, (b)
the cumulative effect of a change in accounting principles during such period to the extent
included in Consolidated Net Income, (c) in the case of any period that includes a period ending
prior to June 30, 2008, Transaction Expenses and Original Transaction Expenses, (d) any fees and
expenses incurred during such period, or any amortization thereof for such period, in connection
with any acquisition, investment, recapitalization, asset disposition, issuance or repayment of
debt, issuance of equity securities, refinancing transaction or amendment or other modification of
any debt instrument (in each case, including any such transaction consummated prior to the Closing
Date and any such transaction undertaken but not completed) and any charges or non-recurring merger
costs incurred during such period as a result of any such transaction, (e) any income (loss) for
such period attributable to the early extinguishment of Indebtedness and (f) accruals and reserves
that are established that are so required to be established or adjusted as a result of the
Transactions, or Original Transactions in accordance with GAAP or changes as a result of adoption
of or modification of accounting policies, in each case, within twelve months after the Closing
Date (or with respect to the Original Transactions, twelve months after the Original Closing Date).
There shall be excluded from Consolidated Net Income for any period the purchase accounting
effects of adjustments to inventory, property and equipment, software and other intangible assets
and deferred revenue in component amounts required or permitted by GAAP and related authoritative
pronouncements (including the effects of such adjustments pushed down to the Borrower and the
Restricted Subsidiaries), as a result of the Transactions, the Original Transactions, any
acquisition whether consummated before or after the Closing Date, any Permitted Acquisition or
other Investment, or the amortization or write-off of any amounts thereof.
Consolidated Secured Debt
shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of the Borrower and the Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Transaction or any Permitted Acquisition), consisting of
Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by
promissory notes or similar instruments, in each case secured by Liens,
minus
(b) the
aggregate amount of cash and cash equivalents held in accounts on the consolidated balance sheet of
the Borrower and the Restricted Subsidiaries as at such date to the extent the use thereof for
application to payment of Indebtedness is not prohibited by law or any contract to which the
Borrower or any of the Restricted Subsidiaries is a party.
Consolidated Total Assets
shall mean, as of any date of determination, the amount
that would, in conformity with GAAP, be set forth opposite the caption total assets (or any like
caption) on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries at such
date.
-13-
Consolidated Total Debt
shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of the Borrower and the Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Transaction or any Permitted Acquisition), consisting of
Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by
promissory notes or similar instruments,
minus
(b) the aggregate amount of cash and cash
equivalents held in accounts on the consolidated balance sheet of the Borrower and the Restricted
Subsidiaries as at such date to the extent the use thereof for application to payment of
Indebtedness is not prohibited by law or any contract to which the Borrower or any of the
Restricted Subsidiaries is a party.
Consolidated Total Debt to Consolidated EBITDA Ratio
shall mean, as of any date of
determination, the ratio of (a) Consolidated Total Debt as of the last day of the relevant Test
Period to (b) Consolidated EBITDA for such Test Period.
Continuing Director
shall mean, at any date, an individual (a) who is a member of
the board of directors of the Borrower on the date hereof, (b) who, as at such date, has been a
member of such board of directors for at least the twelve preceding months, (c) who has been
nominated to be a member of such board of directors, directly or indirectly, by a Sponsor or
Persons nominated by a Sponsor or (d) who has been nominated to be a member of such board of
directors by a majority of the other Continuing Directors then in office.
Contract Consideration
shall have the meaning provided in the definition of Excess
Cash Flow.
Control Agreements
shall have the meaning assigned to such term in the Security
Agreement.
Converted Restricted Subsidiary
shall have the meaning provided in the definition of
the term Consolidated EBITDA.
Converted Unrestricted Subsidiary
shall have the meaning provided in the definition
of the term Consolidated EBITDA.
Cost
shall mean, with respect to Inventory, the weighted average cost thereof, as
determined in the same manner and consistent with the most recent Inventory Appraisal which has
been received and approved by Collateral Agent in its reasonable discretion.
Credit Documents
shall mean this Agreement, the Security Documents, each Letter of
Credit and any promissory notes issued by the Borrower hereunder.
Credit Event
shall mean and include the making (but not the conversion or
continuation) of a Loan and the issuance of a Letter of Credit.
Credit Party
shall mean each of the Borrower, the Guarantors and each other
Subsidiary of the Borrower that is a party to a Credit Document.
-14-
Currency Agreement
means any foreign exchange contract, currency swap agreement,
futures contract, option contract, synthetic cap or other similar agreement or arrangement, each of
which is for the purpose of hedging the foreign currency risk associated with Borrowers and its
Subsidiaries operations and not for speculative purposes.
Debt Repayment
shall have the meaning provided in the recitals to this Agreement.
Default
shall mean any event, act or condition that with notice or lapse of time, or
both, would constitute an Event of Default.
Defaulting Lender
shall mean any Lender with respect to which a Lender Default is in
effect.
Deferred Net Cash Proceeds
shall have the meaning provided such term in the
definition of Net Cash Proceeds.
Designated Non-Cash Consideration
shall mean the fair market value of non-cash
consideration received by the Borrower or a Restricted Subsidiary in connection with a Disposition
pursuant to
Section 10.4(b)
and
Section 10.4(c)
that is designated as Designated
Non-Cash Consideration pursuant to a certificate of an Authorized Officer of the Borrower, setting
forth the basis of such valuation (which amount will be reduced by the fair market value of the
portion of the non-cash consideration converted to cash within 180 days following the consummation
of the applicable Disposition).
Disposed EBITDA
shall mean, with respect to any Sold Entity or Business or any
Converted Unrestricted Subsidiary for any period, the amount for such period of Consolidated EBITDA
of such Sold Entity or Business or Converted Unrestricted Subsidiary (determined as if references
to the Borrower and the Restricted Subsidiaries in the definition of Consolidated EBITDA were
references to such Sold Entity or Business or Converted Unrestricted Subsidiary and its
Subsidiaries), all as determined on a consolidated basis for such Sold Entity or Business.
Disposition
shall have the meaning provided in
Section 10.4(b)
.
Dividends
or
dividends
shall have the meaning provided in
Section
10.6
.
Dollar Equivalent
shall mean, on any date of determination, (a) with respect to any
amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any
Foreign Currency, the equivalent in Dollars of such amount, determined by the Administrative Agent
pursuant using the applicable Exchange Rate.
Dollars
and
$
shall mean dollars in lawful currency of the United States
of America.
Domestic Subsidiary
shall mean each Subsidiary of the Borrower that is organized
under the laws of the United States, any state or territory thereof, or the District of Columbia.
Drawing
shall have the meaning provided in
Section 3.4(b)
.
-15-
Eligible Accounts
means, at any time, the Accounts of the Borrower and each
Borrowing Base Guarantor, as applicable at such date, except any Account (determined without
duplication):
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(a)
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which is not subject to a perfected security interest in favor of the
Collateral Agent;
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(b)
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which is subject to any Lien (including Liens permitted by
Section
10.2
) other than (i) a Lien in favor of the Collateral Agent and (ii) a Permitted
Lien which does not have priority over the Lien in favor of the Collateral Agent;
provided
that, with respect to any tax Lien having such priority, eligibility
of Accounts shall, without duplication, be reduced by the amount of such tax Lien;
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(c)
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(i) owing by General Electric with respect to which more than 150 days have
lapsed since the date of the original invoice therefor or (ii) owing by any other
Account Debtor which more than 120 days have lapsed since the date of the original
invoice therefor or which is more than 60 days past the due date for payment
(
provided
, that the aggregate amount of all Accounts eligible under the
foregoing clause (i) does not exceed $3,000,000 at any time);
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(d)
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which is owing by an Account Debtor for which more than 50% of the Accounts
owing from such Account Debtor and its Affiliates are ineligible pursuant to clause (c)
above;
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(e)
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which is owing by an Account Debtor to the extent the aggregate amount of
Accounts owing from such Account Debtor and its Affiliates to such Borrower or
Borrowing Base Guarantor exceeds 20% of the aggregate Eligible Accounts (but only to
the extent of such excess);
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(f)
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with respect to which any covenant, representation, or warranty relating to
such Account contained in this Agreement or in the Security Agreement has been breached
or is not true in any material respect;
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(g)
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which (i) does not arise from the sale of goods or performance of services in
the ordinary course of business, (ii) is not evidenced by an invoice, or other
documentation satisfactory to the Administrative Agent, which has been sent to the
Account Debtor, (iii) represents a progress billing, (iv) is contingent upon such
Borrowers or Borrowing Base Guarantors completion of any further performance, or (v)
represents a sale on a bill-and-hold, guaranteed sale, sale-and-return, sale on
approval, consignment which is billed prior to actual sale to the end user,
cash-on-delivery or any other repurchase or return basis, except with respect to up to
$10,000,000 of such Accounts described in this clause (v);
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(h)
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for which the goods giving rise to such Account (other than Accounts described
in the foregoing paragraph (g)(v)) have not been shipped to the Account Debtor or for
which the services giving rise to such Account have not been performed by such Borrower
or Borrowing Base Guarantor;
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-16-
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(i)
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with respect to which any check or other instrument of payment has been
returned uncollected for any reason;
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(j)
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which is owed by an Account Debtor which is a debtor or a debtor in possession
under any bankruptcy law or any other federal, state or foreign (including any
provincial) receivership, insolvency relief or other law or laws for the relief of
debtors unless the payment of Accounts from such Account Debtor is secured by assets
of, or guaranteed by, in either case in a manner reasonably satisfactory to the
Administrative Agent, a Person that is reasonably acceptable to the Administrative
Agent or, if the Account from such Account Debtor arises subsequent to a decree or
order for relief with respect to such Account Debtor under the federal bankruptcy laws,
as now or hereafter in effect, the Administrative Agent shall have reasonably
determined that the timely payment and collection of such Account will not be impaired;
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(k)
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which is owed by an Account Debtor which is not organized under applicable law
of the U.S. or any state of the U.S. unless such Account is backed by a letter of
credit or other credit support reasonably acceptable to the Administrative Agent and
which is in the possession of the Administrative Agent;
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(m)
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which is owed in any currency other than Dollars;
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(n)
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which is owed by (i) the government (or any department, agency, public
corporation, or instrumentality thereof) of any country other than the U.S. unless such
Account is backed by a Letter of Credit reasonably acceptable to the Administrative
Agent and which is in the possession of the Administrative Agent, or (ii) the
government of the U.S., or any department, agency, public corporation, or
instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as
amended (31 U.S.C. § 3727
et
seq.
and 41 U.S.C. § 15
et
seq.
), and any other steps necessary to perfect the Lien of the applicable
Collateral Agent in such Account have been complied with to the Administrative Agents
reasonable satisfaction;
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(o)
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which is owed by any Affiliate, employee, director, or officer of any Credit
Party other than Accounts of Borrower or any Borrowing Base Guarantor which are owed by
Red Man Distributors;
provided
that (i) the amount of any such Eligible
Accounts shall not include the amount owed by Red Man Distributors to Borrower for
administrative services with respect thereto, (ii) such Account shall be subject to
ineligibility or such reductions in amount as determined by Collateral Agents
application of the same eligibility criteria as set forth in the remaining clauses of
this definition (other than the criteria in clause (a) hereof) to the corresponding
Accounts owed to Red Man Distributors by its Account Debtors, (iii) the aggregate
amount of all Accounts eligible under this clause (o) (together with the aggregate
amount of all Accounts eligible under clause (a) of the definition of Eligible Red Man
Business Account) shall not exceed $30,000,000 at any time and (iv) the Organizational
Documents of Red Man Distributors provide for a negative pledge of its Accounts (other
than with respect
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-17-
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to tax Liens) and for a right of subrogation in favor of the Collateral Agent with
respect to such Accounts on terms reasonably satisfactory to the Collateral Agent;
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(p)
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which is owed by an Account Debtor or any Affiliate of such Account Debtor
which is the holder of Indebtedness issued or incurred by any Credit Party;
provided
, that any such Account shall only be ineligible as to that portion of
such Account which is less than or equal to the amount owed by the Credit Party to such
Person;
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(q)
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which is subject to any counterclaim, deduction, defense, setoff or dispute,
but only to the extent of the amount of such counterclaim, deduction, defense, setoff
or dispute, unless (i) the Administrative Agent, in its Permitted Discretion, has
established an appropriate Reserve and determines to include such Account as an
Eligible Account or (ii) such Account Debtor has entered into an agreement reasonably
acceptable to the Administrative Agent to waive such rights;
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(r)
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which is evidenced by any promissory note, chattel paper, or instrument (in
each case, other than any such items that are held by a Credit Party or delivered to
the Administrative Agent or the Collateral Agent);
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(s)
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which is owed by an Account Debtor located in any jurisdiction that requires,
as a condition to access to the courts of such jurisdiction, that a creditor qualify to
transact business, file a business activities report or other report or form, or take
one or more other actions, unless such Borrower or Borrowing Base Guarantor has so
qualified, filed such reports or forms, or taken such actions (and, in each case, paid
any required fees or other charges), except to the extent such Borrower or Borrowing
Base Guarantor may qualify subsequently as a foreign entity authorized to transact
business in such state or jurisdiction and gain access to such courts, without
incurring any cost or penalty reasonably viewed by the Administrative Agent to be
material in amount, and such later qualification cures any access to such courts to
enforce payment of such Account;
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(t)
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with respect to which such Borrower or Borrowing Base Guarantor has made any
agreement with the Account Debtor for any reduction thereof, but only to the extent of
such reduction, other than discounts and adjustments given in the ordinary course of
business; or
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(u)
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which the Administrative Agent determines in its Permitted Discretion may not
be paid by reason of the Account Debtors inability to pay.
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Subject to Sections 14.1 and 15.2 and the definition of Borrowing Base, the Administrative
Agent may modify the foregoing criteria in its Permitted Discretion.
Eligible Inventory
shall mean, at any date of determination thereof, the aggregate
amount of all Inventory owned by the Borrower and each Borrowing Base Guarantor at such date except
any Inventory (determined without duplication):
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(a)
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which is not subject to a perfected Lien in favor of the Collateral Agent;
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-18-
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(b)
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which is subject to any Lien other than (i) a Lien in favor of the Collateral
Agent and (ii) a Permitted Lien which does not have priority over the Lien in favor of
the Collateral Agent (other than any bailee, warehouseman, landlord or similar
non-consensual Liens having priority of operation of law to the extent either subclause
(i) or (ii) of such clauses (h) or (i) is satisfied with respect to the relevant
Inventory);
provided
that, with respect to any tax Lien having such priority,
eligibility of Inventory shall, without duplication, be reduced by the amount of such
tax Lien;
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(c)
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which is, in the Administrative Agents Permitted Discretion, slow moving,
obsolete, unmerchantable, defective, unfit for sale, not salable at prices
approximating at least the cost of such Inventory in the ordinary course of business or
unacceptable due to age, type, category and/or quantity;
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(d)
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with respect to which any covenant, representation, or warranty contained in
this Agreement or any Security Agreement has been breached or is not true;
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(e)
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which does not conform in all material respects to all standards imposed by any
Governmental Authority (except that any standard that is qualified as to materiality
shall have been conformed to in all respects);
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(f)
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which constitutes packaging and shipping material, manufacturing supplies,
display items, bill-and-hold goods in excess of $10,000,000, returned or repossessed
goods (other than goods that are undamaged and able to be resold in the ordinary course
of business), defective goods, goods held on consignment, goods to be returned to the
Borrowers or applicable Borrowing Base Guarantors suppliers or goods which are not of
a type held for sale in the ordinary course of business;
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(g)
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which is not located in the U.S. or which is in transit with a common carrier
from vendors and suppliers;
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(h)
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which is located in any location leased by the Borrower or applicable Borrowing
Base Guarantor unless (i) the lessor has delivered to the Agents a Collateral Access
Agreement or (ii) a Reserve for rent, charges, and other amounts due or to become due
with respect to such facility has been established by the Administrative Agent in its
Permitted Discretion;
provided
, that any such Reserve shall not exceed an
amount equal to the rent due with respect to such facility for the time period used to
determine the orderly liquidation value as set forth in the most recent Inventory
Appraisal;
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(i)
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which is located (a) in any third party warehouse or is in the possession of a
bailee and is not evidenced by a Document, unless (i) such warehouseman or bailee has
delivered to the Agents a Collateral Access Agreement and such other documentation as
the Administrative Agent may reasonably require or (ii) an appropriate Reserve has been
established by the Administrative Agent in its Permitted Discretion;
provided
,
that any such Reserve shall not exceed an amount
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-19-
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equal to the reasonable fees and expenses due with respect to such warehouse or
bailee for the time period used to determine the orderly liquidation value as set
forth in the most recent Inventory Appraisal or (b) at a vendor location unless an
appropriate Reserve has been established by the Administrative Agent in its
Permitted Discretion;
provided
, that any such Reserve shall not exceed an
amount equal to the accounts payable with respect to such vendor;
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(j)
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which is the subject of a consignment by the Borrower or any Borrowing Base
Guarantor as consignor unless (i) a protective UCC-1 financing statement has been
properly filed against the consignee, and (ii) there is a written agreement
acknowledging that such Inventory is held on consignment, that the Borrower or such
Borrowing Base Guarantor retains title to such Inventory, that no Lien arising by,
through or under such consignee has attached or will attach to such Inventory and
requiring consignee to segregate the consigned Inventory from the consignees other
personal or movable property and having other terms consistent with the Borrowers or
such Borrowing Base Guarantors past practices for consigned Inventory;
provided
that the aggregate amount of all Inventory eligible under this clause
(j) shall not exceed $25,000,000 at any time;
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(k)
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which is perishable as determined in accordance with GAAP; or
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(l)
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which contains or bears any intellectual property rights licensed to the
Borrower or any Borrowing Base Guarantor unless the Administrative Agent is satisfied
that it may sell or otherwise dispose of such Inventory without (i) infringing the
rights of such licensor in any material respect, (ii) violating any material contract
with such licensor or (iii) incurring any material liability with respect to payment of
royalties other than royalties incurred pursuant to sale of such Inventory under the
current licensing agreement.
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Subject to Sections 14.1 and 15.2 and the definition of Borrowing Base, the Administrative
Agent may modify the foregoing criteria in its Permitted Discretion.
Eligible Red Man Business Account
shall mean an Account arising in the ordinary
course of the Red Man Business from the sale of goods or rendition of services which Collateral
Agent, in the exercise of its Permitted Discretion, deems to be an Eligible Red Man Business
Account. No Account shall be an Eligible Red Man Business Account if:
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(a)
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it is owed by any Affiliate, employee, director, or officer of any Credit Party
other than Accounts of Borrower or any Borrowing Base Guarantor which are owed by Red
Man Distributors;
provided
that (i) the amount of any such Eligible Red Man
Business Account shall not include the amount owed by Red Man Distributors to Borrower
for administrative services with respect thereto, (ii) such Account shall be subject to
ineligibility or such reductions in amount as determined by Collateral Agents
application of the same eligibility criteria as set forth in the remaining clauses of
this definition (other than the criteria in clause (m) hereof) to the corresponding
Accounts owed to Red Man Distributors by its Account Debtors, (iii) the aggregate
amount of all Accounts eligible under this clause (a)
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-20-
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(together with the aggregate amount of all Accounts eligible under clause (o) of the
definition of Eligible Accounts) shall not exceed $30,000,000 at any time and (iv)
the Organizational Documents of Red Man Distributors provide for a negative pledge
of its Accounts (other than with respect to tax Liens) and for a right of
subrogation in favor of the Collateral Agent with respect to such Accounts on terms
reasonably satisfactory to the Collateral Agent;
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(b)
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it remains unpaid more than ninety (90) days after the original invoice date
thereof;
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(c)
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more than thirty percent (30%) of the total Accounts owing by an Account Debtor
remain unpaid more than ninety (90) days after the invoice date thereof, to the extent
of all Accounts owing by such Account Debtor;
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(d)
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any covenant, representation or warranty contained in this Agreement with
respect to such Account has been breached;
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(e)
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the Account Debtor is also Borrowers or the Borrowing Base Guarantors
creditor or supplier, or the Account otherwise is or may become subject to any right of
setoff by the Account Debtor;
provided
, that in such case the Account shall be
deemed to be an Eligible Red Man Business Account if, and to the extent, the balance of
the Account exceeds all amounts owed by Borrower or such Borrowing Base Guarantor to
the Account Debtor or the amount of such setoff;
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(f)
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the Account Debtor has disputed liability with respect to such Account
(provided, that if the amount disputed is less than twenty-five percent (25%) of the
entire balance of the Account, the Account shall be deemed to be an Eligible Red Man
Business Account to the extent the balance of the Account exceeds the amount disputed);
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(g)
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the Account Debtor has commenced a voluntary case under the federal bankruptcy
laws, as now constituted or hereafter amended, or made an assignment for the benefit of
creditors, or a decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an involuntary case
under the federal bankruptcy laws, as now constituted or hereafter amended, or if the
Account Debtor has ceased to be solvent (as such term is interpreted under applicable
laws relating to fraudulent transfers and conveyances) or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for it or for all or a
significant portion of its assets or affairs;
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(h)
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it arises from a sale to an Account Debtor outside the United States;
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(i)
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it arises from a sale to the Account Debtor on a bill-and-hold, guaranteed
sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return
basis;
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(j)
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Collateral Agent believes, in its sole judgment, that, collection of such
Account is insecure or that payment thereof is doubtful or will be delayed by reason of
the Account Debtors financial condition;
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-21-
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(k)
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the Account Debtor is the United States of America or any State or any
department, agency or instrumentality thereof;
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(l)
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the Account Debtor is located in the State of New Jersey, unless Borrower or
the applicable Borrowing Base Guarantor has filed a Notice of Business Activities
Report with the New Jersey Division of Taxation for the then current year;
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(m)
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the Account is not subject to Collateral Agents duly perfected first priority
security interest or is subject to a Lien, other than a Permitted Lien or a Lien
permitted by
Section 10.2
which is junior to Collateral Agents security
interest;
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(n)
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the goods giving rise to such Account have not been delivered to and accepted
by the Account Debtor or the services giving rise to such Account have not been
performed by Borrower or the applicable Borrowing Base Guarantor and accepted by the
Account Debtor or the Account otherwise does not represent a final sale;
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(o)
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the total unpaid Accounts of the Account Debtor exceed a credit limit
determined by Collateral Agent, in its reasonable discretion, to the extent such
Account exceeds such limit;
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(p)
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it is evidenced by chattel paper or an instrument of any kind, or has been
reduced to judgment;
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(q)
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Borrower or the applicable Borrowing Base Guarantor has made any agreement with
the Account Debtor for any deduction therefrom, except for discounts or allowances
which are made in the ordinary course of business for prompt payment and which
discounts or allowances are reflected in the calculation of the face value of each
invoice related to such Account;
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(r)
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Borrower or the applicable Borrowing Base Guarantor has made an agreement with
the Account Debtor to extend the time of payment thereof, or
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(s)
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it arises from a sale to the Account Debtor on a C.O.D. or cash basis.
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Eligible Red Man Business International Accounts
shall mean an Account arising in
the ordinary course of the Red Man Business from the sale of goods or rendition of services to an
Account Debtor outside the United States which Collateral Agent, in the exercise of its Permitted
Discretion, deems to be an Eligible Red Man International Account. Without limiting the generality
of the foregoing, (a) no Account which arises from a sale to an Account Debtor outside of the
United States shall be an Eligible Red Man Business International Account unless each of the
following is true and correct of such Account: (i) other than for clause (h) of such definition,
such Account otherwise constitutes an Eligible Red Man Business Account, and (ii) such Account
arises from a sale to an Account Debtor acceptable to Collateral Agent, in its sole discretion, and
(b) to the extent the aggregate amount of Accounts which arise from a sale or sales to Account
Debtor(s) in Nigeria are in excess of $5,000,000, such Accounts shall in no event constitute
Eligible Red Man Business International Accounts to the extent of such excess;
provided
that the aggregate amount of all Eligible Red Man Business International Accounts shall not exceed
$10,000,000 at any time.
Eligible Red Man Business Inventory
shall mean Inventory of the Borrower and each
Borrowing Base Guarantor which Collateral Agent, in the exercise of its Permitted Discretion,
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deems to be Eligible Red Man Business Inventory. No Inventory shall be Eligible Red Man
Business Inventory unless, in Collateral Agents opinion, it:
(a) is in good, new and saleable condition;
(b) is not obsolete or unmerchantable;
(c) meets all standards imposed by any Governmental Authority;
(d) conforms in all respects to the warranties and representations set forth in this Agreement
or any Security Agreement;
(e) is at all times subject to Collateral Agents duly perfected, first priority security
interest and no other Lien, except Liens permitted by Section 10.2 of this Agreement;
(f) other than Inventory in transit, is situated at one of the locations disclosed to
Collateral Agent; and
(g) consists of finished tubular goods or consumable supplies of the Borrower or such
Borrowing Base Guarantor held for sale in the ordinary course of the Red Man Business.
In no event shall any work-in process Inventory constitute Eligible Red Man Business Inventory.
With respect to Inventory located in any leased location or third party warehouse, such Inventory
shall not be deemed Eligible Red Man Business Inventory unless such lessor or warehouseman delivers
to Collateral Agent a Collateral Access Agreement or Collateral Agent has established a Reserve in
an amount equal to the total payments due for the remaining term of the contract for such premises.
Environmental Claims
shall mean any and all actions, suits, orders, decrees,
demands, demand letters, claims, liens, notices of noncompliance, violation or potential
responsibility or investigation (other than internal reports prepared by the Borrower or any of the
Subsidiaries (a) in the ordinary course of such Persons business or (b) as required in connection
with a financing transaction or an acquisition or disposition of real estate) or proceedings
relating in any way to any Environmental Law or any permit issued, or any approval given, under any
such Environmental Law (hereinafter,
Claims
), including, without limitation, (i) any and
all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief relating to the presence, release or threatened release of
Hazardous Materials or arising from alleged injury or threat of injury to health or safety (to the
extent relating to human exposure to Hazardous Materials), or the environment including, without
limitation, ambient air, surface water, groundwater, land surface and subsurface strata and natural
resources such as wetlands.
Environmental Law
shall mean any applicable Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect
and in each case as amended, and any binding judicial or administrative interpretation thereof,
including any binding judicial or administrative order, consent decree or judgment, relating to the
protection of environment, including, without limitation, ambient air, surface water, groundwater,
land surface and subsurface strata and natural resources such as wetlands, or human health or
safety (to the extent relating to human exposure to Hazardous Materials), or Hazardous Materials.
-23-
Equity Contribution
shall have the meaning provided in the preamble to this
Agreement.
Equity Investments
shall mean the Equity Contribution and the Rollover Equity.
ERISA
shall mean the Employee Retirement Income Security Act of 1974, as amended
from time to time. Section references to ERISA are to ERISA as in effect at the date of this
Agreement and any subsequent provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.
ERISA Affiliate
shall mean each person (as defined in Section 3(9) of ERISA) that
together with the Borrower or a Subsidiary would be deemed to be a single employer within the
meaning of Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
Event of Default
shall have the meaning provided in
Section 11
.
Excess Availability
means, at any time, an amount equal to the lesser of (a) the
Total Revolving Credit Commitment and (b) the Borrowing Base, in each case,
minus
the
aggregate of all Lenders Revolving Credit Exposure.
Excess Cash Flow
shall have the meaning provided in the Term Loan Credit Agreement,
as in effect on the Closing Date.
Exchange Rate
shall mean on any day with respect to any Foreign Currency, the rate
at which such Foreign Currency may be exchanged into Dollars, as set forth at approximately 11:00
a.m. (London time) on such day on the Reuters World Currency Page for such Foreign Currency; in the
event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate shall be
determined by reference to such other publicly available service for displaying exchange rates as
may be agreed upon by the Administrative Agent and the Borrower, or, in the absence of such
agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of exchange
of the Administrative Agent in the market where its foreign currency exchange operations in respect
of such Foreign Currency are then being conducted, at or about 10:00 a.m. (New York City time) on
such date for the purchase of Dollars for delivery two Business Days later.
Excluded Subsidiary
means (a) each Subsidiary listed on
Schedule 1.1(d)
hereto, (b) any Subsidiary that is not a wholly-owned Subsidiary, (c) any Subsidiary that is
prohibited by any applicable Requirement of Law from guaranteeing the Obligations, (d) any Domestic
Subsidiary that is a Subsidiary of a Foreign Subsidiary, (e) any Subsidiary acquired pursuant to a
Permitted Acquisition financed with secured Indebtedness incurred pursuant to
Section
10.1(B)(j)
or
Section 10.1(B)(k)
and each Restricted Subsidiary thereof that guarantees
such Indebtedness to the extent and so long as the financing documentation relating to such
Permitted Acquisition to which such Restricted Subsidiary is a party prohibits such Restricted
Subsidiary from guaranteeing, or granting a Lien on any of its assets to secure, the Obligations;
provided
that after such time that such prohibitions on guarantees or granting of Liens
lapses or terminates, such Restricted Subsidiary shall no longer be an Excluded Subsidiary, (f) any
other
-24-
Subsidiary with respect to which, in the reasonable judgment of the Administrative Agent
(confirmed in writing by notice to the Borrower), the cost or other consequences (including any
adverse tax consequences) of providing a Guarantee shall be excessive in view of the benefits to be
obtained by the Lenders therefrom, and (g) each Unrestricted Subsidiary.
Excluded Taxes
shall mean, with respect to the Administrative Agent, the Collateral
Agent, any Letter of Credit Issuer or any Lender, (a) (i) net income taxes and franchise taxes
(imposed in lieu of net income taxes) and capital taxes imposed on the Administrative Agent, any
Letter of Credit Issuer or any Lender and (ii) any taxes imposed on the Administrative Agent, any
Letter of Credit Issuer or any Lender as a result of any current or former connection between the
Administrative Agent, any Letter of Credit Issuer or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing authority thereof
or therein (other than any such connection arising solely from the Administrative Agent or such
Lender having executed, delivered or performed its obligations or received a payment under, or
having been a party to or having enforced this Agreement or any other Credit Document) and (b) (i)
any withholding tax that is imposed by a jurisdiction in which the Borrower is located or organized
on amounts payable to such Lender under the law in effect at the time such Lender becomes a party
to this Agreement (or, in the case of a Participant, on the date such Participant became a
Participant hereunder);
provided
that
this clause (b)(i) shall not apply to the
extent that (x) the indemnity payments or additional amounts any Lender (or Participant) would be
entitled to receive (without regard to this clause (b)(i)) do not exceed the indemnity payment or
additional amounts that the person making the assignment, participation or transfer to such Lender
(or Participant) would have been entitled to receive in the absence of such assignment,
participation or transfer or (y) any Tax is imposed on a Lender in connection with an interest or
participation in any Loan or other obligation that such Lender was required to acquire pursuant to
Section 14.8(a)
or that such Lender acquired pursuant to
Section 14.7
(it being
understood and agreed, for the avoidance of doubt, that any withholding tax imposed on a Lender as
a result of a Change in Law occurring after the time such Lender became a party to this Agreement
(or designates a new lending office) shall not be an Excluded Tax) or (ii) any Tax to the extent
attributable to such Lenders failure to comply with
Section 5.4(d)
or
Section 5.4(e)
.
Existing Letters of Credit
shall have the meaning provided in the preamble to this
Agreement.
Federal Funds Effective Rate
shall mean, for any day, the weighted average of the
per annum
rates on overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day,
the Federal Funds Effective Rate for such day shall be the average rate charged to the
Administrative Agent on such day on such transactions as determined by the Administrative Agent.
Fee Letter
shall mean that certain confidential fee letter dated as of September 20,
2007 by and among Goldman Sachs Credit Partners L.P., Lehman Brothers Inc., Lehman Commercial Paper
Inc., Lehman Brothers Commercial Bank and the Borrower.
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Fees
shall mean all amounts payable pursuant to, or referred to in,
Section
4.1
.
Financial Officer
shall mean the Chief Financial Officer, principal accounting
officer, Treasurer, or Controller or any other senior financial officer of the Borrower designated
in writing to the Administrative Agent by any of the foregoing and reasonably acceptable to the
Administrative Agent.
First Amendment to Term Loan Credit Agreement
shall mean that certain First
Amendment to Term Loan Credit Agreement dated as of the Closing Date among Borrower, the credit
support parties named therein, Lehman Commercial Paper Inc., as administrative agent and collateral
agent, and each of the lenders party thereto.
Foreign Currencies
shall mean any currency other than Dollars.
Foreign Plan
shall mean any employee benefit plan, program, policy, arrangement or
agreement maintained or contributed to by the Borrower or any of its Subsidiaries with respect to
employees employed outside the United States.
Foreign Subsidiary
shall mean each Subsidiary of the Borrower that is not a Domestic
Subsidiary.
Fronting Fee
shall have the meaning provided in
Section 4.1(c)
.
Funded Debt
shall mean all indebtedness of the Borrower and the Restricted
Subsidiaries for borrowed money that matures more than one year from the date of its creation or
matures within one year from such date that is renewable or extendable, at the option of the
Borrower or any Restricted Subsidiary, to a date more than one year from such date or arises under
a revolving credit or similar agreement that obligates the lender or lenders to extend credit
during a period of more than one year from such date, including all amounts of Funded Debt required
to be paid or prepaid within one year from the date of its creation and, in the case of the
Borrower, Indebtedness in respect of the Loans.
GAAP
shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time;
provided
,
however
, that if the Borrower
notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof
to eliminate the effect of any change occurring after the Closing Date in GAAP or in the
application thereof on the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance herewith.
Governmental Authority
shall mean any nation, sovereign or government, any state,
province, territory or other political subdivision thereof, and any entity or authority exercising
executive, legislative, judicial, regulatory or administrative functions of or pertaining to
government, including a central bank or stock exchange.
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Guarantee
shall mean (a) the Guarantee, made by each Guarantor in favor of the
Administrative Agent for the benefit of the Secured Parties, substantially in the form of
Exhibit C
, and (b) any other guarantee of the Obligations made by a Restricted Subsidiary
in form and substance reasonably acceptable to the Administrative Agent, in each case as the same
may be amended, supplemented or otherwise modified from time to time.
Guarantee Obligations
shall mean, as to any Person, any obligation of such Person
guaranteeing or intended to guarantee any Indebtedness of any other Person (the
primary
obligor
) in any manner, whether directly or indirectly, including any obligation of such
Person, whether or not contingent, (a) to purchase any such Indebtedness or any property
constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such Indebtedness or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of
any such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness or
(d) otherwise to assure or hold harmless the owner of such Indebtedness against loss in respect
thereof;
provided
,
however
, that the term
Guarantee Obligations
shall not
include endorsements of instruments for deposit or collection in the ordinary course of business or
customary and reasonable indemnity obligations in effect on the Closing Date or entered into in
connection with any acquisition or disposition of assets permitted under this Agreement (other than
such obligations with respect to Indebtedness). The amount of any Guarantee Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of
which such Guarantee Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to perform thereunder)
as determined by such Person in good faith.
Guarantors
shall mean the Subsidiary Guarantors.
Hazardous Materials
shall mean (a) any petroleum or petroleum products, radioactive
materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment
that contain dielectric fluid containing regulated levels of polychlorinated biphenyls, and radon
gas; (b) any chemicals, materials or substances defined as or included in the definition of
hazardous substances, hazardous waste, hazardous materials, extremely hazardous waste,
restricted hazardous waste, toxic substances, toxic pollutants, contaminants, or
pollutants, or words of similar import, under any applicable Environmental Law; and (c) any other
chemical, material or substance, which is prohibited, limited or regulated by any Environmental
Law.
Hedge Agreement
means an Interest Rate Agreement or a Currency Agreement entered
into in order to satisfy the requirements of this Agreement or otherwise in the ordinary course of
Borrowers or any of its Subsidiaries businesses.
Historical Financial Statements
shall mean as of the Closing Date, (a) the audited
financial statements of each of (i) the Borrower and its Subsidiaries (other than Red Man Group)
and (ii) the Red Man Group, in each case, for the 2005 and 2006 fiscal years and consisting of
balance sheets and the related consolidated statements of income, stockholders equity and cash
flows for such fiscal years and (b) the unaudited financial statements of each of (i) the Borrower
-27-
and its Subsidiaries (other than Red Man Group) and (ii) the Red Man Group, in each case, for
the fiscal quarters ending March 31, 2007 and June 30, 2007 and consisting of balance sheets and
the related consolidated statements of income, stockholders equity and cash flows for such fiscal
quarters.
Incorporated Borrowing Base
shall mean at any time:
(a) (i) with respect to the McJunkin Business and (ii) with respect to the Red Man Business
after the completion of an updated Inventory Appraisal and collateral audit and field examination
of Red Man and its Subsidiaries (collectively, the
Red Man Group
), in each case an amount
equal to the sum of, without duplication:
(x) the book value of Eligible Accounts multiplied by the advance rate of 85%, plus
(y) the Net Orderly Liquidation Value of Eligible Inventory (which shall be (i) net of the
current monthly shrinkage reserve calculated in accordance with GAAP and (ii) valued at Cost)
multiplied by the advance rate of 85% and
(b) with respect to the Red Man Business prior to the completion of an updated Inventory
Appraisal and collateral audit and field examination of the Red Man Group, an amount equal to the
sum of, without duplication:
(x) 85% of the net amount (after deduction of such reserves as established or modified by the
Collateral Agent in the exercise of its Permitted Discretion, including a reserve for sales tax
payables) of Eligible Red Man Business Accounts outstanding at such date; plus
(y) 85% of the net amount (after deduction of such reserves as established or modified by the
Collateral Agent in the exercise of its Permitted Discretion, including a reserve for sales tax
payables) of Eligible Red Man Business International Accounts outstanding at such date; plus
(z) the aggregate of (i) 60% of the value (after deduction of such reserves as established or
modified by the Collateral Agent in the exercise of its Permitted Discretion) of Eligible Red Man
Business Inventory at such date consisting of oil country tubular goods held for sale in the
ordinary course of the Red Man Groups business, calculated on the basis of the lower of cost or
market; (ii) 50% of the value (after deduction of such reserves as established or modified by the
Collateral Agent in the exercise of its Permitted Discretion) of Eligible Red Man Business
Inventory at such date consisting of consumable supplies held for sale in the ordinary course of
the Red Man Groups business, calculated on the basis of the lower of cost or market, and (iii) 60%
of the value (after deduction of such reserves as established or modified by the Collateral Agent
in the exercise of its Permitted Discretion) of Eligible Red Man Business Inventory at such date
consisting of line pipe held for sale in the ordinary course of the Red Man Groups business,
calculated on the basis of the lower of cost or market.
For purposes hereof, the net amount of Eligible Red Man Business Accounts or Eligible Red Man
Business International Accounts, as the case may be, at any time shall be the face amount of such
Eligible Red Man Business Accounts or such Eligible Red Man Business International
-28-
Accounts, less any and all returns, discounts (which may, at Agents option, be calculated on
shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing,
claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at
such time.
Increased Amount Date
shall have the meaning provided in
Section 2.14
.
Indebtedness
of any Person shall mean (a) all indebtedness of such Person for
borrowed money, (b) the deferred purchase price of assets or services that in accordance with GAAP
would be included as liabilities in the balance sheet of such Person, (c) the face amount of all
letters of credit issued for the account of such Person and, without duplication, all drafts drawn
thereunder, (d) all Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed, (e) all Capitalized Lease
Obligations of such Person, (f) all obligations of such Person under interest rate swap, cap or
collar agreements, interest rate future or option contracts, currency swap agreements, currency
future or option contracts, commodity price protection agreements or other commodity price hedging
agreements and other similar agreements and (g) without duplication, all Guarantee Obligations of
such Person,
provided
that Indebtedness shall not include (i) trade payables and accrued
expenses, in each case payable directly or through a bank clearing arrangement and arising in the
ordinary course of business, (ii) deferred or prepaid revenue, (iii) purchase price holdbacks in
respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed
obligations of the respective seller and (iv) all intercompany Indebtedness having a term not
exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary
course of business.
Indemnified Taxes
shall mean all Taxes (other than Excluded Taxes) and Other Taxes.
Intercreditor Agreement
means an intercreditor agreement substantially in the form
of
Exhibit O
, as it may be amended, restated, amended and restated, supplemented or
otherwise modified from time to time.
Interest Period
shall mean, with respect to any Revolving Credit Loan, the interest
period applicable thereto, as determined pursuant to
Section 2.9
.
Interest Rate Agreement
means any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedging agreement or other similar
agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure
associated with Borrowers and its Subsidiaries operations and not for speculative purposes.
Inventory
has the meaning assigned to such term in the Security Agreement.
Inventory Appraisal
shall mean (a) on the Closing Date, with respect to the Credit
Parties other than the Red Man Group, the appraisal prepared by HILCO Appraisal Services, LLC dated
December 28, 2006 and (b) thereafter, the most recent inventory appraisal conducted by an
independent appraisal firm and delivered pursuant to Section 9.14 hereof.
Investment
shall mean, for any Person: (a) the acquisition (whether for cash,
property, services or securities or otherwise) of Stock, Stock Equivalents, bonds, notes,
debentures,
-29-
partnership or other ownership interests or other securities of any other Person (including
any short sale or any sale of any securities at a time when such securities are not owned by the
Person entering into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell such property to such
Person), but excluding any such advance, loan or extension of credit having a term not exceeding
364 days arising in the ordinary course of business; or (c) the entering into of any guarantee of,
or other contingent obligation with respect to, Indebtedness.
Investors
shall mean the Sponsors, the Management Investors and each other investor
providing a portion of the Equity Investments on the Closing Date.
Joinder Agreement
shall mean an agreement substantially in the form of
Exhibit M
.
L/C Maturity Date
shall mean the date that is five Business Days prior to the
Revolving Credit Maturity Date.
L/C Participant
shall have the meaning provided in
Section 3.3(a)
.
L/C Participation
shall have the meaning provided in
Section 3.3(a)
.
Lender
shall have the meaning provided in the preamble to this Agreement.
Lender Default
shall mean (a) the failure (which has not been cured) of a Lender to
make available its portion of any Borrowing or to fund its portion of any unreimbursed payment
under
Section 3.3
, (b) a Lender having notified the Administrative Agent and/or the
Borrower that it does not intend to comply with the obligations under
Section 2.1(a)
,
2.1(b)
,
2.1(d)
or
3.3
, or (c) a Lender being deemed insolvent or becoming
the subject of a bankruptcy or insolvency proceeding.
Letter of Credit
shall mean each letter of credit issued pursuant to
Section
3.1
.
Letter of Credit Commitment
shall mean $60,000,000, as the same may be reduced from
time to time pursuant to
Section 3.1
.
Letter of Credit Exposure
shall mean, with respect to any Lender, at any time, the
sum of (a) the amount of any Unpaid Drawings in respect of which such Lender has made (or is
required to have made) payments to the Letter of Credit Issuer pursuant to
Section 3.4(a)
at such time and (b) such Lenders Revolving Credit Commitment Percentage of the Letters of Credit
Outstanding at such time (excluding the portion thereof consisting of Unpaid Drawings in respect of
which the Lenders have made (or are required to have made) payments to the Letter of Credit Issuer
pursuant to
Section 3.4(a)
).
Letter of Credit Fee
shall have the meaning provided in
Section 4.1(b)
.
Letter of Credit Issuer
shall mean JPMorgan Chase Bank, N.A. and any of its
Affiliates or any replacement or successor pursuant to
Section 3.6
. The Letter of Credit
Issuer may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates
of the Letter of
-30-
Credit Issuer, and in each such case the term Letter of Credit Issuer shall include any such
Affiliate with respect to Letters of Credit issued by such Affiliate. In the event that there is
more than one Letter of Credit Issuer at any time, references herein and in the other Credit
Documents to the Letter of Credit Issuer shall be deemed to refer to the Letter of Credit Issuer in
respect of the applicable Letter of Credit or to all Letter of Credit Issuers, as the context
requires.
Letters of Credit Outstanding
shall mean, at any time, the sum of, without
duplication, (a) the aggregate Stated Amount of all outstanding Letters of Credit and (b) the
aggregate amount of all Unpaid Drawings in respect of all Letters of Credit.
Letter of Credit Request
shall have the meaning provided in
Section 3.2
.
Level I Status
shall mean, on any date, the Consolidated Total Debt to Consolidated
EBITDA Ratio is greater than or equal to 2.75 to 1.00 as of such date.
Level II Status
shall mean, on any date, the circumstance that Level I Status does
not exist and the Consolidated Total Debt to Consolidated EBITDA Ratio is greater than or equal to
2.00 to 1.00 as of such date.
Level III Status
shall mean, on any date, the circumstance that the Consolidated
Total Debt to Consolidated EBITDA Ratio is less than 2.00 to 1.00 as of such date.
LIBOR Loan
shall mean any LIBOR Revolving Credit Loan.
LIBOR Rate
shall mean, in the case of any LIBOR Revolving Credit Loan, with respect
to each day during each Interest Period pertaining to such LIBOR Loan, (a) the rate of interest
determined on the basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate
screen as of 11:00 a.m. (London time) two Business Days prior to the beginning of such Interest
Period multiplied by (b) the Statutory Reserve Rate. In the event that any such rate does not
appear on the applicable Page of the Telerate Service (or otherwise on such service), the
LIBOR Rate
for the purposes of this paragraph shall be determined by reference to such
other publicly available service for displaying LIBOR rates as may be agreed upon by the
Administrative Agent and the Borrower or, in the absence of such agreement, the
LIBOR
Rate
for the purposes of this paragraph shall instead be the rate
per annum
notified to the
Administrative Agent by the Reference Lender as the rate at which the Reference Lender is offered
Dollar deposits at or about 11:00 a.m. (London time) two Business Days prior to the beginning of
such Interest Period in the interbank LIBOR market where the LIBOR and foreign currency and
exchange operations in respect of its LIBOR Loans are then being conducted for delivery on the
first day of such Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its LIBOR Revolving Credit Loan, as the case may be, to be outstanding
during such Interest Period.
LIBOR Revolving Credit Loan
shall mean any Revolving Credit Loan bearing interest at
a rate determined by reference to the LIBOR Rate.
Lien
shall mean any mortgage, pledge, security interest, hypothecation, assignment,
lien (statutory or other) or similar encumbrance (including any agreement to give any of the
-31-
foregoing, any conditional sale or other title retention agreement or any lease in the nature
thereof).
Loan
shall mean any Revolving Credit Loan, Swingline Loan or New Revolving Loan made
by any Lender and Protective Advances made by Administrative Agent hereunder.
Management Investors
shall mean the directors, management officers and employees of
the Borrower and its Subsidiaries who are investors in the Borrower (or any direct or indirect
parent thereof) on the Closing Date.
Mandatory Borrowing
shall have the meaning provided in
Section 2.1(d)
.
Material Adverse Change
shall mean any event or circumstance which has resulted or
is reasonably likely to result in a material adverse change in the business, assets, operations,
properties or financial condition of the Borrower and its Subsidiaries, taken as a whole or that
would materially adversely affect the ability of the Borrower and the other Credit Parties, taken
as a whole, to perform their respective payment obligations under this Agreement or any of the
other Credit Documents.
Material Adverse Effect
shall mean a circumstance or condition affecting the
business, assets, operations, properties or financial condition of the Borrower and the
Subsidiaries, taken as a whole, that would materially adversely affect (a) the business, assets,
operations, properties, or financial condition of the Borrower and its Subsidiaries, taken as a
whole, (b) the ability of the Borrower and the other Credit Parties, taken as a whole, to perform
their respective payment obligations under this Agreement or any of the other Credit Documents or
(c) the rights and remedies of the Administrative Agent , Collateral Agent and the Lenders under
this Agreement or any of the other Credit Documents.
Material Subsidiary
shall mean, at any date of determination, each Restricted
Subsidiary of the Borrower (a) whose total assets at the last day of the Test Period ending on the
last day of the most recent fiscal period for which Section 9.1 Financials have been delivered were
equal to or greater than 5% of the consolidated total assets of the Borrower and the Restricted
Subsidiaries at such date or (b) whose gross revenues for such Test Period were equal to or greater
than 5% of the consolidated gross revenues of the Borrower and the Restricted Subsidiaries for such
period, in each case determined in accordance with GAAP.
McJ Holding
shall have the meaning provided in the preamble to this Agreement.
McJunkin Business
shall mean the business conducted by the Borrower and its
Subsidiaries other than the Red Man Business.
Minimum Borrowing Amount
shall mean (a) with respect to a Borrowing of Revolving
Credit Loans, $1,000,000 and (b) with respect to a Borrowing of Swingline Loans, $250,000.
Minimum Equity Investment Amount
shall have the meaning provided in the recitals
hereto.
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Moodys
shall mean Moodys Investors Service, Inc. or any successor by merger or
consolidation to its business.
Net Cash Proceeds
shall mean, with respect to any Prepayment Event, (a) the gross
cash proceeds (including payments from time to time in respect of installment obligations, if
applicable) received by or on behalf of the Borrower or any of the Restricted Subsidiaries in
respect of such Prepayment Event or issuance, as the case may be, less (b) the sum of:
(i) the amount, if any, of all taxes paid or estimated to be payable by the Borrower or
any of the Restricted Subsidiaries in connection with such Prepayment Event,
(ii) the amount of any reasonable reserve established in accordance with GAAP against
any liabilities (other than any taxes deducted pursuant to clause (i) above) (x) associated
with the assets that are the subject of such Prepayment Event and (y) retained by the
Borrower or any of the Restricted Subsidiaries,
provided
that the amount of any
subsequent reduction of such reserve (other than in connection with a payment in respect of
any such liability) shall be deemed to be Net Cash Proceeds of such a Prepayment Event
occurring on the date of such reduction,
(iii) the amount of any Indebtedness secured by a Lien on the assets that are the
subject of such Prepayment Event to the extent that the instrument creating or evidencing
such Indebtedness requires that such Indebtedness be repaid upon consummation of such
Prepayment Event,
(iv) the amount of any proceeds of such Prepayment Event that the Borrower or any
Subsidiary has reinvested (or intends to reinvest within the Reinvestment Period or has
entered into a binding commitment prior to the last day of the Reinvestment Period to
reinvest) in the business of the Borrower or any of the Restricted Subsidiaries,
provided
that
any portion of such proceeds that has not been so reinvested
within such Reinvestment Period (with respect to such Prepayment Event, the
Deferred
Net Cash Proceeds
) shall, unless the Borrower or a Subsidiary has entered into a
binding commitment prior to the last day of such Reinvestment Period to reinvest such
proceeds, (x) be deemed to be Net Cash Proceeds of a Prepayment Event occurring on the last
day of such Reinvestment Period or 180 days after the date the Borrower or such Subsidiary
has entered into such binding commitment, as applicable, and (y) be applied to the repayment
of Revolving Loans in accordance with
Section 5.2(b)
; and
(v) reasonable and customary fees.
Net Orderly Liquidation Value
shall mean, the orderly liquidation value (net of
costs and expenses estimated to be incurred in connection with such liquidation) of the Eligible
Inventory that is estimated to be recoverable in an orderly liquidation of such Eligible Inventory,
as determined from time to time by reference to the most recent Inventory Appraisal.
New Revolving Credit Commitments
shall have the meaning provided in
Section
2.14
.
New Revolving Loan Lender
shall have the meaning provided in
Section 2.14
.
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New Revolving Loans
shall have the meaning provided in
Section 2.14
.
New Term Loan Commitments
shall have the meaning provided in the Term Loan Credit
Agreement.
Non-Cash Charges
shall mean (a) losses on asset sales (other than asset sales in the
ordinary course of business), disposals or abandonments, (b) any impairment charge or asset
write-off related to intangible assets (including good-will), long-lived assets, and investments in
debt and equity securities pursuant to GAAP, (c) all losses from investments recorded using the
equity method, (d) stock-based awards compensation expense, and (e) other non-cash charges
(
provided
that if any non-cash charges referred to in this clause (e) represent an accrual
or reserve for potential cash items in any future period, the cash payment in respect thereof in
such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding
amortization of a prepaid cash item that was paid in a prior period).
Non-Consenting Lender
shall have the meaning provided in
Section 14.7(b)
.
Non-Core Assets
shall mean the assets described on Schedule 1.1(e).
Non-Defaulting Lender
shall mean and include each Lender other than a Defaulting
Lender.
Non-U.S. Lender
shall mean any Lender that is not, for United States federal income
tax purposes, (a) a citizen or resident of the United States, (b) a corporation or partnership or
entity treated as a corporation or partnership created or organized in or under the laws of the
United States, or any political subdivision thereof, (c) an estate whose income is subject to U.S.
federal income taxation regardless of its source or (d) a trust if a court within the United States
is able to exercise primary supervision over the administration of such trust and one or more
United States persons have the authority to control all substantial decisions of such trust or a
trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a United States person.
Non-U.S. Participant
shall mean any Participant that if it were a Lender would
qualify as a Non-U.S. Lender.
Notice of Borrowing
shall mean each notice of a Borrowing of Revolving Credit Loans
pursuant to
Section 2.3(b)
and each notice of a Borrowing of Swingline Loans pursuant to
Section 2.3(c).
Notice of Conversion or Continuation
shall have the meaning provided in
Section
2.6
.
Obligations
shall have the meaning assigned to such term in the Security Documents.
Organizational Documents
means (a) with respect to any corporation, its certificate
or articles of incorporation or organization, as amended, and its by-laws, as amended, (b) with
respect to any limited partnership, its certificate of limited partnership (if any), as amended,
and its partnership agreement, as amended, (c) with respect to any general partnership, its
partnership
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agreement, as amended, and (d) with respect to any limited liability company, its articles of
organization (if any), as amended, and its operating agreement, as amended.
Original Closing Date
shall mean January 31, 2007.
Original Transaction Expenses
shall have the meaning assigned to the term
Transaction Expense in the Existing Revolving Credit Agreement.
Original Transactions
shall have the meaning assigned to the term Transactions in
the Existing Revolving Credit Agreement.
Other Taxes
shall mean any and all present or future stamp, documentary or any other
excise, property or similar taxes (including interest, fines, penalties, additions to tax and
related expenses with regard thereto) arising directly from any payment made or required to be made
under this Agreement or from the execution or delivery of, registration or enforcement of,
consummation or administration of, or otherwise with respect to, this Agreement or any other Credit
Document.
Participant
shall have the meaning provided in
Section 14.6(c)
.
Patriot Act
shall have the meaning provided in
Section 14.18
.
PBGC
shall mean the Pension Benefit Guaranty Corporation established pursuant to
Section 4002 of ERISA, or any successor thereto.
Perfection Certificate
shall mean a certificate of the Borrower in the form of
Exhibit E
or any other form approved by the Administrative Agent.
Permitted Acquisition
shall mean the acquisition, by merger or otherwise, by the
Borrower or any of the Restricted Subsidiaries of assets or Stock or Stock Equivalents, so long as
(a) such acquisition and all transactions related thereto shall be consummated in accordance with
applicable law; (b) such acquisition shall result in the issuer of such Stock or Stock Equivalents
becoming a Restricted Subsidiary and a Subsidiary Guarantor, to the extent required by
Section
9.11
; (c) such acquisition shall result in the Administrative Agent, for the benefit of the
Secured Parties, being granted a security interest in any Stock, Stock Equivalent or any assets so
acquired, to the extent required by
Sections 9.11
and/or
9.17
; (d) after giving
effect to such acquisition, no Default or Event of Default shall have occurred and be continuing;
(e) after giving effect to such acquisition, Excess Availability shall be equal to or greater than
$30,000,000 and (f) the Borrower shall be in compliance, on a Pro Forma Basis after giving effect
to such acquisition (including any Indebtedness assumed or permitted to exist or incurred pursuant
to
Sections 10.1(B)(j)
and
10.1(B)(k)
, respectively, and any related Pro Forma
Adjustment), with the covenants set forth in
Section 10.9
of the Term Loan Credit
Agreement, as such covenant is recomputed as at the last day of the most recently ended Test Period
under such Section as if such acquisition had occurred on the first day of such Test Period.
Notwithstanding the definition of Borrowing Base, in connection with and subsequent to any
Permitted Acquisition, the Accounts and Inventory acquired by the Borrower or any Credit Party, or,
subject to compliance with
Section 9.11
of the Credit Agreement, of the Person so
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acquired, may be included in the calculation of the Borrowing Base and thereafter if all
criteria set forth in the definitions of Eligible Accounts and Eligible Inventory and Borrowing
Base Guarantor have been satisfied and, if the aggregate value (or Cost in the case of Inventory)
of such Accounts and Inventory is in excess of $20,000,000 and only to the extent reasonably
requested by the Administrative Agent, the Administrative Agent shall have received a collateral
audit and appraisal of such Accounts and Inventory acquired by the applicable Credit Parties or
owned by such Person acquired by the applicable Credit Parties which shall be reasonably
satisfactory in scope, form and substance to the Administrative Agent;
provided
, that if no
collateral audit and appraisal is delivered to and approved by the Administrative Agent with
respect to such Accounts and Inventory, then the lowest recovery rates from the current Inventory
Appraisal shall apply to such Accounts and Inventory.
Permitted Additional Debt
shall mean senior unsecured or subordinated Indebtedness,
issued by the Borrower or a Subsidiary Guarantor, (a) the terms of which (i) do not provide for any
scheduled repayment, mandatory redemption or sinking fund obligation prior to the date that is 90
days following the final maturity of the Term Loans (as in effect on the Closing Date) (other than
customary offers to purchase upon a change of control, asset sale or event of loss and customary
acceleration rights after an event of default) and (ii) to the extent subordinated provide for
customary subordination to the Obligations under the Credit Documents, (b) the covenants, events of
default, guarantees and other terms of which (other than interest rate and redemption premiums),
taken as a whole, are not more restrictive to the Borrower and the Subsidiaries than those in this
Agreement;
provided
that
a certificate of an Authorized Officer of the Borrower is
delivered to the Administrative Agents at least five Business Days (or such shorter period as the
Administrative Agents may reasonably agree) prior to the incurrence of such Indebtedness, together
with a reasonably detailed description of the material terms and conditions of such Indebtedness or
drafts of the documentation relating thereto, stating that the Borrower has determined in good
faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence
that such terms and conditions satisfy the foregoing requirement unless the Administrative Agents
notify the Borrower within such period that it disagrees with such determination (including a
reasonable description of the basis upon which it disagrees), and (c) of which no Subsidiary of the
Borrower (other than a Guarantor) is an obligor.
Permitted Discretion
shall mean a determination made by Administrative Agent and/or
CIT, in its capacity as a Co-Collateral Agent, in the exercise of its reasonable credit judgment
(from the perspective of a secured asset-based lender), exercised in good faith and subject to
Section 15.2
.
Permitted Investments
shall mean:
(a) securities issued or unconditionally guaranteed by the United States government or
any agency or instrumentality thereof, in each case having maturities of not more than 12
months from the date of acquisition thereof;
(b) securities issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof or any political
subdivision of any such state or any public instrumentality thereof having maturities of not
more than 12 months from the date of acquisition thereof and, at the
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time of acquisition, having an investment grade rating generally obtainable from either
S&P or Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations,
then from another nationally recognized rating service);
(c) commercial paper issued by any Lender or any bank holding company owning any
Lender;
(d) commercial paper maturing no more than 12 months after the date of creation thereof
and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or
Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(e) domestic and LIBOR certificates of deposit or bankers acceptances maturing no more
than two years after the date of acquisition thereof issued by any Lender or any other bank
having combined capital and surplus of not less than $250,000,000 in the case of domestic
banks;
(f) repurchase agreements with a term of not more than 30 days for underlying
securities of the type described in clauses (a), (b) and (e) above entered into with any
bank meeting the qualifications specified in clause (e) above or securities dealers of
recognized national standing;
(g) marketable short-term money market and similar funds (x) either having assets in
excess of $250,000,000 or (y) having a rating of at least A-1 or P-1 from either S&P or
Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(h) shares of investment companies that are registered under the Investment Company Act
of 1940 and substantially all the investments of which are one or more of the types of
securities described in clauses (a) through (g) above; and
(i) in the case of Investments by any Restricted Foreign Subsidiary or Investments made
in a country outside the United States of America, Permitted Investments shall also include
((i) direct obligations of the sovereign nation (or any agency thereof) in which such
Restricted Foreign Subsidiary is organized and is conducting business or where such
Investment is made, or in obligations fully and unconditionally guaranteed by such sovereign
nation (or any agency thereof), in each case maturing within a two years after such date and
having, at the time of the acquisition thereof, a rating equivalent to at least A-1 from S&P
and at least P-1 from Moodys, (ii) investments of the type and maturity described in
clauses (a) through (h) above of foreign obligors, which Investments or obligors (or the
parents of such obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies, (iii) shares of money market mutual or similar funds
which invest exclusively in assets otherwise satisfying the requirements of this definition
(including this proviso) and (iv) other short-term investments utilized by Foreign
Restricted Subsidiaries in accordance with normal investment practices for cash management
in investments analogous to the foregoing investments in clauses (a) through (i).
-37-
Permitted Liens
shall mean:
(a) Liens for taxes, assessments or governmental charges or claims not yet due or which
are being contested in good faith and by appropriate proceedings for which appropriate
reserves have been established in accordance with GAAP;
(b) Liens in respect of property or assets of the Borrower or any of the Subsidiaries
imposed by law, such as carriers, warehousemens and mechanics Liens and other similar
Liens arising in the ordinary course of business, in each case so long as such Liens arise
in the ordinary course of business and do not individually or in the aggregate have a
Material Adverse Effect;
(c) Liens arising from judgments or decrees in circumstances not constituting an Event
of Default under
Section 11.1
;
(d) Liens incurred or deposits made in connection with workers compensation,
unemployment insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations incurred in the ordinary
course of business or otherwise constituting Investments permitted by
Section 10.5
;
(e) ground leases in respect of real property on which facilities owned or leased by
the Borrower or any of its Subsidiaries are located;
(f) easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not interfering in any material respect with the
business of the Borrower and its Subsidiaries, taken as a whole;
(g) any interest or title of a lessor or secured by a lessors interest under any lease
permitted by this Agreement;
(h) Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(i) Liens on goods the purchase price of which is financed by a documentary letter of
credit issued for the account of the Borrower or any of its Subsidiaries,
provided
that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect
of such letter of credit to the extent permitted under
Section 10.1(B)
;
(j) leases or subleases granted to others not interfering in any material respect with
the business of the Borrower and its Subsidiaries, taken as a whole;
(k) Liens arising from precautionary Uniform Commercial Code financing statement or
similar filings made in respect of operating leases entered into by the Borrower or any of
its Subsidiaries; and
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(l) Liens created in the ordinary course of business in favor of banks and other
financial institutions over credit balances of any bank accounts of the Borrower and the
Restricted Subsidiaries held at such banks or financial institutions, as the case may be, to
facilitate the operation of cash pooling and/or interest set-off arrangements in respect of
such bank accounts in the ordinary course of business.
Permitted Sale Leaseback
shall mean any Sale Leaseback consummated by the Borrower
or any of the Restricted Subsidiaries after the Closing Date,
provided
that
any
such Sale Leaseback not between the Borrower and any Guarantor or any Guarantor and another
Guarantor is consummated for fair value as determined at the time of consummation in good faith by
the Borrower or such Restricted Subsidiary and, in the case of any Sale Leaseback (or series of
related Sales Leasebacks) the aggregate proceeds of which exceed $25,000,000, the board of
directors of the Borrower or such Restricted Subsidiary (which such determination may take into
account any retained interest or other Investment of the Borrower or such Restricted Subsidiary in
connection with, and any other material economic terms of, such Sale Leaseback).
Person
shall mean any individual, partnership, joint venture, firm, corporation,
limited liability company, association, trust or other enterprise or any Governmental Authority.
Plan
shall mean any multiemployer or single-employer plan, as defined in Section
4001 of ERISA and subject to Title IV of ERISA, that is or was within any of the preceding six plan
years maintained or contributed to by (or to which there is or was an obligation to contribute or
to make payments to) the Borrower, a Subsidiary or an ERISA Affiliate.
Platform
shall have the meaning provided in
Section 14.17(b)
.
Post-Acquisition Period
means, with respect to any Permitted Acquisition, the period
beginning on the date such Permitted Acquisition is consummated and ending on the last day of the
fourth full consecutive fiscal quarter immediately following the date on which such Permitted
Acquisition is consummated.
Prepayment Event
shall mean any Asset Sale Prepayment Event or Casualty Event.
Prime Rate
means the rate of interest quoted in
The Wall Street Journal
, Money Rates
Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least
75% of the nations thirty (30) largest banks), as in effect from time to time. The Prime Rate is
a reference rate and does not necessarily represent the lowest or best rate actually charged to any
customer. The Administrative Agent or any other Lender may make commercial loans or other loans at
rates of interest at, above or below the Prime Rate.
Pro Forma Adjustment
shall mean, for any Test Period that includes all or any part
of a fiscal quarter included in any Post-Acquisition Period, with respect to the Acquired EBITDA of
the applicable Acquired Entity or Business or the Consolidated EBITDA of the Borrower, the pro
forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the case may be,
projected by the Borrower in good faith as a result of (a) actions taken during such
Post-Acquisition Period for the purposes of realizing reasonably identifiable and factually
supportable cost savings or (b) any additional costs incurred during such Post-Acquisition Period,
in each case in connection with the combination of the operations of such Acquired
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Entity or Business with the operations of the Borrower and the Restricted Subsidiaries;
provided
that, so long as such actions are taken during such Post-Acquisition Period or
such costs are incurred during such Post-Acquisition Period, as applicable, it may be assumed, for
purposes of projecting such pro forma increase or decrease to such Acquired EBITDA or such
Consolidated EBITDA, as the case may be, that such cost savings will be realizable during the
entirety of such Test Period, or such additional costs, as applicable, will be incurred during the
entirety of such Test Period;
provided
further
that any such pro forma increase or
decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without
duplication for cost savings or additional costs already included in such Acquired EBITDA or such
Consolidated EBITDA, as the case may be, for such Test Period.
Pro Forma Adjustment Certificate
shall mean any certificate of an Authorized Officer
of the Borrower delivered pursuant to
Section 9.1(h)
or
Section 9.1(d)
.
Pro Forma Basis
,
Pro Forma Compliance
and
Pro Forma Effect
shall
mean, with respect to compliance with any test or covenant hereunder, that (A) to the extent
applicable, the Pro Forma Adjustment shall have been made and (B) all Specified Transactions and
the following transactions in connection therewith shall be deemed to have occurred as of the first
day of the applicable period of measurement in such test or covenant: (a) income statement items
(whether positive or negative) attributable to the property or Person subject to such Specified
Transaction, (i) in the case of a sale, transfer or other disposition of all or substantially all
Capital Stock in any Subsidiary of the Borrower or any division, product line, or facility used for
operations of the Borrower or any of its Subsidiaries, shall be excluded, and (ii) in the case of a
Permitted Acquisition or Investment described in the definition of Specified Transaction, shall
be included, (b) any retirement of Indebtedness, and (c) any Indebtedness incurred or assumed by
the Borrower or any of the Restricted Subsidiaries in connection therewith and if such Indebtedness
has a floating or formula rate, shall have an implied rate of interest for the applicable period
for purposes of this definition determined by utilizing the rate which is or would be in effect
with respect to such Indebtedness as at the relevant date of determination;
provided
that,
without limiting the application of the Pro Forma Adjustment pursuant to (A) above, the foregoing
pro forma adjustments may be applied to any such test or covenant solely to the extent that such
adjustments are consistent with the definition of Consolidated EBITDA and give effect to events
(including operating expense reductions) that are (i) (x) directly attributable to such
transaction, (y) expected to have a continuing impact on the Borrower and the Restricted
Subsidiaries and (z) factually supportable or (ii) otherwise consistent with the definition of Pro
Forma Adjustment.
Protective Advances
shall have the meaning provided in
Section 2.15(a)
.
Real Estate
shall have the meaning provided in
Section 9.1(i)
.
Red Man
shall have the meaning provided in the recitals to this Agreement.
Red Man Business
shall mean the business conducted by the Red Man Group on the
Closing Date.
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Red Man Distributors
shall mean a company to be formed after the Closing Date and
owned by the Borrower or a Borrowing Base Guarantor and certain existing shareholders of Red Man.
Red Man Group
shall have the meaning provided in the definition of Incorporated
Borrowing Base.
Red Man Transaction Agreement
shall have the meaning provided in the recitals to
this Agreement.
Red Man Transaction
shall have the meaning provided in the recitals to this
Agreement.
Reference Lender
shall mean JPMorgan Chase Bank, N.A. (or its successor).
Register
shall have the meaning provided in
Section 14.6(b)(iv
).
Regulation D
shall mean Regulation D of the Board as from time to time in effect and
any successor to all or a portion thereof establishing reserve requirements.
Regulation T
shall mean Regulation T of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
Regulation U
shall mean Regulation U of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
Regulation X
shall mean Regulation X of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
Reinvestment Period
shall mean 15 months following the date of an Asset Sale
Prepayment Event or Casualty Event.
Related Parties
shall mean, with respect to any specified Person, such Persons
Affiliates and the directors, officers, employees, agents, trustees and advisors of such Person and
any Person that possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of such Person, whether through the ability to exercise voting power, by
contract or otherwise.
Report
shall mean reports prepared in good faith by an Agent or another Person
showing the results of appraisals, field examinations or audits pertaining to the Borrowers assets
from information furnished by or on behalf of the Borrower, after an Agent has exercised its rights
of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the
applicable Agent.
Reportable Event
shall mean an event described in Section 4043 of ERISA and the
regulations thereunder.
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Required Lenders
shall mean, at any date, (a) Non-Defaulting Lenders having or
holding a majority of the Adjusted Total Revolving Credit Commitment at such date or (b) if the
Total Revolving Credit Commitment has been terminated or for the purposes of acceleration pursuant
to
Section 11
, the holders (excluding Defaulting Lenders) of a majority of the outstanding
principal amount of the Loans and Letter of Credit Exposures (excluding the Loans and Letter of
Credit Exposure of Defaulting Lenders) in the aggregate at such date.
Requirement of Law
shall mean, as to any Person, the Certificate of Incorporation
and by-laws or other organizational or governing documents of such Person, and any law, treaty,
rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or assets or to which
such Person or any of its property or assets is subject.
Reserves
shall mean any and all reserves which the Administrative Agent deems
necessary, in its Permitted Discretion, to from time to time establish against the gross amounts of
Eligible Accounts and Eligible Inventory.
Restricted Foreign Subsidiary
shall mean a Foreign Subsidiary that is a Restricted
Subsidiary.
Restricted Subsidiary
shall mean any Subsidiary of the Borrower other than an
Unrestricted Subsidiary.
Revolving Credit Commitment
shall mean, (a) with respect to each Lender that is a
Lender on the date hereof, the amount set forth opposite such Lenders name on
Schedule 1.1(c)
as such Lenders Revolving Credit Commitment and (b) in the case of any
Lender that becomes a Lender after the date hereof, the amount specified as such Lenders
Revolving Credit Commitment (which amount shall include the New Revolving Credit Commitment, if
any) in the Assignment and Acceptance pursuant to which such Lender assumed a portion of the Total
Revolving Credit Commitment, in each case as the same may be changed from time to time pursuant to
terms hereof. The aggregate amount of the Revolving Credit Commitment as of the Closing Date is
$650,000,000.
Revolving Credit Commitment Percentage
shall mean at any time, for each Lender, the
percentage obtained by dividing (a) such Lenders Revolving Credit Commitment by (b) the aggregate
amount of the Revolving Credit Commitments,
provided
that at any time when the Total
Revolving Credit Commitment shall have been terminated, each Lenders Revolving Credit Commitment
Percentage shall be its Revolving Credit Commitment Percentage as in effect immediately prior to
such termination.
Revolving Credit Exposure
shall mean, with respect to any Lender at any time, the
sum of (a) the aggregate principal amount of the Revolving Credit Loans of such Lender then
outstanding, (b) such Lenders Letter of Credit Exposure at such time, (c) such Lenders Revolving
Credit Commitment Percentage of the aggregate principal amount of all outstanding Swingline Loans
and (d) such Lenders Revolving Credit Commitment Percentage of the aggregate principal amount of
all outstanding Protective Advances;
provided
that, clause (d) of this definition shall be
disregarded with respect to any Protective Advance solely for purposes of
-42-
calculating Excess Availability and solely to the extent that the making of such Protective
Advance would result in the occurrence of a Cash Dominion Event.
Revolving Credit Loans
shall have the meaning provided in
Section 2.1(b)
.
Revolving Credit Maturity Date
shall mean the date that is six (6) years after the
Closing Date, or, if such date is not a Business Day, the next preceding Business Day.
Revolving Credit Termination Date
shall mean the date on which the Revolving Credit
Commitments shall have terminated, no Revolving Credit Loans shall be outstanding and the Letters
of Credit Outstanding shall have been reduced to zero.
Rollover Equity
shall have the meaning provided in the recitals hereto.
Sale Leaseback
shall mean any transaction or series of related transactions pursuant
to which the Borrower or any of the Restricted Subsidiaries (a) sells, transfers or otherwise
disposes of any property, real or personal, whether now owned or hereafter acquired, and (b) as
part of such transaction, thereafter rents or leases such property or other property that it
intends to use for substantially the same purpose or purposes as the property being sold,
transferred or disposed.
S&P
shall mean Standard & Poors Ratings Services or any successor by merger or
consolidation to its business.
SEC
shall mean the Securities and Exchange Commission or any successor thereto.
Section 9.1 Financials
shall mean the financial statements delivered, or required to
be delivered, pursuant to Section 9.1(a) or (b) together with the accompanying officers
certificate delivered, or required to be delivered, pursuant to
Section 9.1(d)
.
Secured Leverage Ratio
shall mean, as of any date of determination, the ratio of (a)
Consolidated Secured Debt as of the last day of the relevant Test Period to (b) Consolidated EBITDA
for such Test Period.
Secured Parties
shall have the meaning assigned to such term in the applicable
Security Documents.
Security Agreement
shall mean the Security Agreement entered into by the Borrower,
the other grantors party thereto and the Collateral Agent for the benefit of the Lenders,
substantially in the form of
Exhibit G
, as the same may be amended, supplemented or
otherwise modified from time to time.
Security Documents
shall mean, collectively, (a) the Guarantee, (b) the Security
Agreement, (c) the Intercreditor Agreement and (d) each other security agreement or other
instrument or document executed and delivered pursuant to
Section 9.11
or
9.17
or
pursuant to any of the Security Documents to secure any of the Obligations.
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Sold Entity or Business
shall have the meaning provided in the definition of the
term Consolidated EBITDA.
Solvent
shall mean, with respect to the Borrower, that as of the Closing Date, both
(a) (i) the sum of the Borrowers debt (including contingent liabilities) does not exceed the
present fair saleable value of the Borrowers present assets; (ii) the Borrowers capital is not
unreasonably small in relation to its business as contemplated on the Closing Date; and (iii) the
Borrower has not incurred and does not intend to incur, or believe that it will incur, debts
including current obligations beyond its ability to pay such debts as they become due (whether at
maturity or otherwise); and (b) such Person is solvent within the meaning given that term and
similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes
of this definition, 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).
Specified Subsidiary
shall mean, at any date of determination (a) any Material
Subsidiary or (b) any Unrestricted Subsidiary (i) whose total assets at the last day of the Test
Period ending on the last day of the most recent fiscal period for which Section 9.1 Financials
have been delivered were equal to or greater than 15% of the consolidated total assets of the
Borrower and the Subsidiaries at such date, (ii) whose gross revenues for such Test Period were
equal to or greater than 15% of the consolidated gross revenues of the Borrower and the
Subsidiaries for such period, in each case determined in accordance with GAAP and (c) each other
Subsidiary that, when such Subsidiarys total assets or gross revenues are aggregated with the
total assets or gross revenues, as applicable, of each other Subsidiary that is the subject of an
Event of Default described in
Section 11.5
would constitute a Specified Subsidiary under
clause (a) or (b) above.
Specified Transaction
shall mean, with respect to any period, any Investment, sale,
transfer or other disposition of assets, incurrence or repayment of Indebtedness, Dividend,
Subsidiary designation, New Revolving Credit Commitment or other event that by the terms of this
Agreement requires
Pro Forma Compliance
with a test or covenant hereunder or requires
such test or covenant to be calculated on a
Pro Forma Basis
.
Sponsor
shall mean GS Capital Partners V Fund, L.P. and its respective Affiliates.
Stated Amount
of any Letter of Credit shall mean the maximum amount from time to
time available to be drawn thereunder, determined without regard to whether any conditions to
drawing could then be met.
Status
shall mean, as to the Borrower as of any date, the existence of Level I
Status, Level II Status or Level III Status, as the case may be on such date. Changes in Status
resulting from changes in the Consolidated Total Debt to Consolidated EBITDA Ratio shall become
effective (the date of such effectiveness, the
Effective Date
) as of the first day
following the last day of the most recent fiscal year or period for which (a) Section 9.1
Financials are delivered to the Lenders under
Section 9.1
and (b) an officers certificate
is delivered by the Borrower to
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the Lenders setting forth, with respect to such
Section 9.1
Financials, the
then-applicable Status, and shall remain in effect until the next change to be effected pursuant to
this definition,
provided
that (i) if the Borrower shall have made any payments in respect
of interest or commitment fees during the period (the
Interim Period
) from and including
the Effective Date to but excluding the day any change in Status is determined as provided above,
then the amount of the next such payment due on or after such day shall be increased or decreased
by an amount equal to any underpayment or overpayment so made by the Borrower during such Interim
Period and (ii) each determination of the Consolidated Total Debt to Consolidated EBITDA Ratio
pursuant to this definition shall be made with respect to the Test Period ending at the end of the
fiscal period covered by the relevant financial statements.
Statutory Reserve Rate
shall mean for any day as applied to any LIBOR Loan, a
fraction (expressed as a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve percentages that are in effect
on that day (including any marginal, special, emergency or supplemental reserves), expressed as a
decimal, as prescribed by the Board and to which the Administrative Agent is subject, for
eurocurrency funding (currently referred to as
Eurocurrency Liabilities
in Regulation D
of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D.
LIBOR Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any comparable regulation.
The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
Stock
shall mean shares of capital stock or shares in the capital, as the case may
be (whether denominated as common stock or preferred stock or ordinary shares or preferred shares,
as the case may be), beneficial, partnership or membership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, partnership, limited liability
company or equivalent entity, whether voting or non-voting.
Stock Equivalents
shall mean 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 Indebtedness
shall mean Indebtedness of the Borrower or any Guarantor
that is by its terms subordinated in right of payment to the obligations of the Borrower and such
Guarantor, as applicable, under this Agreement.
Subsidiary
of any Person shall mean and include (a) any corporation more than 50% of
whose Stock of any class or classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether or not at the time Stock of
any class or classes of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or indirectly through
Subsidiaries, (b) any partnership, association, joint venture or other entity in which such Person
directly or indirectly through Subsidiaries has more than a 50% equity interest at the time and (c)
with respect to the Borrower, Red Man Distributors. Unless otherwise expressly provided, all
references herein to a Subsidiary shall mean a Subsidiary of the Borrower.
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Subsidiary Guarantors
shall mean (a) each Domestic Subsidiary (other than an
Excluded Subsidiary) existing on the Closing Date and (b) each Domestic Subsidiary that becomes a
party to the Guarantee after the Closing Date pursuant to
Section 9.11
or otherwise.
Successor Borrower
shall have the meaning provided in
Section 10.3(a)
.
Super-Majority Lenders
shall mean, at any date, (a) Non-Defaulting Lenders having or
holding at least 75% of the Adjusted Total Revolving Credit Commitment at such date or (b) if the
Total Revolving Credit Commitment has been terminated, Non-Defaulting Lenders having or holding at
least 75% of the outstanding principal amount of the Loans and Letter of Credit Exposures
(excluding the Loans and Letter of Credit Exposure of Defaulting Lenders) in the aggregate at such
date.
Swingline Commitment
shall mean $60,000,000.
Swingline Lender
shall mean CIT in its capacity as lender of Swingline Loans
hereunder.
Swingline Loans
shall have the meaning provided in
Section 2.1(c)
.
Swingline Maturity Date
shall mean, with respect to any Swingline Loan, the date
that is five Business Days prior to the Revolving Credit Maturity Date.
Syndication Agent
shall mean Bank of America, N.A., together with its affiliates, as
the syndication agent for the Lenders under this Agreement and the other Credit Documents.
Taxes
shall mean any and all present or future taxes, duties, levies, imposts,
assessments, deductions, withholdings or other similar charges imposed by any Governmental
Authority whether computed on a separate, consolidated, unitary, combined or other basis and any
and all liabilities (including interest, fines, penalties or additions to tax) with respect to the
foregoing.
Term Loans
shall have the meaning provided in the recitals hereto.
Term Loan Credit Agreement
shall mean that certain term loan credit agreement, as
amended, restated, increased or otherwise supplemented in accordance with the Intercreditor
Agreement, dated as of the Original Closing Date, by and among the Borrower, Lehman Commercial
Paper Inc., as administrative agent and collateral agent, Goldman Sachs Credit Partners L.P. and
Lehman Brothers Inc., as the co-lead arrangers and joint bookrunners, and Goldman Sachs Credit
Partners L.P., as the syndication agent.
Test Period
shall mean, for any determination under this Agreement, the four
consecutive fiscal quarters of the Borrower then last ended.
Total Commitment
shall mean the Total Revolving Credit Commitment.
Total Credit Exposure
shall mean, at any date, the Total Revolving Credit Commitment
at such date.
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Total Revolving Credit Commitment
shall mean the sum of the Revolving Credit
Commitments of all the Lenders.
Transaction Expenses
shall mean any fees or expenses incurred or paid by the
Borrower or any of its Subsidiaries in connection with the Transactions, this Agreement and the
other Credit Documents and the transactions contemplated hereby and thereby.
Transactions
shall mean, collectively, the transactions contemplated by this
Agreement, the Term Loan Credit Agreement, the Red Man Transaction and the Equity Investments.
Transfer
shall have the meaning provided in
Section 2.15(b)
.
Transfer Date
shall have the meaning provided in
Section 2.15(b)
.
Transferee
shall have the meaning provided in
Section 14.6(e)
.
Trigger Date
shall mean the date on which Section 9.1 Financials are delivered to
the Lenders under
Section 9.1
for the fiscal quarter ending on March 31, 2008.
Type
shall mean as to any Revolving Credit Loan, its nature as an ABR Loan or a
LIBOR Revolving Credit Loan.
Unfunded Current Liability
of any Plan shall mean the amount, if any, by which the
present value of the accrued benefits under the Plan as of the close of its most recent plan year,
determined in accordance with Statement of Financial Accounting Standards No. 87 as in effect on
the date hereof, based upon the actuarial assumptions that would be used by the Plans actuary in a
termination of the Plan, exceeds the fair market value of the assets allocable thereto.
Unpaid Drawing
shall have the meaning provided in
Section 3.4(a)
.
Unrestricted Subsidiary
shall mean (a) any Subsidiary of the Borrower that is formed
or acquired after the Closing Date,
provided
that at such time (or promptly thereafter) the
Borrower designates such Subsidiary an Unrestricted Subsidiary in a written notice to the
Administrative Agent, (b) any Restricted Subsidiary subsequently re-designated as an Unrestricted
Subsidiary by the Borrower in a written notice to the Administrative Agent,
provided
that
in the case of (a) and (b), (x) such designation or re-designation shall be deemed to be an
Investment on the date of such re-designation in an Unrestricted Subsidiary in an amount equal to
the sum of (i) the Borrowers direct or indirect equity ownership percentage of the net worth of
such designation or re-designated Restricted Subsidiary immediately prior to such designation or
re-designation (such net worth to be calculated without regard to any guarantee provided by such
designated or re-designated Restricted Subsidiary) and (ii) the aggregate principal amount of any
Indebtedness owed by such designated or re-designated Restricted Subsidiary to the Borrower or any
other Restricted Subsidiary immediately prior to such designated or re-designation, all calculated,
except as set forth in the parenthetical to clause (i), on a consolidated basis in accordance with
GAAP and (y) no Default or Event of Default would result from such designation or re-designation
and (c) each Subsidiary of an Unrestricted Subsidiary;
provided
,
however
, that at
the time of any written designation or re-designation by the Borrower to the Administrative Agent
that any Unrestricted Subsidiary shall no longer
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constitute an Unrestricted Subsidiary, such Unrestricted Subsidiary shall cease to be an
Unrestricted Subsidiary to the extent no Default or Event of Default would result from such
designation or re-designation. On or promptly after the date of its formation, acquisition,
designation or re-designation, as applicable, each Unrestricted Subsidiary (other than an
Unrestricted Subsidiary that is a Foreign Subsidiary) shall have entered into a tax sharing
agreement containing terms that, in the reasonable judgment of the Administrative Agent, provide
for an appropriate allocation of tax liabilities and benefits. An Unrestricted Subsidiary which
has been re-designated as a Restricted Subsidiary may not be subsequently re-designated as an
Unrestricted Subsidiary.
Voting Stock
shall mean, with respect to any Person, such Persons Stock or Stock
Equivalents having the right to vote for the election of directors of such Person under ordinary
circumstances.
1.2
Other Interpretive Provisions
. With reference to this Agreement and each other
Credit Document, unless otherwise specified herein or in such other Credit Document:
(a) The meanings of defined terms are equally applicable to the singular and plural
forms of the defined terms.
(b) The words herein, hereto, hereof and hereunder and words of similar import
when used in any Credit Document shall refer to such Credit Document as a whole and not to
any particular provision thereof.
(c) Article, Section, Exhibit and Schedule references are to the Credit Document in
which such reference appears.
(d) The term including is by way of example and not limitation.
(e) The term documents includes any and all instruments, documents, agreements,
certificates, notices, reports, financial statements and other writings, however evidenced,
whether in physical or electronic form.
(f) In the computation of periods of time from a specified date to a later specified
date, the word from means from and including; the words to and until each mean to
but excluding; and the word through means to and including.
(g) Section headings herein and in the other Credit Documents are included for
convenience of reference only and shall not affect the interpretation of this Agreement or
any other Credit Document.
1.3
Accounting Terms; Exchange Rates
. (a) 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.
(b) Notwithstanding anything to the contrary herein, for purposes of determining compliance
with any test or covenant contained in this Agreement with respect to any period
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during which any
Specified Transaction occurs, the Consolidated Total Debt to Consolidated EBITDA and the
Consolidated EBITDA to Consolidated Interest Expense Ratio shall be calculated with respect to such
period and such Specified Transaction on a Pro Forma Basis.
(c) For purposes of determining compliance under Sections 7.1(d), 10.4, 10.5 (other than with
respect to determining the amount of any Indebtedness), and 10.6 with respect to any amount in a
Foreign Currency, such amount shall be deemed to equal the Dollar Equivalent thereof based on the
average Exchange Rate for a Foreign Currency for the most recent twelve-month period immediately
prior to the date of determination determined in a manner consistent with that used in calculating
Consolidated EBITDA for the related period. For purposes of determining compliance with Sections
10.1, 10.2 and 10.5, with respect to any amount of Indebtedness in a Foreign Currency, compliance
will be determined at the time of incurrence or advancing thereof using the Dollar Equivalent
thereof at the Exchange Rate in effect at the time of such incurrence or advancement.
1.4
Rounding
. Any financial ratios required to be maintained by the Borrower pursuant
to this Agreement (or required to be satisfied in order for a specific action to be permitted under
this Agreement) shall be calculated by dividing the appropriate component by the other component,
carrying the result to one place more than the number of places by which such ratio is expressed
herein and rounding the result up or down to the nearest number (with a rounding-up if there is no
nearest number).
1.5
References to Agreements, Laws, Etc
. Unless otherwise expressly provided herein,
(a) references to Organization Documents, agreements (including the Credit Documents) and other
Contractual Obligations shall be deemed to include all subsequent amendments, restatements,
amendment and restatements, extensions, supplements and other modifications thereto, but only to
the extent that such amendments, restatements, amendment and restatements, extensions, supplements
and other modifications are permitted by any Credit Document; and (b) references to any Applicable
Law shall include all statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting such Applicable Law.
SECTION 2.
Amount and Terms of Credit
2.1
Commitments
. (a) [Intentionally Omitted]
(b) (i) Subject to and upon the terms and conditions herein set forth, each Lender having
a Revolving Credit Commitment severally agrees to make a loan or loans denominated in Dollars (each
a
Revolving Credit Loan
and, collectively, the
Revolving Credit Loans
) to the
Borrower which Revolving Credit Loans (A) shall be made at any time and from time to time on and
after the Closing Date and prior to the Revolving Credit Maturity Date, (B) may, at the option of
the Borrower be incurred and maintained as, and/or converted into, ABR Loans or LIBOR Revolving
Credit Loans,
provided
that all Revolving Credit Loans made by each of the Lenders pursuant
to the same Borrowing shall, unless otherwise specifically provided herein, consist entirely of
Revolving Credit Loans of the same Type, (C) may be repaid and reborrowed in accordance with the
provisions hereof, (D) shall not, for any such Lender at any time, after giving effect thereto and
to the application of the proceeds thereof, result in such Lenders Revolving Credit Exposure at
such time exceeding such Lenders Revolving Credit Commitment
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at such time and (E) shall not, after
giving effect thereto and to the application of the proceeds thereof, result at any time in the
aggregate amount of the Lenders Revolving Credit Exposures at such time exceeding the lesser of
the Total Revolving Credit Commitment and the Borrowing Base then in effect.
(ii) Each Lender may at its option make any LIBOR Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan,
provided
that (A) any exercise of
such option shall not affect the obligation of the Borrower to repay such Loan and (B) in
exercising such option, such Lender shall use its reasonable efforts to minimize any increased
costs to the Borrower resulting therefrom (which obligation of the Lender shall not require it to
take, or refrain from taking, actions that it determines would result in increased costs for which
it will not be compensated hereunder or that it determines would be otherwise disadvantageous to it
and in the event of such request for costs for which compensation is provided under this Agreement,
the provisions of
Section 3.5
shall apply). On the Revolving Credit Maturity Date, all
Revolving Credit Loans shall be repaid in full.
(c) Subject to and upon the terms and conditions herein set forth, the Swingline Lender in its
individual capacity agrees, at any time and from time to time on and after the Closing Date and
prior to the Swingline Maturity Date, to make a loan or loans (each a
Swingline Loan
and,
collectively, the
Swingline Loans
) to the Borrower in Dollars, which Swingline Loans (i)
shall be ABR Loans, (ii) shall have the benefit of the provisions of
Section 2.1(d)
,
(iii) shall not exceed at any time outstanding the Swingline Commitment, (iv) shall not, after
giving effect thereto and to the application of the proceeds thereof, result at any time in the
aggregate amount of the Lenders Revolving Credit Exposures at such time exceeding the lesser of
Total Revolving Credit Commitment and the Borrowing Base then in effect and (v) may be repaid and
reborrowed in accordance with the provisions hereof. On the Swingline Maturity Date, each
outstanding Swingline Loan shall be repaid in full. The Swingline Lender shall not make any
Swingline Loan after receiving a written notice from the Borrower or any Lender stating that a
Default or Event of Default exists and is continuing until such time as the Swingline Lender shall
have received written notice of (i) rescission of all such notices from the party or parties
originally delivering such notice or (ii) the waiver of such Default or Event of Default in
accordance with the provisions of
Section 14.1
.
(d) On any Business Day, the Swingline Lender may, in its sole discretion, and shall at least
weekly, give notice to the Lenders with a Revolving Credit Commitment that all then-
outstanding Swingline Loans shall be funded with a Borrowing of Revolving Credit Loans, in
which case Revolving Credit Loans constituting ABR Loans (each such Borrowing, a
Mandatory
Borrowing
) shall be made on the immediately succeeding Business Day by all Lenders with a
Revolving Credit Commitment
pro rata
based on each Lenders Revolving Credit Commitment Percentage,
and the proceeds thereof shall be applied directly to the Swingline Lender to repay the Swingline
Lender for such outstanding Swingline Loans. Each Lender with a Revolving Credit Commitment hereby
irrevocably agrees to make such Revolving Credit Loans upon one Business Days notice pursuant to
each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on
the date specified to it in writing by the Swingline Lender notwithstanding (i) that the amount of
the Mandatory Borrowing may not comply with the minimum amount for each Borrowing specified in
Section 2.2
, (ii) whether any conditions specified in
Section 7
are then satisfied,
(iii) whether a Default or
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an Event of Default has occurred and is continuing, (iv) the date of
such Mandatory Borrowing or (v) any reduction in the Total Commitment after any such Swingline
Loans were made. In the event that, in the sole judgment of the Swingline Lender, any Mandatory
Borrowing cannot for any reason be made on the date otherwise required above (including as a result
of the commencement of a proceeding under the Bankruptcy Code in respect of the Borrower), each
Lender with a Revolving Credit Commitment hereby agrees that it shall forthwith purchase from the
Swingline Lender (without recourse or warranty) such participation of the outstanding Swingline
Loans as shall be necessary to cause the Lenders to share in such Swingline Loans ratably based
upon their respective Revolving Credit Commitment Percentages,
provided
that
all
principal and interest payable on such Swingline Loans shall be for the account of the Swingline
Lender until the date the respective participation is purchased and, to the extent attributable to
the purchased participation, shall be payable to the Lender purchasing same from and after such
date of purchase.
2.2
Minimum Amount of Each Borrowing; Maximum Number of Borrowings
. The aggregate
principal amount of each Borrowing of Revolving Credit Loans shall be in a multiple of $1,000,000
and Swingline Loans shall be in a multiple of $250,000 and, in each case, shall not be less than
the Minimum Borrowing Amount with respect thereto (except that Mandatory Borrowings shall be made
in the amounts required by
Section 2.1(d)
). More than one Borrowing may be incurred on any
date,
provided
that at no time shall there be outstanding more than six (6) Borrowings of
LIBOR Loans under this Agreement.
2.3
Notice of Borrowing
. (a) [
Intentionally Omitted
.]
(b) Whenever the Borrower desires to incur Revolving Credit Loans (other than Mandatory
Borrowings or borrowings to repay Unpaid Drawings), it shall give the Administrative Agent at the
Administrative Agents Office, (i) prior to 1:00 p.m. (New York City Time) at least three Business
Days prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing
of LIBOR Revolving Credit Loans, and (ii) written notice prior to 10:00 a.m. (New York City time)
on the date of such Borrowing (or telephonic notice promptly confirmed in writing) of each
Borrowing of ABR Loans. Such Notice of Borrowing, except as otherwise expressly provided in
Section 2.10
, shall specify (i) the
aggregate principal amount of the Revolving Credit Loans to be made pursuant to such
Borrowing, (ii) the date of Borrowing (which shall be a Business Day) and (iii) whether the
respective Borrowing shall consist of ABR Loans or LIBOR Revolving Credit Loans and, if LIBOR
Revolving Credit Loans, the Interest Period to be initially applicable thereto. The Administrative
Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in
writing) of each proposed Borrowing of Revolving Credit Loans, of such Lenders proportionate share
thereof and of the other matters covered by the related Notice of Borrowing.
(c) Whenever the Borrower desires to incur Swingline Loans hereunder, it shall give the
Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Swingline Loans prior to 1:00 p.m. (New York City time) on the date of such Borrowing.
Each such notice shall specify (i) the aggregate principal amount of the Swingline Loans to be
made pursuant to such Borrowing and (ii) the date of Borrowing (which shall be a Business Day).
The Administrative Agent shall promptly give the Swingline Lender written
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notice (or telephonic
notice promptly confirmed in writing) of each proposed Borrowing of Swingline Loans and of the
other matters covered by the related Notice of Borrowing.
(d) Mandatory Borrowings shall be made upon the notice specified in
Section 2.1(d)
,
with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of
Mandatory Borrowings as set forth in such Section.
(e) Borrowings to reimburse Unpaid Drawings shall be made upon the notice specified in
Section 3.4(a)
.
(f) Without in any way limiting the obligation of the Borrower to confirm in writing any
notice it may give hereunder by telephone, the Administrative Agent may act prior to receipt of
written confirmation without liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from an Authorized Officer of the Borrower. In each such
case, the Borrower hereby waives the right to dispute the Administrative Agents record of the
terms of any such telephonic notice.
2.4
Disbursement of Funds
. (a) No later than 12:00 Noon (New York City time) on
the date specified in each Notice of Borrowing (including Mandatory Borrowings), each Lender will
make available its
pro rata
portion, if any, of each Borrowing requested to be made on such date in
the manner provided below,
provided
that all Swingline Loans shall be made available in the
full amount thereof by the Swingline Lender no later than 3:00 p.m. (New York City time) on the
date requested.
(b) Each Lender shall make available all amounts it is to fund to the Borrower under any
Borrowing for its applicable Commitments, and in immediately available funds to the Administrative
Agent at the Administrative Agents Office and the Administrative Agent will (except in the case of
Mandatory Borrowings and Borrowings to repay Unpaid Drawings) make available to the Borrower, by
depositing to an account designated by the Borrower to the Administrative Agent the aggregate of
the amounts so made available in Dollars. Unless the
Administrative Agent shall have been notified by any Lender prior to the date of any such
Borrowing that such Lender does not intend to make available to the Administrative Agent its
portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume
that such Lender has made such amount available to the Administrative Agent on such date of
Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Administrative Agent by
such Lender and the Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If
such Lender does not pay such corresponding amount forthwith upon the Administrative Agents demand
therefor the Administrative Agent shall promptly notify the Borrower and the Borrower shall
immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent
shall also be entitled to recover from such Lender or the Borrower interest on such corresponding
amount in respect of each day from the date such corresponding amount was made available by the
Administrative Agent to the Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate
per annum
equal to (i) if paid by such Lender, the Federal Funds
Effective Rate or (ii) if paid
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by the Borrower, the then-applicable rate of interest or fees,
calculated in accordance with
Section 2.8
, for the respective Loans.
(c) Nothing in this
Section 2.4
shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights that the Borrower may
have against any Lender as a result of any default by such Lender hereunder (it being understood,
however, that no Lender shall be responsible for the failure of any other Lender to fulfill its
commitments hereunder).
2.5
Repayment of Loans; Evidence of Debt
. (a) The Borrower shall repay to the
Administrative Agent in Dollars, for the benefit of the applicable Lenders, on the Revolving Credit
Maturity Date, the then-unpaid Revolving Credit Loans made to the Borrower. The Borrower shall
repay to the Administrative Agent in Dollars, for the account of the Swingline Lender, on the
Swingline Maturity Date, the then-unpaid Swingline Loans.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to the appropriate lending office of such Lender
resulting from each Loan made by such lending office of such Lender from time to time, including
the amounts of principal and interest payable and paid to such lending office of such Lender from
time to time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
Section 14.6(b)
,
and a sub account for each Lender, in which Register and subaccounts (taken together) shall be
recorded (i) the amount of each Loan made hereunder, whether such Loan is a Revolving Credit Loan
or a Swingline Loan, as applicable, the Type of each Loan made and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to become due and payable
from the Borrower to each Lender or the Swingline Lender hereunder and (iii) the amount of any sum
received by the Administrative Agent hereunder from the Borrower and each
Lenders share thereof. After the occurrence and during the continuation of an Event of
Default, the Register shall be available for inspection by any Lender (solely with respect to its
own interest) at any reasonable time and upon reasonable prior notice.
(d) The entries made in the Register and accounts and subaccounts maintained pursuant to
paragraphs (b) and (c) of this
Section 2.5
shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations of the Borrower
therein recorded;
provided
,
however
, that the failure of any Lender or the
Administrative Agent to maintain such account, such Register or such subaccount, as applicable, or
any error therein, shall not in any manner affect the obligation of the Borrower to repay (with
applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of
this Agreement.
2.6
Conversions and Continuations
. (a) The Borrower shall have the option on any
Business Day to convert all or a portion equal to at least the Minimum Borrowing Amount of the
outstanding principal amount of Revolving Credit Loans made to the Borrower (as applicable) of one
Type into a Borrowing or Borrowings of another Type and the Borrower shall have the option on any
Business Day to continue the outstanding principal amount of any LIBOR Revolving Credit Loans as
LIBOR Revolving Credit Loans for an additional Interest Period, on the last Business Day of the
existing Interest Period,
provided
that (i) no partial conversion of
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LIBOR Revolving Credit Loans shall reduce the outstanding principal amount of LIBOR Revolving
Credit Loans made pursuant to a single Borrowing to less than the Minimum Borrowing Amount, (ii)
ABR Loans may not be converted into LIBOR Revolving Credit Loans if a Default or Event of Default
is in existence on the date of the conversion and the Administrative Agent has or the Required
Lenders have determined in its or their sole discretion not to permit such conversion, (iii) LIBOR
Loans may not be continued as LIBOR Loans for an additional Interest Period if an Event of Default
is in existence on the date of the proposed continuation and the Administrative Agent has or the
Required Lenders have determined in its or their sole discretion not to permit such continuation
and (iv) Borrowings resulting from conversions pursuant to this
Section 2.6
shall be
limited in number as provided in
Section 2.2
. Each such conversion or continuation shall
be effected by the Borrower by giving the Administrative Agent at the Administrative Agents Office
prior to 1:00 p.m. (New York City time) at least three Business Days prior written notice or
written notice prior to 10:00 a.m. (New York City time) on the same Business Day in the case of a
conversion into ABR Loans (or, in each case, telephonic notice promptly confirmed in writing)
(each, a
Notice of Conversion or Continuation
) specifying the Revolving Credit Loans to
be so converted or continued, the Type of Revolving Credit Loans to be converted or continued into
and, if such Revolving Credit Loans are to be converted into or continued as LIBOR Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent shall give each
Lender notice as promptly as practicable of any such proposed conversion or continuation affecting
any of its Revolving Credit Loans.
(b) If any Default or Event of Default is in existence at the time of any proposed
continuation of any LIBOR Loans and the Administrative Agent has or the Required Lenders have
determined in its or their sole discretion not to permit such continuation, such LIBOR Loans shall
be automatically converted on the last day of the current Interest Period into ABR Loans. If upon
the expiration of any Interest Period in respect of LIBOR Loans, the Borrower has failed to elect a
new Interest Period to be applicable thereto as provided in paragraph (a) above, the Borrower shall
be deemed to have elected to continue such Borrowing of LIBOR Loans into a Borrowing of ABR Loans,
effective as of the expiration date of such current Interest Period.
2.7
Pro Rata
Borrowings
. Each Borrowing of Revolving Credit Loans under this Agreement shall be granted by the
Lenders
pro rata
on the basis of their then-applicable Revolving Credit Commitments. It is
understood that (a) no Lender shall be responsible for any default by any other Lender in its
obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans
provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its
commitments hereunder and (b) other than as expressly provided herein with respect to a Defaulting
Lender, failure by a Lender to perform any of its obligations under any of the Credit Documents
shall not release any Person from performance of its obligation under any Credit Document.
2.8
Interest
. (a) The unpaid principal amount of each ABR Loan shall bear interest from the date of
the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate
per annum
that shall at all times be the Applicable ABR Margin plus the ABR in effect from time to time.
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(b) The unpaid principal amount of each LIBOR Loan shall bear interest from the date of the
Borrowing thereof until maturity thereof (whether by acceleration or otherwise) at a rate
per annum
that shall at all times be the Applicable LIBOR Margin in effect from time to time plus the
relevant LIBOR Rate.
(c) If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable
thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise),
such overdue amount shall bear interest (including post-petition interest in any proceeding under
the Bankruptcy Code or other applicable bankruptcy laws) at a rate
per annum
that is (x) in the
case of overdue principal, the rate that would otherwise be applicable thereto
plus
2% or
(y) in the case of any overdue interest, to the extent permitted by applicable law, the rate
described in
Section 2.8(a)
plus
2% from and including the date of such non-payment
to but excluding the date on which such amount is paid in full (after as well as before judgment).
Payment or acceptance of the increased rates of interest provided for in this Section 2.8 is not a
permitted alternative to timely payment and shall not constitute a waiver of any Event of Default
or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender.
(d) Interest on each Loan shall accrue from and including the date of any Borrowing to but
excluding the date of any repayment thereof and shall be payable (i) in respect of each ABR Loan,
quarterly in arrears on the last day of each March, June, September and December, (ii) in respect
of each LIBOR Loan, on the last day of each Interest Period applicable thereto and, in the case of
an Interest Period in excess of three months, on each date occurring at three-month intervals after
the first day of such Interest Period, (iii) in respect of each Loan (except, other than in the
case of prepayments, any ABR Loan), on any prepayment date (on the amount prepaid), at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance with
Section
5.5
.
(f) The Administrative Agent, upon determining the interest rate for any Borrowing of LIBOR
Loans, shall promptly notify the Borrower and the relevant Lenders thereof. Each such
determination shall, absent clearly demonstrable error, be final and conclusive and binding on all
parties hereto.
2.9
Interest Periods
. At the time the Borrower gives a Notice of Borrowing or Notice of Conversion or
Continuation in respect of the making of, or conversion into or continuation as, a Borrowing of
LIBOR Loans (in the case of the initial Interest Period applicable thereto) or prior to 10:00 a.m.
(New York City time) on the third Business Day prior to the expiration of an Interest Period
applicable to a Borrowing of LIBOR Loans, the Borrower shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in writing) the
Interest Period applicable to such Borrowing, which Interest Period shall, at the option of
the Borrower be a one, two, three, six or (if available to all the Lenders as determined by such
Lenders in good faith based on prevailing market conditions) a nine or twelve month period.
Notwithstanding anything to the contrary contained above:
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(a) the initial Interest Period for any Borrowing of LIBOR Loans shall commence on the date of
such Borrowing (including the date of any conversion from a Borrowing of ABR Loans) and each
Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on
which the next preceding Interest Period expires;
(b) if any Interest Period relating to a Borrowing of LIBOR Revolving Credit Loans begins on
the last Business Day of a calendar month or begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of the calendar month at the end of such Interest Period;
(c) if any Interest Period would otherwise expire on a day that is not a Business Day, such
Interest Period shall expire on the next succeeding Business Day,
provided
that if any
Interest Period would otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day; and
(d) the Borrower shall not be entitled to elect any Interest Period if such Interest Period
would extend beyond the applicable maturity date of such Loan.
2.10
Increased Costs, Illegality, etc
. (a) In the event that (x) in the case of clause (i) below, the Administrative Agent or
(y) in the case of clauses (ii) and (iii) below, any Lender shall have reasonably determined (which
determination shall, absent clearly demonstrable error, be final and conclusive and binding upon
all parties hereto):
(i) on any date for determining the LIBOR Rate for any Interest Period that (x) deposits in
the principal amounts of the Loans comprising such LIBOR Borrowing are not generally available in
the relevant market or (y) by reason of any changes arising on or after the Closing Date affecting
the interbank LIBOR market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of LIBOR Rate; or
(ii) at any time, that such Lender shall incur increased costs or reductions in the amounts
received or receivable hereunder with respect to any LIBOR Loans (other than any such increase or
reduction attributable to Taxes) because of (x) any change since the date hereof in any applicable
law, governmental rule, regulation, guideline or order (or in the interpretation or administration
thereof and including the introduction of any new law or governmental rule, regulation, guideline
or order), such as, for example, without limitation, a change in official reserve requirements,
and/or (y) other circumstances affecting the interbank LIBOR market or the position of such Lender
in such market; or
(iii) at any time, that the making or continuance of any LIBOR Loan has become unlawful by
compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or
order (or would conflict with any such governmental rule, regulation, guideline or order not having
the force of law even though the failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the date hereof that materially and
adversely affects the interbank LIBOR market;
-56-
then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i)
above) shall within a reasonable time thereafter give notice (if by telephone, confirmed in
writing) to the Borrower and to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the
case of clause (i) above, LIBOR Revolving Credit Loans shall no longer be available until such time
as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving
rise to such notice by the Administrative Agent no longer exist (which notice the Administrative
Agent agrees to give at such time when such circumstances no longer exist), and any Notice of
Borrowing or Notice of Conversion given by the Borrower with respect to LIBOR Revolving Credit
Loans that have not yet been incurred shall be deemed rescinded by the Borrower (y) in the case of
clause (ii) above, the Borrower shall pay to such Lender, promptly after receipt of written demand
therefor such additional amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Lender in its reasonable discretion shall determine) as
shall be required to compensate such Lender for such increased costs or reductions in amounts
receivable hereunder (it being agreed that a written notice as to the additional amounts owed to
such Lender, showing in reasonable detail the basis for the calculation thereof, submitted to the
Borrower by such Lender shall, absent clearly demonstrable error, be final and conclusive and
binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take
one of the actions specified in
Section 2.10(b)
as promptly as possible and, in any event,
within the time period required by law.
(b) At any time that any LIBOR Loan is affected by the circumstances described in
Section
2.10(a)(ii)
or
(iii)
, the Borrower may (and in the case of a LIBOR Loan affected
pursuant to
Section 2.10(a)(iii)
shall) either (x) if the affected LIBOR Loan is then being
made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative Agent telephonic
notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a
Lender pursuant to
Section 2.10(a)(ii)
or
(iii)
or (y) if the affected LIBOR Loan
is then outstanding, upon at least three Business Days notice to the Administrative Agent, require
the affected Lender to convert each such LIBOR Revolving Credit Loan into an ABR Loan,
provided
that if more than one Lender is affected at any time, then all affected Lenders
must be treated in the same manner pursuant to this
Section 2.10(b)
.
(c) If, after the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, the National Association of Insurance
Commissioners, central bank or comparable agency charged with the interpretation or administration
thereof, or compliance by a Lender or its parent with any request or directive made or adopted
after the date hereof regarding capital adequacy (whether or not having the force of law) of any
such authority, association, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lenders or its parents or its Affiliates
capital or assets as a consequence of such Lenders commitments or obligations hereunder to a
level below that which such Lender or its parent or its Affiliate could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration such Lenders or its
parents policies with respect to capital adequacy), then from time to time, promptly after demand
by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender or its parent for such reduction,
it being understood and agreed, however, that a Lender shall not be entitled to
-57-
such compensation
as a result of such Lenders compliance with, or pursuant to any request or directive to comply
with, any such law, rule or regulation as in effect on the date hereof. Each Lender, upon
determining in good faith that any additional amounts will be payable pursuant to this
Section
2.10(c)
, will give prompt written notice thereof to the Borrower which notice shall set forth
in reasonable detail the basis of the calculation of such additional amounts, although the failure
to give any such notice shall not, subject to
Section 2.13
, release or diminish the
Borrowers obligations to pay additional amounts pursuant to this
Section 2.10(c)
upon
receipt of such notice.
(d) It is understood that to the extent duplicative of
Section 5.4
, this
Section
2.10
shall not apply to Taxes.
2.11
Compensation
. If (a) any payment of principal of any LIBOR Loan is made by the Borrower to or for the
account of a Lender other than on the last day of the Interest Period for such LIBOR Loan as a
result of a payment or conversion pursuant to
Section 2.5, 2.6, 2.10, 5.1, 5.2
or
14.7
, as a result of acceleration of the maturity of the Loans pursuant to
Section
11
or for any other reason, (b) any Borrowing of LIBOR Loans is not made as a result of a
withdrawn Notice of Borrowing, (c) any ABR Loan is not converted into a LIBOR Loan as a result of a
withdrawn Notice of Conversion or Continuation, (d) any LIBOR Loan is not continued as an LIBOR
Loan, as the case may be, as a result of a withdrawn Notice of Conversion or Continuation or (e)
any prepayment of principal of any LIBOR Loan is not made as a result of a withdrawn notice of
prepayment pursuant to
Section 5.1 or 5.2
, the Borrower shall, after receipt of a written
request by such Lender (which request shall set forth in reasonable detail the basis for requesting
such amount), pay to the Administrative Agent for the account of such Lender any amounts required
to compensate such Lender for any additional losses, costs or expenses that such Lender may
reasonably incur as a result of such payment, failure to convert, failure to continue or failure to
prepay, including any loss, cost or expense (excluding loss of anticipated profits) actually
incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such LIBOR Loan.
2.12
Change of Lending Office
. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of
Section 2.10(a)(ii)
,
2.10(a)(iii)
,
2.10(b)
,
3.5
or
5.4
with
respect to such Lender, it will, if requested by the Borrower use reasonable efforts (subject to
overall policy considerations of such Lender) to designate another lending office for any Loans
affected by such event,
provided
that such designation is made on such terms that such
Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object
of avoiding the consequence of the
event giving rise to the operation of any such Section. Nothing in this
Section 2.12
shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided
in
Section 2.10
,
3.5
or
5.4
.
2.13
Notice of Certain Costs
. Notwithstanding anything in this Agreement to the contrary, to the extent any notice
required by
Section 2.10, 2.11
,
3.5
or
5.4
is given by any Lender more than
180 days after such Lender has knowledge (or should have had knowledge) of the occurrence of the
event giving rise to the additional cost, reduction in amounts, loss, tax or other additional
amounts described in such Sections, such Lender shall not be entitled to compensation under
Section 2.10
,
2.11
,
3.5
or
5.4
, as the case may be, for any such
amounts incurred or accruing prior to the 181st day prior to the giving of such notice to the
Borrower;
-58-
provided
that if the event giving rise to such additional cost, reduction in
amounts, loss, tax or other additional amounts has a retroactive effect, then the 180 day period
referred to above shall be extended to include the period of retroactive effect thereof
.
2.14
Incremental Facilities
. (a) Borrower may by written notice to Administrative Agent elect to request the
establishment of one or more increases in Revolving Credit Commitments (the
New Revolving
Credit Commitments
) by an aggregate amount (together with any New Term Loan Commitments
obtained after the Closing Date) not in excess of the aggregate amounts permitted by clauses (w),
(x) & (y) hereafter and not less than $10,000,000 individually (or such lesser amount which shall
be approved by Administrative Agent). Each such notice shall specify the date (each, an
Increased Amount Date
) on which the Borrower proposes that the New Revolving Credit
Commitments shall be effective, which shall be a date not less than ten Business Days after the
date on which such notice is delivered to Administrative Agent. The New Revolving Credit
Commitments (together with any New Term Loan Commitments obtained after the Closing Date) shall not
exceed the sum of: (w) up to $200,000,000 solely to the extent used to fund the exercise of the
CanHCo Call Right (as defined under the Red Man Transaction Agreement as in effect on the date
hereof) and the refinancing of certain indebtedness of Midfield Supply Co.,
plus
(x) up to
an additional $150,000,000,
plus
(y) only after the entire amount in the preceding clause
(x) has been drawn, an amount such that on a Pro Forma Basis after giving effect to the borrowings
to be made on the Increased Amount Date (which shall be deemed to be equal to the amount of the New
Revolving Credit Commitments for the purposes of this clause (y)) and all Specified Transactions
after the beginning of the relevant Test Period but prior to or simultaneous with such borrowing,
the Secured Leverage Ratio shall equal or be less than 4.75 to 1.00;
provided
that any
Lender offered or approached to provide all or a portion of the New Revolving Credit Commitments
may elect or decline, in its sole discretion, to provide a New Revolving Credit Commitments. Such
New Revolving Credit Commitments shall become effective, as of such Increased Amount Date;
provided
that (i) no Default or Event of Default shall exist on such Increased Amount Date
before or after giving effect to such New Revolving Credit Commitments, as applicable; (ii) both
before and after giving effect to the making of any New Revolving Loans, each of the conditions set
forth in
Section 7
shall be satisfied; (iii) Borrower and its Subsidiaries shall be in Pro
Forma Compliance with the Borrowing Base as of the last day of the most recently ended fiscal
quarter after giving
effect to such New Revolving Credit Commitments and any Specified Transaction to be
consummated in connection therewith; (iv) the New Revolving Credit Commitments shall be effected
pursuant to one or more Joinder Agreements executed and delivered by the Borrower and
Administrative Agent, and each of which shall be recorded in the Register and shall be subject to
the requirements set forth in
Section 5.4(d)
and
(e)
; (v) Borrower shall make any
payments required pursuant to
Section 2.11
in connection with the New Revolving Credit
Commitments, as applicable; and (vi) Borrower shall deliver or cause to be delivered any legal
opinions or other documents reasonably requested by Administrative Agent in connection with any
such transaction.
(b) On any Increased Amount Date on which New Revolving Loan Commitments are effected, subject
to the satisfaction of the foregoing terms and conditions, (i) each of the Lenders with Revolving
Credit Commitments shall assign to each Lender with a New Revolving Credit Commitment (each, a
New Revolving Loan Lender
) and each of the New Revolving Loan Lenders shall purchase from
each of the Lenders with Revolving Credit Commitments, at the
-59-
principal amount thereof (together
with accrued interest), such interests in the Revolving Credit Loans outstanding on such Increased
Amount Date as shall be necessary in order that, after giving effect to all such assignments and
purchases, such Revolving Credit Loans will be held by existing Lenders with Revolving Credit Loans
and New Revolving Loan Lenders ratably in accordance with their Revolving Credit Commitments after
giving effect to the addition of such New Revolving Credit Commitments to the Revolving Credit
Commitments, (ii) each New Revolving Credit Commitment shall be deemed for all purposes a Revolving
Credit Commitment and each Loan made thereunder (a
New Revolving Loan
) shall be deemed,
for all purposes, a Revolving Credit Loan and (iii) each New Revolving Loan Lender shall become a
Lender with respect to the New Revolving Loan Commitment and all matters relating thereto.
(c) [
Intentionally Omitted
].
(d) The terms and provisions of the New Revolving Loans and New Revolving Credit Commitments
shall be identical to the Revolving Credit Loans and the Revolving Credit Commitments.
(e) Each Joinder Agreement may, without the consent of any other Lenders, effect such
amendments to this Agreement and the other Credit Documents as may be necessary or appropriate, in
the opinion of the Administrative Agent, to effect the provision of this
Section 2.14
.
2.15
Protective Advances
. (a) Subject to the limitations set forth below, the Administrative Agent is authorized
by the Borrower and the Lenders, from time to time in the Administrative Agents sole discretion
(but shall have absolutely no obligation to), to make Loans to the Borrower, on behalf of all
Lenders, which the Administrative Agent, in its Permitted Discretion, deems necessary or desirable
(i) to preserve or protect the Collateral or any portion thereof or (ii) to enhance the likelihood
of, or maximize the amount of, repayment of the Loans and other Obligations (any of such Loans are
herein referred to as
Protective Advances
);
provided
that no Protective Advance
shall cause the aggregate amount of the Lenders Revolving Credit
Exposures at such time exceed the Total Revolving Credit Commitment then in effect;
provided
further
that, the aggregate amount of Protective Advances outstanding at
any time pursuant to clauses (i) and (ii) above shall not exceed an amount equal to five percent
(5%) of the Total Revolving Credit Commitment then in effect. Protective Advances may be made even
if the conditions precedent set forth in
Section 7
have not been satisfied. The Protective
Advances shall be secured by the Liens in favor of the Collateral Agent in and to the Collateral
and shall constitute Obligations hereunder. All Protective Advances shall be ABR Borrowings. The
Administrative Agents authorization to make Protective Advances may be revoked at any time by the
Required Lenders. Any such revocation must be in writing and shall become effective prospectively
upon the Administrative Agents receipt thereof. At any time that there is sufficient Excess
Availability and the conditions precedent set forth in
Section 7
have been satisfied, the
Administrative Agent may request the Lenders to make a Revolving Loan to repay a Protective
Advance. At any other time the Administrative Agent may require the Lenders to fund their risk
participations described in
Section 2.15(b)
.
(b) Upon the making of a Protective Advance by the Administrative Agent (whether before or
after the occurrence of a Default or Event of Default), each Lender shall be deemed,
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without further action by any party hereto, to have unconditionally and irrevocably purchased from the
Administrative Agent without recourse or warranty, an undivided interest and participation in such
Protective Advance in proportion to its Revolving Credit Commitment Percentage. Each Lender shall
transfer (a
Transfer
) the amount of such Lenders Revolving Credit Commitment Percentage
of the outstanding principal amount of the applicable Protective Advance with respect to such
purchased interest and participation promptly when requested to the Administrative Agent, to such
account of the Administrative Agent as the Administrative Agent may designate, but in any case not
later than 3:00 p.m., New York City time, on the Business Day notified (if notice is provided by
the Administrative Agent prior to 12:00 p.m. New York City time, and otherwise on the immediately
following Business Day (the
Transfer Date
). Transfers may occur during the existence of
a Default or Event of Default and whether or not the applicable conditions precedent set forth in
Section 7
have then been satisfied. Such amounts transferred to the Administrative Agent
shall be applied against the amount of the Protective Advance and, together with Lenders Revolving
Credit Commitment Percentage of such Protective Advance, shall constitute Loans of such Lenders,
respectively. If any such amount is not transferred to the Administrative Agent by any Lender on
such Transfer Date, the Administrative Agent shall be entitled to recover such amount on demand
from such Lender together with interest thereon as specified in
Section 2.08
. From and
after the date, if any, on which any Lender is required to fund, and funds, its participation in
any Protective Advance purchased hereunder, the Administrative Agent shall promptly distribute to
such Lender, such Lenders Revolving Credit Commitment Percentage of all payments of principal and
interest and all proceeds of Collateral received by the Administrative Agent in respect of such
Protective Advance.
SECTION 3.
Letters of Credit
3.1
Letters of Credit
. (a) Subject to and upon the terms and conditions herein set forth, at any time and
from time to time after the Closing Date and prior to the L/C Maturity Date, the Letter of
Credit Issuer agrees to issue upon the request of, and for the benefit of the Borrower and the
Restricted Subsidiaries letters of credit in Dollars (the
Letters of Credit
and each, a
Letter of Credit
) in such form as may be approved by the Letter of Credit Issuer in its
reasonable discretion;
provided
that
the Borrower shall be a co-applicant, and
jointly and severally liable with respect to, each Letter of Credit issued for the account of a
Restricted Subsidiary.
Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of
which, when added to the Letters of Credit Outstanding at such time, would exceed the Letter of
Credit Commitment then in effect; (ii) no Letter of Credit shall be issued the Stated Amount of
which would cause the aggregate amount of the Lenders Revolving Credit Exposures at such time to
exceed the lesser of the Total Revolving Credit Commitment and the Borrowing Base then in effect;
(iii) each Letter of Credit shall have an expiration date occurring no later than one year after
the date of issuance thereof, unless otherwise agreed upon by the Administrative Agent and the
Letter of Credit Issuer;
provided
, that (x) that in no event shall such expiration date
occur later than the L/C Maturity Date and (y) each Letter of Credit may, upon the request of the
Borrower, include a provision whereby such Letter of Credit shall be renewed automatically for
additional consecutive periods of twelve (12) months or less (but not beyond the L/C Maturity
Date); (iv) each Letter of Credit shall be denominated in Dollars; (v) no Letter of Credit shall be
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issued if it would be illegal under any applicable law for the beneficiary of the Letter of Credit
to have a Letter of Credit issued in its favor; (vi) no Letter of Credit shall be issued if such
Letter of Credit is not in form reasonably acceptable to the Letter of Credit Issuer, and (vii) no
Letter of Credit shall be issued by a Letter of Credit Issuer after it has received a written
notice from any Credit Party or any Lender stating that a Default or Event of Default has occurred
and is continuing until such time as the Letter of Credit Issuer shall have received a written
notice of (x) rescission of such notice from the party or parties originally delivering such notice
or (y) the waiver of such Default or Event of Default in accordance with the provisions of
Section 14.1
.
(b) Upon at least one Business Days prior written notice (or telephonic notice promptly
confirmed in writing) to the Administrative Agent and the Letter of Credit Issuer (which notice the
Administrative Agent shall promptly transmit to each of the applicable Lenders), the Borrower shall
have the right, on any day, permanently to terminate or reduce the Letter of Credit Commitment in
whole or in part,
provided
that, after giving effect to such termination or reduction, the
Letters of Credit Outstanding shall not exceed the Letter of Credit Commitment.
(c) Except as otherwise agreed between the Borrower and the Letter of Credit Issuer, each
Letter of Credit (other than each standby Letter of Credit), shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as from time to time amended, and to the extent not inconsistent therewith,
shall also be subject to the New York Uniform Commercial Code as in effect from time to time.
Except as otherwise agreed between the Borrower and the Letter of Credit Issuer, each standby
Letter of Credit shall be subject to The International Standby Practices (ISP98 International
Chamber of Commerce Publication No. 590), as from time to time amended, and to the extent not
inconsistent therewith, shall also be subject to the New York Uniform Commercial Code as in effect
from time to time.
(d) The parties hereto agree that the Existing Letters of Credit shall be deemed Letters of
Credit for all purposes under this Agreement, without any further action by the Borrower.
3.2
Letter of Credit Requests
. (a) Whenever the Borrower desires that a Letter of Credit be issued for its account,
it shall give the Administrative Agent and the Letter of Credit Issuer at least five (or such
lesser number as may be agreed upon by the Administrative Agent and the Letter of Credit Issuer)
Business Days written notice thereof. Each notice shall be executed by the Borrower and shall be
in the form of
Exhibit H
(each a
Letter of Credit Request
). The Administrative
Agent shall promptly transmit copies of each Letter of Credit Request to each Lender.
(b) The making of each Letter of Credit Request shall be deemed to be a representation and
warranty by the Borrower that the Letter of Credit may be issued in accordance with, and will not
violate the requirements of,
Section 3.1(b)
.
3.3
Letter of Credit Participations
. (a) Immediately upon the issuance by the Letter of Credit Issuer of any Letter of
Credit (and on the Closing Date in respect of Existing Letters of Credit), the Letter of Credit
Issuer shall be deemed to have sold and transferred to each other
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Lender (each such other Lender,
in its capacity under this
Section 3.3
, an
L/C Participant
), and each such L/C
Participant shall be deemed irrevocably and unconditionally to have purchased and received from the
Letter of Credit Issuer, without recourse or warranty, an undivided interest and participation
(each an
L/C Participation
), to the extent of such L/C Participants Revolving Credit
Commitment Percentage in such Letter of Credit, each substitute letter of credit, each drawing made
thereunder and the obligations of the Borrower under this Agreement with respect thereto, and any
security therefor or guaranty pertaining thereto;
provided
that the Letter of Credit Fees
will be paid directly to the Administrative Agent for the ratable account of the L/C Participants
as provided in
Section 4.1(b)
and the L/C Participants shall have no right to receive any
portion of any Fronting Fees.
(b) In determining whether to pay under any Letter of Credit, the relevant Letter of Credit
Issuer shall have no obligation relative to the L/C Participants other than to confirm that any
documents required to be delivered under such Letter of Credit have been delivered and that they
appear to comply on their face with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by the relevant Letter of Credit Issuer under or in connection with any Letter
of Credit issued by it, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for the Letter of Credit Issuer any resulting liability.
(c) In the event that the Letter of Credit Issuer makes any payment under any Letter of Credit
issued by it and the Borrower shall not have repaid such amount in full to the respective Letter of
Credit Issuer pursuant to
Section 3.4(a)
, the Letter of Credit Issuer shall promptly notify
the Administrative Agent and each applicable L/C Participant of such failure, and each such L/C
Participant shall promptly and unconditionally pay to the Administrative Agent for the account of
the Letter of Credit Issuer, the amount of such L/C Participants Revolving Credit
Commitment Percentage of such unreimbursed payment in Dollars and in immediately available
funds;
provided
,
however
, that no L/C Participant shall be obligated to pay to the
Administrative Agent for the account of the respective Letter of Credit Issuer its Revolving Credit
Commitment Percentage of such unreimbursed amount arising from any wrongful payment made by the
Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions constituting
willful misconduct or gross negligence on the part of the Letter of Credit Issuer. If the Letter
of Credit Issuer so notifies, prior to 11:00 a.m. (New York City time) on any Business Day, any L/C
Participant required to fund a payment under a Letter of Credit, such L/C Participant shall make
available to the Administrative Agent for the account of the Letter of Credit Issuer such L/C
Participants Revolving Credit Commitment Percentage of the amount of such payment on such Business
Day in immediately available funds. If and to the extent such L/C Participant shall not have so
made its Revolving Credit Commitment Percentage of the amount of such payment available to the
Administrative Agent for the account of the Letter of Credit Issuer, such L/C Participant agrees to
pay to the Administrative Agent for the account of the Letter of Credit Issuer, forthwith on
demand, such amount, together with interest thereon for each day from such date until the date such
amount is paid to the Administrative Agent for the account of the Letter of Credit Issuer at the
Federal Funds Effective Rate. The failure of any L/C Participant to make available to the
Administrative Agent for the account of the Letter of Credit Issuer its Revolving Credit Commitment
Percentage of any payment under any Letter of Credit shall not relieve any other L/C Participant of
its obligation hereunder to make available to the Administrative Agent for the account of the
Letter of Credit Issuer its Revolving Credit Commitment Percentage of any payment under such Letter
of Credit on the date required, as specified above, but no L/C
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Participant shall be responsible for
the failure of any other L/C Participant to make available to the Administrative Agent such other
L/C Participants Revolving Credit Commitment Percentage of any such payment.
(d) Whenever the Letter of Credit Issuer receives a payment in respect of an unpaid
reimbursement obligation as to which the Administrative Agent has received for the account of the
Letter of Credit Issuer any payments from the L/C Participants pursuant to paragraph (c) above, the
Letter of Credit Issuer shall pay to the Administrative Agent and the Administrative Agent shall
promptly pay to each L/C Participant that has paid its Revolving Credit Commitment Percentage of
such reimbursement obligation, in Dollars and in immediately available funds, an amount equal to
such L/C Participants share (based upon the proportionate aggregate amount originally funded by
such L/C Participant to the aggregate amount funded by all L/C Participants) of the principal
amount of such reimbursement obligation and interest thereon accruing after the purchase of the
respective L/C Participations.
(e) The obligations of the L/C Participants to make payments to the Administrative Agent for
the account of a Letter of Credit Issuer with respect to Letters of Credit shall be irrevocable and
not subject to counterclaim, set-off or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this Agreement under
all circumstances, including under any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of the
other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right that the
Borrower may have at any time against a beneficiary named in a Letter of Credit, any
transferee of any Letter of Credit (or any Person for whom any such transferee may
be acting), the Administrative Agent, the Letter of Credit Issuer, any Lender or
other Person, whether in connection with this Agreement, any Letter of Credit, the
transactions contemplated herein or any unrelated transactions (including any
underlying transaction between the Borrower and the beneficiary named in any such
Letter of Credit);
(iii) any draft, certificate or any other document presented under any 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;
(iv) the surrender or impairment of any security for the performance or
observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default;
provided
,
however
, that no L/C Participant shall be obligated to pay to the
Administrative Agent for the account of the Letter of Credit Issuer its Revolving Credit Commitment
Percentage of any unreimbursed amount arising from any wrongful payment made by the Letter of
Credit Issuer under a Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Letter of Credit Issuer.
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3.4
Agreement to Repay Letter of Credit Drawings
. (a) The Borrower hereby agrees to reimburse the relevant Letter of Credit Issuer, by
making payment in Dollars to the Administrative Agent in immediately available funds for any
payment or disbursement made by the Letter of Credit Issuer under any Letter of Credit (each such
amount so paid until reimbursed, an
Unpaid Drawing
) no later than the date that is one
Business Day after the date on which the Borrower receives notice of such payment or reimbursement
(the
Reimbursement Date
), with interest on the amount so paid or disbursed by the Letter
of Credit Issuer, to the extent not reimbursed prior to 5:00 p.m. (New York City time) on the
Reimbursement Date, from and including the Reimbursement Date to but excluding the date the Letter
of Credit Issuer is reimbursed therefor at a rate
per annum
that shall at all times be the
Applicable ABR Margin plus the ABR as in effect from time to time,
provided
that
,
notwithstanding anything contained in this Agreement to the contrary, (i) unless the Borrower shall
have notified the Administrative Agent and the relevant Letter of Credit Issuer prior to 10:00 a.m.
(New York City time) on the Reimbursement Date that the Borrower intends to reimburse the relevant
Letter of Credit Issuer for the amount of such drawing with funds other than the proceeds of Loans,
the Borrower shall be deemed to have given a Notice of Borrowing requesting that, with respect to
Letters of Credit, the Lenders with Revolving Credit Commitments make Revolving Credit Loans (which
shall be ABR Loans) on the Reimbursement Date in the amount of such drawing and (ii) the
Administrative Agent shall promptly notify each relevant L/C Participant of such drawing and the
amount of its Revolving Credit Loan to be made in respect thereof, and each L/C Participant shall
be irrevocably obligated to make a Revolving Credit Loan to the Borrower in the manner deemed to
have been requested in the
amount of its Revolving Credit Commitment Percentage of the applicable Unpaid Drawing by 12:00
noon (New York City time) on such Reimbursement Date by making the amount of such Revolving Credit
Loan available to the Administrative Agent. Such Revolving Credit Loans shall be made without
regard to the Minimum Borrowing Amount. The Administrative Agent shall use the proceeds of such
Revolving Credit Loans solely for purpose of reimbursing the Letter of Credit Issuer for the
related Unpaid Drawing.
(b) (i) The obligations of the Borrower under this
Section 3.4
to reimburse the Letter
of Credit Issuer with respect to Unpaid Drawings (including, in each case, interest thereon) shall
be absolute and unconditional under any and all circumstances and irrespective of any set-off,
counterclaim or defense to payment that the Borrower or any other Person may have or have had
against the Letter of Credit Issuer, the Administrative Agent or any Lender (including in its
capacity as an L/C Participant), including any defense based upon the failure of any drawing under
a Letter of Credit (each a
Drawing
) to conform to the terms of the Letter of Credit or
any non-application or misapplication by the beneficiary of the proceeds of such Drawing,
provided
that the Borrower shall not be obligated to reimburse the Letter of Credit Issuer
for any wrongful payment made by the Letter of Credit Issuer under the Letter of Credit issued by
it as a result of acts or omissions constituting willful misconduct or gross negligence on the part
of the Letter of Credit Issuer.
(ii) The Borrower further agrees with the Letter of Credit Issuer that the Letter of Credit
Issuer shall not be responsible for, and the Borrowers reimbursement obligations under
Section
3.4
shall not be affected by, among other things, (A) the validity or genuineness of documents
or of any endorsements thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, (B) any dispute between or among the Borrower and any beneficiary of any
Letter of Credit or any other party to which such Letter of Credit may be transferred, (C)
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any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such
transferee, or (D) any change in the time, manner or place of payment of, or in any other term of,
all or any of the Obligations of the Borrower in respect of any Letter of Credit or any other
amendment or waiver of or any consent to departure from the terms of any Letter of Credit or any
document executed or delivered in connection with the issuance or payment thereof
3.5
Increased Costs
. If after the date hereof, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or administration
thereof, or actual compliance by the Letter of Credit Issuer or any L/C Participant with any
request or directive made or adopted after the date hereof (whether or not having the force of
law), by any such authority, central bank or comparable agency shall either (a) impose, modify or
make applicable any reserve, deposit, capital adequacy or similar requirement against letters of
credit issued by the Letter of Credit Issuer, or any L/C Participants L/C Participation therein,
or (b) impose on the Letter of Credit Issuer or any L/C Participant any other conditions affecting
its obligations under this Agreement in respect of Letters of Credit or L/C Participations therein
or any Letter of Credit or such L/C Participants L/C Participation therein, and the result of any
of the foregoing is to increase the cost to the Letter of Credit Issuer or such L/C Participant of
issuing, maintaining or participating in any Letter of Credit, or to reduce the
amount of any sum received or receivable by the Letter of Credit Issuer or such L/C
Participant hereunder (other than any such increase or reduction attributable to taxes) in respect
of Letters of Credit or L/C Participations therein, then, promptly after receipt of written demand
to the Borrower by the Letter of Credit Issuer or such L/C Participant, as the case may be, (a copy
of which notice shall be sent by the Letter of Credit Issuer or such L/C Participant to the
Administrative Agent (with respect to Letter of Credit issued on account of the Borrower)) the
Borrower shall pay to the Letter of Credit Issuer or such L/C Participant such additional amount or
amounts as will compensate the Letter of Credit Issuer or such L/C Participant for such increased
cost or reduction, it being understood and agreed, however, that the Letter of Credit Issuer or a
L/C Participant shall not be entitled to such compensation as a result of such Persons compliance
with, or pursuant to any request or directive to comply with, any such law, rule or regulation as
in effect on the date hereof. A certificate submitted to the Borrower by the relevant Letter of
Credit Issuer or a L/C Participant, as the case may be, (a copy of which certificate shall be sent
by the Letter of Credit Issuer or such L/C Participant to the Administrative Agent (with respect to
Letters of Credit issued on account of the Borrower)) setting forth in reasonable detail the basis
for the determination of such additional amount or amounts necessary to compensate the Letter of
Credit Issuer or such L/C Participant as aforesaid shall be conclusive and binding on the Borrower
absent clearly demonstrable error.
3.6
New or Successor Letter of Credit Issuer
. (a) The Letter of Credit Issuer may resign as a Letter of Credit Issuer upon 60 days
prior written notice to the Administrative Agent, the Lenders and the Borrower. The Borrower may
replace the Letter of Credit Issuer for any reason upon written notice to the Administrative Agent
and the Letter of Credit Issuer. The Borrower may add Letter of Credit Issuers at any time upon
notice to the Administrative Agent. If the Letter of Credit Issuer shall resign or be replaced, or
if the Borrower shall decide to add a new Letter of Credit Issuer under this Agreement, then the
Borrower may appoint from among the Lenders a successor issuer of Letters of Credit or a new Letter
of Credit Issuer, as the case may be, or, with the consent of the Administrative Agent (such
consent not to be unreasonably
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withheld), another successor or new issuer of Letters of Credit,
whereupon such successor issuer shall succeed to the rights, powers and duties of the replaced or
resigning Letter of Credit Issuer under this Agreement and the other Credit Documents, or such new
issuer of Letters of Credit shall be granted the rights, powers and duties of a Letter of Credit
Issuer hereunder, and the term Letter of Credit Issuer shall mean such successor or such new
issuer of Letters of Credit effective upon such appointment. At the time such resignation or
replacement shall become effective, the Borrower shall pay to the resigning or replaced Letter of
Credit Issuer all accrued and unpaid fees pursuant to
Sections
4.1(c)
and
4.1(d)
. The acceptance of any appointment as a Letter of Credit Issuer hereunder whether
as a successor issuer or new issuer of Letters of Credit in accordance with this Agreement, shall
be evidenced by an agreement entered into by such new or successor issuer of Letters of Credit, in
a form satisfactory to the Borrower and the Administrative Agent and, from and after the effective
date of such agreement, such new or successor issuer of Letters of Credit shall become a Letter of
Credit Issuer hereunder. After the resignation or replacement of a Letter of Credit Issuer
hereunder, the resigning or replaced Letter of Credit Issuer shall remain a party hereto and shall
continue to have all the rights and obligations of a Letter of Credit Issuer under this Agreement
and the other Credit Documents with respect to Letters of Credit issued by it prior to such
resignation or replacement, but shall not be required to issue additional Letters of
Credit. In connection with any resignation or replacement pursuant to this clause (a) (but,
in case of any such resignation, only to the extent that a successor issuer of Letters of Credit
shall have been appointed), either (i) the Borrower, the resigning or replaced Letter of Credit
Issuer and the successor issuer of Letters of Credit shall arrange to have any outstanding Letters
of Credit issued by the resigning or replaced Letter of Credit Issuer replaced with Letters of
Credit issued by the successor issuer of Letters of Credit or (ii) the Borrower shall cause the
successor issuer of Letters of Credit, if such successor issuer is reasonably satisfactory to the
replaced or resigning Letter of Credit Issuer, to issue back-stop Letters of Credit naming the
resigning or replaced Letter of Credit Issuer as beneficiary for each outstanding Letter of Credit
issued by the resigning or replaced Letter of Credit Issuer, which new Letters of Credit shall have
a face amount equal to the Letters of Credit being back-stopped and the sole requirement for
drawing on such new Letters of Credit shall be a drawing on the corresponding back-stopped Letters
of Credit. After any resigning or replaced Letter of Credit Issuers resignation or replacement as
Letter of Credit Issuer, the provisions of this Agreement relating to a Letter of Credit Issuer
shall inure to its benefit as to any actions taken or omitted to be taken by it (A) while it was a
Letter of Credit Issuer under this Agreement or (B) at any time with respect to Letters of Credit
issued by such Letter of Credit Issuer.
(b) To the extent that there are, at the time of any resignation or replacement as set forth
in clause (a) above, any outstanding Letters of Credit, nothing herein shall be deemed to impact or
impair any rights and obligations of any of the parties hereto with respect to such outstanding
Letters of Credit (including, without limitation, any obligations related to the payment of Fees or
the reimbursement or funding of amounts drawn), except that the Borrower, the resigning or replaced
Letter of Credit Issuer and the successor issuer of Letters of Credit shall have the obligations
regarding outstanding Letters of Credit described in clause (a) above.
3.7
Role of the Letter of Credit Issuer
. (a) The responsibility of the Letter of Credit Issuer to the Borrower in connection
with any draft presented for payment under any Letter of Credit shall, in addition to any payment
obligation expressly provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such
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Letter of Credit in connection with such
presentment are in conformity with such Letter of Credit. In addition, each Lender and the
Borrower agree that, in paying any drawing or demand for payment under any Letter of Credit, the
Letter of Credit Issuer of such Letter of Credit shall not have any responsibility to inquire as to
the validity or accuracy of any document presented in connection with such drawing or demand for
payment or the authority of the Person executing or delivering the same. In determining whether to
pay under any Letter of Credit, the relevant Letter of Credit Issuer shall have no obligation
relative to the Borrower other than to confirm that any documents required to be delivered under
such Letter of Credit have been delivered and that they appear to comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken by the relevant
Letter of Credit Issuer under or in connection with any Letter of Credit issued by it, if taken or
omitted in the absence of gross negligence or willful misconduct, shall not create for the Letter
of Credit Issuer any resulting liability.
(b) Neither the Letter of Credit Issuer nor any of the respective correspondents, participants
or assignees of the Letter of Credit Issuer shall be liable to any Lender for: (i) any
action taken or omitted in connection herewith in respect of any Letter of Credit at the
request or with the approval or deemed approval of the Required Lenders; (ii) any action taken or
omitted in respect of any Letter of Credit in the absence of gross negligence or willful
misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any Letter of
Credit or any document delivered in connection with the issuance or payment of such Letter of
Credit.
SECTION 4.
Fees; Commitments
4.1
Fees
. (a) (i) The Borrower agrees to pay to the Administrative Agent in Dollars, for the account of
each Lender (in each case
pro rata
according to the respective Revolving Credit Commitments of all
such Lenders), a commitment fee for each day from and including the Closing Date to but excluding
the Revolving Credit Termination Date. Such commitment fee shall be payable in arrears (x) on the
last day of each March, June, September and December (for the three-month period (or portion
thereof) ended on such day for which no payment has been received) and (y) on the Revolving Credit
Termination Date (for the period ended on such date for which no payment has been received pursuant
to clause (x) above), and shall be computed for each day during such period at a rate
per annum
equal to the Commitment Fee Rate in effect on such day on the Available Commitments in effect on
such day.
(ii) Notwithstanding the foregoing, the Borrower shall not be obligated to pay any amounts to
any Defaulting Lender pursuant to this
Section 4.1
.
(b) The Borrower agrees to pay to the Administrative Agent in Dollars for the account of the
Lenders
pro rata
on the basis of their respective Letter of Credit Exposure, a fee in respect of
each Letter of Credit (the
Letter of Credit Fee
), for the period from and including the
date of issuance of such Letter of Credit to but excluding the termination date of such Letter of
Credit computed at the
per annum
rate for each day equal to the Applicable LIBOR Margin for
Revolving Credit Loans minus 0.125%
per annum
on the average daily Stated Amount of such Letter of
Credit. Such Letter of Credit Fees shall be due and payable quarterly in arrears on the last day
of each March, June, September and December and on the date upon which the Total Revolving Credit
Commitment terminates and the Letters of Credit Outstanding shall have been reduced to zero.
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(c) The Borrower agrees to pay to the Administrative Agent in Dollars for the account of the
Letter of Credit Issuer a fee in respect of each Letter of Credit issued by it (the
Fronting
Fee
), for the period from and including the date of issuance of such Letter of Credit to but
excluding the termination date of such Letter of Credit, computed at the rate for each day equal to
0.125%
per annum
on the average daily Stated Amount of such Letter of Credit (or at such other rate
per annum
as agreed in writing between the Borrower and the Letter of Credit Issuer). Such
Fronting Fees shall be due and payable quarterly in arrears on the last day of each March, June,
September and December and on the date upon which the Total Revolving Credit Commitment terminates
and the Letters of Credit Outstanding shall have been reduced to zero.
(d) The Borrower agrees to pay directly to the Letter of Credit Issuer in Dollars upon each
issuance of, drawing under, and/or amendment of, a Letter of Credit issued by it such amount as the
Letter of Credit Issuer and the Borrower shall have agreed upon for issuances of, drawings under or
amendments of, letters of credit issued by it.
(e) The Borrower agrees to pay to each of the Co-Collateral Agents, for its own account, fees
in the amounts and at the times set forth in the Co-Collateral Agent Fee Letters.
4.2
Voluntary Reduction of Revolving Credit Commitments
. Upon at least one Business Days prior written notice (or telephonic notice promptly
confirmed in writing) to the Administrative Agent at the Administrative Agents Office (which
notice the Administrative Agent shall promptly transmit to each of the Lenders), the Borrower (on
behalf of itself) shall have the right, without premium or penalty, on any day, permanently to
terminate or reduce the Revolving Credit Commitments in whole or in part,
provided
that (a)
any such reduction shall apply proportionately and permanently to reduce the Revolving Credit
Commitment of each of the Lenders, (b) any partial reduction pursuant to this
Section 4.2
shall be in the amount of at least $5,000,000 and (c) after giving effect to such termination or
reduction and to any prepayments of the Loans made on the date thereof in accordance with this
Agreement, the aggregate amount of the Lenders Revolving Credit Exposures shall not exceed the
lesser of the Total Revolving Credit Commitment and the Borrowing Base then in effect.
4.3
Mandatory Termination of Commitments
. (a) [
Intentionally Omitted
.]
(b) The Total Revolving Credit Commitment shall terminate at 5:00 p.m. (New York City time) on
the Revolving Credit Maturity Date.
(c) The Swingline Commitment shall terminate at 5:00 p.m. (New York City time) on the
Swingline Maturity Date.
SECTION 5.
Payments
5.1
Voluntary Prepayments
. The Borrower shall have the right to prepay Revolving Credit Loans and Swingline Loans, in
each case, without premium or penalty, in whole or in part from time to time on the following terms
and conditions: (a) the Borrower shall give the Administrative Agent and at the Administrative
Agents Office written notice (or telephonic notice promptly confirmed in writing) of its intent to
make such prepayment, the amount of such prepayment and (in the case of LIBOR Loans) the specific
Borrowing(s) pursuant to which
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made, which notice shall be given by the Borrower no later than (i)
in the case of a LIBOR Loans, 12:00 noon (New York City time) three Business Days prior to or (ii)
in the case of ABR Loans, 12:00 noon (New York City time) on, the date of such prepayment and shall
promptly be transmitted by the Administrative Agent to each of the Lenders or the Swingline Lender,
as the case may be; (b) each partial prepayment of any Borrowing of Revolving Credit Loans shall be
in a multiple of $100,000 and
in an aggregate principal amount of at least $1,000,000 and each partial prepayment of
Swingline Loans shall be in a multiple of $10,000 and in an aggregate principal amount of at least
$250,000,
provided
that no partial prepayment of LIBOR Revolving Credit Loans made pursuant
to a single Borrowing shall reduce the outstanding LIBOR Revolving Credit Loans made pursuant to
such Borrowing to an amount less than the Minimum Borrowing Amount for LIBOR Revolving Credit Loans
and (c) any prepayment of LIBOR Revolving Credit Loans pursuant to this
Section 5.1
on any
day other than the last day of an Interest Period applicable thereto shall be subject to compliance
by the Borrower with the applicable provisions of
Section 2.11
. At the Borrowers election
in connection with any prepayment pursuant to this
Section 5.1
, such prepayment shall not
be applied to any Revolving Credit Loan of a Defaulting Lender.
5.2
Mandatory Prepayments
. (a) [
Intentionally Omitted
].
(b)
Repayment of Revolving Credit Loans
. If on any date the aggregate amount of the
Lenders Revolving Credit Exposures (all the foregoing, collectively, the
Aggregate Revolving
Credit Outstandings
) exceeds 100% of the Total Revolving Credit Commitment or the Borrowing
Base as then in effect, the Borrower shall forthwith repay on such date
first
, the
principal amount of all Protective Advances,
second
, after all Protective Advances have
been paid in full, the principal amount of all Swingline Loans and
third
, after all
Swingline Loans have been paid in full, Revolving Credit Loans in an amount equal to such excess.
If, after giving effect to the prepayment of all outstanding Protective Advances, Swingline Loans
and Revolving Credit Loans, the Aggregate Revolving Credit Outstandings exceed the Total Revolving
Credit Commitment or Borrowing Base then in effect, the Borrower shall pay to the Administrative
Agent an amount in cash equal to such excess and the Administrative Agent shall instruct the
Collateral Agent to hold such payment for the benefit of the Lenders as security for the
obligations of the Borrower hereunder (including obligations in respect of Letters of Credit
Outstanding) pursuant to a cash collateral agreement to be entered into in form and substance
satisfactory to the Administrative Agent (which shall permit certain Investments in Permitted
Investments satisfactory to the Administrative Agent, until the proceeds are applied to the secured
obligations).
(c) [
Intentionally Omitted
].
(d)
[Intentionally Omitted
].
(e)
Application to Revolving Credit Loans
. With respect to each prepayment of
Revolving Credit Loans required by
Section 5.2(b)
, the Borrower may designate (i) the Types
of Loans that are to be prepaid and the specific Borrowing(s) pursuant to which made and (ii) the
Revolving Credit Loans to be prepaid,
provided
that
(y) each prepayment of any
Loans made pursuant to a Borrowing shall be applied
pro rata
among such Loans; and (z)
notwithstanding the provisions of the preceding clause (y), no prepayment made pursuant to
Section 5.2(b)
of
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Revolving Credit Loans shall be applied to the Revolving Credit Loans of
any Defaulting Lender. In the absence of a designation by the Borrower as described in the
preceding sentence, the Administrative Agent shall, subject to the above, make such designation in
its reasonable discretion with a view, but no obligation, to minimize breakage costs owing under
Section 2.11
.
(f)
LIBOR Interest Periods
. In lieu of making any payment pursuant to this
Section 5.2
in respect of any LIBOR Loan other than on the last day of the Interest Period
therefor so long as no Event of Default shall have occurred and be continuing, the Borrower at its
option may deposit with the Administrative Agent an amount equal to the amount of the LIBOR Loan to
be prepaid and such LIBOR Loan shall be repaid on the last day of the Interest Period therefor in
the required amount. Such deposit shall be held by the Administrative Agent in a corporate time
deposit account established on terms reasonably satisfactory to the Administrative Agent, earning
interest at the then-customary rate for accounts of such type. Such deposit shall constitute cash
collateral for the Obligations,
provided
that
the Borrower may at any time direct
that such deposit be applied to make the applicable payment required pursuant to this
Section 5.2
.
5.3
Method and Place of Payment
. (a) Except as otherwise specifically provided herein, all payments under this
Agreement shall be made by the Borrower, without set-off, counterclaim or deduction of any kind, to
the Administrative Agent for the ratable account of the Lenders entitled thereto, the Letter of
Credit Issuer or the Swingline Lender entitled thereto, as the case may be, not later than 12:00
Noon (New York City time) on the date when due and shall be made in immediately available funds at
the Administrative Agents Office or at such other office as the Administrative Agent shall specify
for such purpose by notice to the Borrower, it being understood that written or facsimile notice by
the Borrower to the Administrative Agent to make a payment from the funds in the Borrowers account
at the Administrative Agents Office shall constitute the making of such payment to the extent of
such funds held in such account. All repayments or prepayments of Loans (whether of principal,
interest or otherwise) hereunder shall be made in Dollars. The Administrative Agent will
thereafter cause to be distributed on the same day (if payment was actually received by the
Administrative Agent prior to 2:00 p.m. (New York City time) on such day) like funds relating to
the payment of principal or interest or Fees ratably to the Lenders entitled thereto.
(b) Any payments under this Agreement that are made later than 2:00 p.m. (New York City time)
shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect immediately prior
to such extension.
5.4
Net Payments
. (a) Any and all payments made by or on behalf of the Borrower or any Guarantor under
this Agreement or any other Credit Document shall be made free and clear of, and without deduction
or withholding for or on account of, any Indemnified Taxes;
provided
that if the Borrower
or any Guarantor shall be required by law to deduct or withhold any Indemnified Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after making all
required deductions and withholdings (including deductions or withholdings applicable to additional
sums payable under this
Section 5.4
) the Administrative
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Agent, the Collateral Agent, the
Letter of Credit Issuer or any Lender, as the case may be, receives an
amount equal to the sum it would have received had no such deductions or withholdings been
made, (ii) the Borrower or any Guarantor shall make such deductions or withholdings and (iii) the
Borrower or any Guarantor shall pay the full amount deducted or withheld to the relevant
Governmental Authority in accordance with applicable law. Whenever any Indemnified Taxes are
payable by the Borrower, as promptly as possible thereafter, the Borrower shall send to the
Administrative Agent for its own account or for the account of such Lender, as the case may be, a
certified copy of an original official receipt (or other evidence acceptable to such Lender, acting
reasonably) received by the Borrower showing payment thereof.
(b) The Borrower shall pay and shall indemnify and hold harmless the Administrative Agent, the
Collateral Agent, the Letter of Credit Issuer and each Lender with regard to any Other Taxes
(whether or not such Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority).
(c) The Borrower shall indemnify and hold harmless the Administrative Agent, the Collateral
Agent, any Letter of Credit Issuer and each Lender within 15 Business Days after written demand
therefor, for the full amount of any Indemnified Taxes imposed on, or paid by, the Administrative
Agent, the Collateral Agent, the Letter of Credit Issuer or such Lender as the case may be, on or
with respect to any payment by or on account of any obligation of Borrower or any Guarantor under
this Agreement or under any other Credit Document (including Indemnified Taxes imposed or asserted
on or attributable to amounts payable under this
Section 5.4
) and any reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent,
any Letter of Credit Issuer or the Collateral Agent on its own behalf or on behalf of a Lender
shall be conclusive absent manifest error.
(d) Each Non-U.S. Lender making or acquiring a loan to the Borrower shall:
(i) deliver to the Borrower and the Administrative Agent two copies of either (x) in the case
of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of portfolio interest, United States Internal Revenue
Service Form W-8BEN (together with a certificate representing that such Non-U.S. Lender is not a
bank for purposes of
Section 881(c)
of the Code, is not a 10-percent shareholder (within
the meaning of
Section 871(h)(3)(B)
of the Code) of the Borrower and is not a controlled
foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4)
of the
Code)), (y) Internal Revenue Service Form W-8BEN or Form W-8ECI, or (z) Internal Revenue Service
Form W-8IMY (together with the forms and certificates described in clauses (x) and (y), as
appropriate), in each case properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the
Borrower under this Agreement; and
(ii) deliver to the Borrower and the Administrative Agent two further copies of any such form
or certification (or any applicable successor form) on or before the date that
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any such form or
certification expires or becomes obsolete and after the occurrence of any event requiring a change
in the most recent form previously delivered by it to the Borrower;
unless in any such case any Change in Law or other event has occurred prior to the date on which
any such delivery would otherwise be required that renders any such form inapplicable or would
prevent such Lender from duly completing and delivering any such form with respect to it and such
Lender so advises the Borrower and the Administrative Agent. Each Person that shall become a
Participant pursuant to
Section 14.6
or a Lender pursuant to
Section 14.6
shall,
upon the effectiveness of the related transfer, be required to provide all the forms and statements
required pursuant to this
Section 5.4(d)
,
provided
that in the case of a
Participant such Participant shall furnish all such required forms and statements to the Lender
from which the related participation shall have been purchased.
(e) Each Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax
under the laws of the jurisdiction in which any Borrower or Guarantor is organized, or any treaty
to which such jurisdiction is a party, with respect to payments under this Agreement or any other
Credit Document by such Borrower or Guarantor shall deliver to such Borrower or Guarantor (with a
copy to the Administrative Agent), as applicable, at the time or times prescribed by applicable law
and reasonably requested by such Borrower or Guarantor, as applicable, such properly completed and
executed documentation prescribed by applicable law as will permit such payments to be made without
such withholding or at such reduced rate,
provided
that such Lender is legally entitled to
complete, execute and deliver such documentation, such documentation is necessary in order for such
exemption or reduction to apply and in such Lenders reasonable judgment the completion, execution
or submission would not materially prejudice the legal position of the Lender. In addition, each
Lender shall deliver such other documentation prescribed by applicable law and reasonably requested
by the Borrower or the Administrative Agent (including an IRS Form W-8 or W-9) as will enable the
Borrower or the Administrative Agent to determine whether such Lender is subject to United States
backup withholding or information reporting requirements.
(f) If the Borrower determines in good faith that a reasonable basis exists for contesting any
taxes for which indemnification has been demanded hereunder, the relevant Lender, the
Administrative Agent or the Collateral Agent, as applicable, shall cooperate with the Borrower in a
reasonable challenge of such taxes at the Borrowers expense if so requested by the Borrower. If
any Lender, the Administrative Agent or the Collateral Agent, as applicable, receives a refund of a
tax for which a payment has been made by the Borrower pursuant to this Agreement, which refund in
the good faith judgment of such Lender, the Administrative Agent or the Collateral Agent, as the
case may be, is attributable to such payment made by the Borrower, then the Lender, the
Administrative Agent or the Collateral Agent, as the case may be, shall reimburse the Borrower for
such amount (together with any interest received thereon) as the Lender, Administrative Agent or
the Collateral Agent, as the case may be, determines to be the proportion of the refund as will
leave it, after such reimbursement, in no better or worse position (taking into account expenses or
any taxes imposed on the refund) than it would have been in if the payment had not been required.
A Lender, the Administrative Agent or the Collateral Agent shall claim any refund that it
determines is available to it, unless it concludes in its reasonable discretion that it would be
adversely affected by making such a claim. The Borrower, upon the request of the Lender, the
Administrative Agent or the Collateral Agent, as applicable, agrees to
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repay the amount paid over
to the Borrower to the Lender, the Administrative Agent or the Collateral Agent, as applicable, in
the event the Lender, the Administrative Agent or the Collateral Agent, as applicable, is required
to repay the refund to the Governmental Authority.
Neither the Lender, the Administrative Agent nor the Collateral Agent shall be obliged to
disclose any information regarding its tax affairs or computations to the Borrower in connection
with this paragraph (f) or any other provision of this
Section 5.4
.
(g) The agreements in this
Section 5.4
shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
5.5
Computations of Interest and Fees
. (a) Interest on LIBOR Loans and, except as provided in the next succeeding sentence,
ABR Loans shall be calculated on the basis of a 360-day year for the actual days elapsed. Interest
on ABR Loans in respect of which the rate of interest is calculated on the basis of the Prime Rate
and interest on overdue interest shall be calculated on the basis of a 365- (or 366-, as the case
may be) day year for the actual days elapsed.
(b) Fees and Letters of Credit Outstanding shall be calculated on the basis of a 365- (or
366-, as the case may be) day year for the actual days elapsed.
5.6
Limit on Rate of Interest
.
(a)
No Payment shall exceed Lawful Rate
. Notwithstanding any other term of this
Agreement, the Borrower shall not be obliged to pay any interest or other amounts under or in
connection with this Agreement in excess of the amount or rate permitted under or consistent with
any applicable law, rule or regulation.
(b)
Payment at Highest Lawful Rate
. If the Borrower is not obliged to make a payment
which it would otherwise be required to make, as a result of
Section 5.6(a)
, the Borrower
shall make such payment to the maximum extent permitted by or consistent with applicable laws,
rules and regulations.
(c)
Adjustment if any Payment exceeds Lawful Rate
. If any provision of this Agreement
or any of the other Credit Documents would obligate the Borrower to make any payment of interest or
other amount payable to any Lender in an amount or calculated at a rate which would be prohibited
by any applicable law, rule or regulation, then notwithstanding such provision, such amount or rate
shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of
interest, as the case may be, as would not be so prohibited by law, such adjustment to be effected,
to the extent necessary, by reducing the amount or rate of interest required to be paid by the
Borrower to the affected Lender under
Section 2.8
.
Notwithstanding the foregoing, and after giving effect to all adjustments contemplated thereby, if
any Lender shall have received from the Borrower an amount in excess of the maximum permitted by
any applicable law, rule or regulation, then the Borrower shall be entitled, by notice in writing
to the Administrative Agent to obtain reimbursement from that Lender in an amount equal to such
excess, and pending such reimbursement, such amount shall be deemed to be an amount payable by that
Lender to the Borrower.
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SECTION 6.
Conditions Precedent to Initial Borrowing
The initial Borrowing under this Agreement is subject to the satisfaction of the following
conditions precedent, except as otherwise agreed between the Borrower and the Administrative Agent.
6.1
Credit Documents
. The Administrative Agent shall have received:
(a) this Agreement, executed and delivered by a duly authorized officer of the Borrower
and each Lender;
(b) the Guarantee, executed and delivered by a duly authorized officer of each
Guarantor;
(c) the Security Agreement, executed and delivered by a duly authorized officer of each
grantor party thereto; and
(d) the Intercreditor Agreement, executed and delivered by a duly authorized officer of
each Credit Party, the Collateral Agent and Lehman Commercial Paper Inc., as collateral
agent under the Term Loan Credit Agreement.
6.2
[Reserved]
.
(b) All documents and instruments, including Uniform Commercial Code or other applicable
personal property and fixture security financing statements, required by law or reasonably
requested by the Collateral Agent, as applicable, to be filed, registered or recorded to create the
Liens intended to be created by the Security Agreement and perfect such Liens to the extent
required by, and with the priority required by, the Security Agreement shall have been filed,
registered or recorded or delivered to the Collateral Agent for filing, registration or recording
(except those to be filed, registered, recorded or delivered pursuant to
Section 9.17(c)
).
(c) [
Intentionally Omitted
].
(d) The Borrower shall deliver to the Collateral Agent a completed Perfection Certificate,
executed and delivered by an Authorized Officer of the Borrower, together with all attachments
contemplated thereby.
6.3
Legal Opinions
. The Administrative Agent shall have received the executed legal opinions of (a) Simpson
Thacher & Bartlett LLP, special New York counsel to the Borrower, substantially in the form of
Exhibit I-1
and (b) local counsel to the Borrower in certain jurisdictions as may be
reasonably requested by the Administrative Agent, substantially in the form(s) of
Exhibit
I-2
.
The Borrower, the other Credit Parties and the Administrative Agent hereby instruct such
counsel to deliver such legal opinions.
6.4
First Amendment to Term Loan Credit Agreement and Intercreditor Agreement
. The Borrower
shall deliver to the Collateral Agent a fully-executed copy of the First
Amendment to Term Loan Credit Agreement and the Intercreditor Agreement.
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6.5
Equity Investments; Existing Indebtedness
. (a) Equity Investments in an amount equal to not less than the Minimum Equity Investment
Amount shall have been made and (b) after giving effect to the Transactions, the Borrower and its
Subsidiaries shall have no outstanding Indebtedness other than (A) the loans and other extensions
of credit under the Revolving Credit Loans and the Term Loans and (B) other Indebtedness listed on
Schedule 10.1.
6.6
Closing Certificates
. The Administrative Agent shall have received a certificate of each Credit Party, dated the
Closing Date, substantially in the form of
Exhibit J
, with appropriate insertions, executed
by the President or any Vice President and the Secretary or any Assistant Secretary of such Credit
Party, and attaching the documents referred to in
Section 6.7
.
6.7
Organizational Documents; Incumbency
. The Administrative Agent shall have received a copy of (a) each Organizational Document of
each Credit Party certified, to the extent applicable, as of a recent date by the applicable
Governmental Authority, (b) signature and incumbency certificates of the Authorized Officers of
each Credit Party executing the Credit Documents to which it is a party; (c) resolutions of the
Board of Directors or similar governing body of each Credit Party (A) approving and authorizing the
execution, delivery and performance of Credit Documents to which it is a party and (B) in the case
of the Borrower, the extensions of credit contemplated hereunder, certified as of the Closing Date
by its secretary or an assistant secretary as being in full force and effect without modification
or amendment and (d) a good standing certificate from the applicable Governmental Authority of each
Credit Partys jurisdiction of incorporation, organization or formation.
6.8
Fees
. The Co-Lead Arrangers and the Collateral Agent shall have received the fees to be received
on the Closing Date set forth in the Fee Letter and the Collateral Agent Fee Letter, respectively.
The Lenders shall have received the fees in the amounts previously agreed in writing by the Agents
and such Lenders to be received on the Closing Date and all expenses (including the reasonable
fees, disbursements and other charges of counsel) for which invoices have been presented prior to
the Closing Date shall have been paid.
6.9
Representations and Warranties
. On the Closing Date, the representations and warranties made by the Credit Parties in
Section 8.2
,
8.3(a)
,
Section 8.5
and
Section 8.7
, as they relate to
the Credit Parties at such time, shall be true and correct in all material respects.
6.10
Related Agreements
. Administrative Agent shall have received a fully executed or conformed copy of the Red Man
Transaction Agreement which shall be in full force and effect.
6.11
Solvency Certificate
. On the Closing Date, Administrative Agent shall have received a certificate from an
Authorized Officer of the Borrower, with appropriate attachments and demonstrating that after
giving effect to the consummation of the Transactions, the Borrower on a consolidated basis with
its Subsidiaries is Solvent.
6.12
Historical Financial Statements
. Lenders shall have received the Historical Financial Statements.
6.13
Red Man Transaction
. Concurrently with the initial Credit Event made hereunder, the Red Man Transaction shall
have been consummated in accordance with the terms
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of the Red Man Transaction Agreement, without
giving effect to any amendments or waivers thereto that are materially adverse to the Lenders
without the reasonable consent of the Agents.
6.14
Insurance
. Certificates of insurance evidencing the existence of insurance to be maintained by the
Borrower pursuant to
Section 9.3
and, if applicable, the designation of the Collateral
Agent as an additional insured and loss payee as its interest may appear thereunder, or solely as
the additional insured, as the case may be, thereunder (
provided
that if such endorsement
as additional insured cannot be delivered by the Closing Date, the Administrative Agent may consent
to such endorsement being delivered at such later date as it deems appropriate in the
circumstances).
6.15
Pro Forma Financial Statements
. The Administrative Agent shall have received a pro forma consolidated balance sheet of
Borrower as of September 30, 2007 and a pro forma statement of income for the twelve month period
ending on such balance sheet date, in each case, after giving effect to the Transactions, together
with a certificate of an Authorized Officer of Borrower to the effect that such balance sheets
accurately present the pro forma financial position of Borrower and its Subsidiaries in a manner
consistent with previous disclosures to the Co-Lead Arrangers, unless disclosed in the notes to the
pro forma statements.
6.16
Borrowing Base Certificate
. The Administrative Agent shall have received a Borrowing Base Certificate effective as of
the Business Day preceding the day such initial Loans are to be funded or any such initial Letter
of Credit is to be issued.
6.17
Initial Borrowings
. The aggregate amount of the initial Loans and Letters of Credit hereunder on the Closing
Date shall not exceed $450,000,000.
SECTION 7.
Conditions Precedent to All Credit Events
The agreement of each Lender to make any Loan requested to be made by it on any date
(excluding Mandatory Borrowings and Protective Advances) and the obligation of the Letter of Credit
Issuer to issue Letters of Credit on any date is subject to the satisfaction of the following
conditions precedent:
7.1
No Default; Representations and Warranties; Excess Availability
. At the time of each Credit Event and also after giving effect thereto (other than any
Credit Event on the Closing Date) (a) no Default or Event of Default shall have occurred and be
continuing, (b) all representations and warranties made by any Credit Party contained herein or in
the other Credit Documents shall be true and correct in all material respects with the same effect
as though such representations and warranties had been made on and as of the date of such Credit
Event (except where such representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall have been true and correct in all material
respects as of such earlier date), (c) Excess Availability of not less than the amount of the
proposed Borrowing shall exist and (d) if Excess Availability (after giving effect to the proposed
Borrowing) is less than 7% of the then existing Total Revolving Credit Commitment, the Consolidated
Fixed Charge Coverage Ratio, calculated on a Pro Forma Basis on the date of such proposed Borrowing
and for the most recent Test Period, after giving effect to such proposed Borrowing and all
Specified
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Transactions after the beginning of the relevant Test Period but prior to or simultaneous
with such proposed Borrowing, would not be less than 1.0:1.0.
7.2
Notice of Borrowing; Letter of Credit Request
. (a) [
Intentionally Omitted
].
(b) Prior to the making of each Revolving Credit Loan (other than any Revolving Credit Loan
made pursuant to
Section 3.4(a)
) and each Swingline Loan, the Administrative Agent shall
have received a Notice of Borrowing (whether in writing or by telephone) meeting the requirements
of
Section 2.3
.
(c) Prior to the issuance of each Letter of Credit, the Administrative Agent and the Letter of
Credit Issuer shall have received a Letter of Credit Request meeting the requirements of
Section 3.2(a)
.
The acceptance of the benefits of each Credit Event shall constitute a representation and warranty
by each Credit Party to each of the Lenders that all the applicable conditions specified above
exist as of that time.
SECTION 8.
Representations, Warranties and Agreements
In order to induce the Lenders to enter into this Agreement, to make the Loans and issue or
participate in Letters of Credit as provided for herein, the Borrower (with respect to itself and
its Subsidiaries) makes the following representations and warranties to, and agreements with, the
Lenders, all of which shall survive the execution and delivery of this Agreement and the making of
the Loans and the issuance of the Letters of Credit:
8.1
Corporate Status
. The Borrower and each Material Subsidiary (a) is a duly organized and validly existing
corporation or other entity in good standing under the laws of the jurisdiction of its organization
and has the corporate or other organizational power and authority to own its property and assets
and to transact the business in which it is engaged and (b) has duly qualified and is authorized to
do business and is in good standing in all jurisdictions where it is required to be so qualified,
except where the failure to be so qualified could not reasonably be expected to result in a
Material Adverse Effect.
8.2
Corporate Power and Authority
. Each Credit Party has the corporate or other organizational power and authority to execute,
deliver and carry out the terms and provisions of the Credit Documents to which it is a party and
has taken all necessary corporate or other organizational action to authorize the execution,
delivery and performance of the Credit Documents to which it is a party. Each Credit Party has
duly executed and delivered each Credit Document to which it is a party and each such Credit
Document constitutes the legal, valid and binding obligation of such Credit Party enforceable in
accordance with its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors rights generally and subject to general principles
of equity. Each Credit Party is in compliance with all laws, orders, writs and injunctions except
to the extent that failure to do so could not reasonably be expected to have a Material Adverse
Effect.
8.3
No Violation
. Neither the execution, delivery or performance by any Credit Party of the Credit Documents
to which it is a party nor compliance with the terms and provisions
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thereof nor the consummation of
the Red Man Transaction and the other transactions contemplated hereby or thereby will (a)
contravene any applicable provision of any material law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality, (b) result in any breach of any
of the terms, covenants, conditions or provisions of, or constitute a default under, or result in
the creation or imposition of (or the obligation to create or impose) any Lien upon any of the
property or assets of such Credit Party or any of the Restricted Subsidiaries (other than Liens
created under the Credit Documents) pursuant to, the terms of any material indenture, loan
agreement, lease agreement, mortgage, deed of trust, agreement or other material instrument to
which such Credit Party or any of the Restricted Subsidiaries is a party or by which it or any
of its property or assets is bound or (c) violate any provision of the certificate of
incorporation, by-laws or other constitutional documents of such Credit Party or any of the
Restricted Subsidiaries.
8.4
Litigation
. There are no actions, suits or proceedings (including Environmental Claims) pending or, to
the knowledge of the Borrower, threatened with respect to the Borrower or any of its Subsidiaries
that could reasonably be expected to result in a Material Adverse Effect or a Material Adverse
Change.
8.5
Margin Regulations
. Neither Borrower nor any of its Subsidiaries is engaged principally, as one or more of its
important activities, in the business of extending credit for the purpose of purchasing any margin
stock as defined in Regulation U. Neither the making of any Loan hereunder nor the use of the
proceeds thereof will violate the provisions of Regulation T, U or X of the Board.
8.6
Governmental Approvals
. The execution, delivery and performance of the Red Man Transaction Agreement or any Credit
Document does not require any consent or approval of, registration or filing with, or any other
action by, any Governmental Authority, except for (i) such as have been obtained or made and are in
full force and effect, (ii) filings and recordings in respect of the Liens created pursuant to the
Security Documents and (iii) such licenses, approvals, authorizations or consents the failure to
obtain or make could not reasonably be expected to have a Material Adverse Effect.
8.7
Investment Company Act
. No Credit Party is an investment company, or a company controlled by an investment
company, within the meaning of the Investment Company Act of 1940, as amended.
8.8
True and Complete Disclosure
. (a) None of the factual information and data (taken as a whole) heretofore or
contemporaneously furnished by or on behalf of the Borrower, any of the Subsidiaries or any of
their respective authorized representatives in writing to the Administrative Agent and/or any
Lender on or before the Closing Date (including (i) the Confidential Information Memorandum and
(ii) all information contained in the Credit Documents) for purposes of or in connection with this
Agreement or any transaction contemplated herein contained any untrue statement or omitted to state
any material fact necessary to make such information and data (taken as a whole) not misleading at
such time in light of the circumstances under which such information or data was furnished, it
being understood and agreed that for purposes of this
Section 8.8(a)
, such factual
information and data shall not include projections and pro forma financial information.
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(b) The projections and pro forma financial information contained in the information and data
referred to in paragraph (a) above were based on good faith estimates and assumptions
believed by such Persons to be reasonable at the time made, it being recognized by the Lenders
that such projections as to future events 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.
8.9
Financial Condition; Financial Statements
. The (a) unaudited historical consolidated financial information of the Borrower as set
forth in the Confidential Information Memorandum, and (b) the Historical Financial Statements, in
each case present or will, when provided, present fairly in all material respects the combined
financial position of the Borrower and its Subsidiaries at the respective dates of said
information, statements and results of operations for the respective periods covered thereby. The
financial statements referred to in clause (b) of this
Section 8.9
have been prepared in
accordance with GAAP, consistently applied (except to the extent provided in the notes to said
financial statements), and the audit reports accompanying such financial statements are not subject
to any qualification as to the scope of the audit or the status of the Borrower as a going concern.
There has been no Material Adverse Change since December 31, 2006;
provided
, that on the
Closing Date, the representation in this sentence shall not apply to the Red Man Group.
8.10
Tax Returns and Payments
. The Borrower and each of the Subsidiaries has filed all federal income tax returns and all
other material tax returns, domestic and foreign, required to be filed by it and has paid all
income and other material Taxes payable by it that have become due, other than those (a) not yet
delinquent or (b) contested in good faith as to which adequate reserves have been provided in
accordance with GAAP and which could not reasonably be expected to result in a Material Adverse
Effect. The Borrower and each of the Subsidiaries have paid, or have provided adequate reserves
(in the good faith judgment of the management of the Borrower) in accordance with GAAP for the
payment of, all material federal, state, provincial and foreign income taxes applicable for all
prior fiscal years and for the current fiscal year to the Closing Date.
8.11
Compliance with ERISA
. (a) Each Plan is in compliance with ERISA, the Code and any applicable Requirement of
Law; no Reportable Event has occurred (or is reasonably likely to occur) with respect to any Plan;
no Plan is insolvent or in reorganization (or is reasonably likely to be insolvent or in
reorganization), and no written notice of any such insolvency or reorganization has been given to
the Borrower, any Subsidiary or any ERISA Affiliate; no Plan (other than a multiemployer plan) has
an accumulated or waived funding deficiency (or is reasonably likely to have such a deficiency);
none of the Borrower, any Subsidiary or any ERISA Affiliate has incurred (or is reasonably likely
expected to incur) any liability to or on account of a Plan pursuant to Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code or
has been notified in writing that it will incur any liability under any of the foregoing Sections
with respect to any Plan; no proceedings have been instituted (or are reasonably likely to be
instituted) to terminate or to reorganize any Plan or to appoint a trustee to administer any Plan,
and no written notice of any such proceedings has been given to the Borrower, any Subsidiary or any
ERISA Affiliate; and no lien imposed under the
Code or ERISA on the assets of the Borrower or any Subsidiary or any ERISA Affiliate exists
(or is reasonably likely to exist) nor has the Borrower, any Subsidiary
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or any ERISA Affiliate been
notified in writing that such a lien will be imposed on the assets of the Borrower, any Subsidiary
or any ERISA Affiliate on account of any Plan, except to the extent that a breach of any of the
representations, warranties or agreements in this
Section 8.11
would not result,
individually or in the aggregate, in an amount of liability that would be reasonably likely to have
a Material Adverse Effect. No Plan (other than a multiemployer plan) has an Unfunded Current
Liability that would, individually or when taken together with any other liabilities referenced in
this
Section 8.11
, be reasonably likely to have a Material Adverse Effect. With respect to
Plans that are multiemployer plans (as defined in Section 3(37) of ERISA), the representations and
warranties in this
Section 8.11(a)
, other than any made with respect to (i) liability under
Section 4201 or 4204 of ERISA or (ii) liability for termination or reorganization of such Plans
under ERISA, are made to the best knowledge of the Borrower.
(b) All Foreign Plans are in compliance with, and have been established, administered and
operated in accordance with, the terms of such Foreign Plans and applicable law, except for any
failure to so comply, establish, administer or operate the Foreign Plans as would not reasonably be
expected to have a Material Adverse Effect. All contributions or other payments which are due with
respect to each Foreign Plan have been made in full and there are no funding deficiencies
thereunder, except to the extent any such events would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
8.12
Subsidiaries
.
Schedule 8.12
lists each Subsidiary of the Borrower (and the direct and indirect
ownership interest of the Borrower therein), in each case existing on the Closing Date. To the
knowledge of the Borrower, after due inquiry, each Material Subsidiary as of the Closing Date has
been so designated on
Schedule 8.12
.
8.13
Intellectual Property
. The Borrower and each of the Restricted Subsidiaries have obtained all intellectual
property, free from burdensome restrictions, that are necessary for the operation of their
respective businesses as currently conducted and as proposed to be conducted, except where the
failure to obtain any such rights could not reasonably be expected to have a Material Adverse
Effect.
8.14
Environmental Laws
. (a) Except as could not reasonably be expected to have a Material Adverse Effect: (i)
the Borrower and each of the Subsidiaries and all Real Estate are, and have been, in compliance
with, and possess all permits, licenses and registrations required pursuant to, all Environmental
Laws; (ii) neither the Borrower, nor any of the Subsidiaries is subject to any Environmental Claim
or any other liability under any Environmental Law; (iii) the Borrower and its Subsidiaries are not
conducting, or required to conduct, any investigation, removal, remedial or other corrective action
pursuant to any Environmental Law at any location, including any Real Estate currently owned or
leased by the Borrower or any of its Subsidiaries, and any real
property to which the Borrower or any of its Subsidiaries may have sent Hazardous Materials;
and (iv) no underground storage tank or related piping, or any impoundment or other disposal area
containing Hazardous Materials is located at, on or under any Real Estate currently owned or leased
by the Borrower or any of its Subsidiaries.
(b) Neither the Borrower, nor any of the Subsidiaries has treated, stored, transported,
released or disposed or arranged for disposal or transport for disposal of Hazardous Materials at,
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on, under or from any currently or formerly owned or leased Real Estate or facility in a manner
that could reasonably be expected to have a Material Adverse Effect.
8.15
Properties
. The Borrower and each of the Subsidiaries have good and marketable title to or leasehold
interest in all properties that are necessary for the operation of their respective businesses as
currently conducted and as proposed to be conducted, free and clear of all Liens (other than any
Liens permitted by this Agreement or the Term Loan Credit Agreement) and except where the failure
to have such good title could not reasonably be expected to have a Material Adverse Effect.
8.16
Solvency
. On the Closing Date (after giving effect to the Transactions), immediately following the
making of each Loan and after giving effect to the application of the proceeds of such Loans, the
Borrower on a consolidated basis with its Subsidiaries will be Solvent.
SECTION 9.
Affirmative Covenants
The Borrower hereby covenants and agrees that on the Closing Date and thereafter, until the
Commitments, the Swingline Commitment and each Letter of Credit have terminated and the Loans and
Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder, are
paid in full:
9.1
Information Covenants
. The Borrower will furnish to the Administrative Agent:
(a)
Annual Financial Statements
. As soon as available and in any event on or
before the date on which such financial statements are required to be filed with the SEC
(or, if such financial statements are not required to be filed with the SEC, on or before
the date that is 105 days after the end of each such fiscal year), the consolidated balance
sheet of the Borrower and the Restricted Subsidiaries as at the end of such fiscal year, and
the related consolidated statement of operations and consolidated statement of cash flows
for such fiscal year, setting forth comparative consolidated figures for the preceding
fiscal year, and certified by independent certified public accountants of recognized
national standing whose opinion shall not be qualified as to the scope of audit or as to the
status of the Borrower or any of the Material Subsidiaries (or group of Subsidiaries that
together would constitute a Material Subsidiary) as a going concern, together in any event
with a certificate of such accounting firm stating that in the course
of its regular audit of the business of the Borrower and the Material Subsidiaries,
which audit was conducted in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge of any Default or Event of Default relating to
Section 10.9
that has occurred and is continuing or, if in the opinion of such
accounting firm such a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof which shall be certified by a Financial Officer of the
Borrower.
(b)
Quarterly Financial Statements
. As soon as available and in any event on
or before the date on which such financial statements are required to be filed with the SEC
with respect to each of the first three quarterly accounting periods in each fiscal year of
the Borrower (or, if such financial statements are not required to be filed with the SEC,
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on or before the date that is sixty (60) days after the end of each such quarterly accounting
period), the consolidated balance sheet of (i) the Borrower and the Restricted Subsidiaries
and (ii) the Borrower and its Subsidiaries, in each case as at the end of such quarterly
period and the related consolidated statement of operations for such quarterly accounting
period and for the elapsed portion of the fiscal year ended with the last day of such
quarterly period, and the related consolidated statement of cash flows for the elapsed
portion of the fiscal year ended with the last day of such quarterly period, and setting
forth comparative consolidated figures for the related periods in the prior fiscal year or,
in the case of such consolidated balance sheet, for the last day of the prior fiscal year,
all of which shall be certified by a Financial Officer of the Borrower, subject to changes
resulting from audit and normal year-end audit adjustments.
(c)
Monthly Financial Statements
. As soon as available and in any event on or
before the date that is thirty (30) days after the end of each fiscal month of Borrower, the
consolidated balance sheet of (i) the Borrower and the Restricted Subsidiaries and (ii) the
Borrower and its Subsidiaries, in each case as at the end of such fiscal month and the
related consolidated statement of operations for such fiscal month and for the elapsed
portion of the fiscal year ended with the last day of such fiscal month, and the related
consolidated statement of cash flows for the elapsed portion of the fiscal year ended with
the last day of such fiscal month, and setting forth comparative consolidated figures for
the related periods in the prior fiscal year or, in the case of such consolidated balance
sheet, for the last day of the prior fiscal year, all of which shall be certified by a
Financial Officer of the Borrower, subject to changes resulting from audit and normal
year-end audit adjustments.
(d)
Budgets
. Not more than sixty (60) days after the commencement of each
fiscal year of the Borrower, a budget of the Borrower in reasonable detail for such fiscal
year as customarily prepared by management of the Borrower for their internal use consistent
in scope with the financial statements provided pursuant to
Section 9.1(a)
, setting
forth the principal assumptions upon which such budgets are based.
(e)
Officers Certificates
. At the time of the delivery of the financial
statements provided for in
Sections 9.1(a)
and
(b)
, a certificate of an
Authorized Officer of the Borrower to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and extent thereof,
which certificate shall set forth (i) the Consolidated Fixed Charge Coverage Ratio (and
accompanying
calculations) as at the end of such fiscal year or period, as the case may be, (ii) a
specification of any change in the identity of the Restricted Subsidiaries and Unrestricted
Subsidiaries as at the end of such fiscal year or period, as the case may be, from the
Restricted Subsidiaries and Unrestricted Subsidiaries, respectively, provided to the Lenders
on the Closing Date or the most recent fiscal year or period, as the case may be, (iii) the
then applicable Status and (iv) the amount of any Pro Forma Adjustment not previously set
forth in a Pro Forma Adjustment Certificate or any change in the amount of a Pro Forma
Adjustment set forth in any Pro Forma Adjustment Certificate previously provided and, in
either case, in reasonable detail, the calculations and basis therefor. At the time of the
delivery of the financial statements provided for in
Section 9.1(a)
, (i) a
certificate of an Authorized Officer of the Borrower setting forth in reasonable detail the
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Applicable Amount as at the end of the fiscal year to which such financial statements relate
and (ii) a certificate of an Authorized Officer of the Borrower setting forth the
information required pursuant to
Section 1(a)
of the Perfection Certificate or
confirming that there has been no change in such information since the Closing Date or the
date of the most recent certificate delivered pursuant to this subsection (e)(ii), as the
case may be.
(f)
Borrowing Base Certificates
. As soon as available but in any event within
twenty-five (25) days of the end of each calendar month, a Borrowing Base Certificate (which
shall be calculated in a consistent manner with the most recently delivered Borrowing Base
Certificate) and supporting information in connection therewith as of the end of such month,
provided
that the Borrower will be required to furnish a Borrowing Base Certificate
and supporting information in connection therewith within four (4) days of the end of each
calendar week as of the end of such calendar week if (A) a Cash Dominion Event is continuing
or (B) an Event of Default has occurred and is continuing and the Administrative Agent so
requests.
(g)
Collateral Reports
. As soon as available but in any event within
twenty-five (25) days of the end of each calendar month, in each case as of the period then
ended:
(i) a detailed aging of the Borrowers and Guarantors Accounts reconciled to
the Borrowing Base Certificate delivered as of such date in a form reasonably
acceptable to the Administrative Agent;
(ii) a schedule detailing the Borrowers and Guarantors Inventory, in form
reasonably satisfactory to the Administrative Agent, (1) by location (showing
Inventory located with a third party under any consignment, bailee arrangement, or
warehouse agreement, in each case, to the extent the Cost of Inventory at such
location exceeds $50,000 in the aggregate which Inventory shall be valued at Cost
and adjusted for Reserves as the Administrative Agent has previously indicated to
the Borrower are deemed by the Administrative Agent to be appropriate in their
Permitted Discretion, (2) including a report of material variances or other results
of Inventory counts performed by the Borrower or any Guarantor since the last
Inventory schedule, and (3) reconciled to the Borrowing Base Certificate delivered
as of such date;
(iii) a worksheet of calculations prepared by the Borrower to determine
Eligible Accounts and Eligible Inventory, such worksheets detailing the Accounts and
Inventory excluded from Eligible Accounts and Eligible Inventory and the reason for
such exclusion; and
(iv) a schedule and aging of the Borrowers and each Guarantors accounts
payable presented at the vendor level.
(h)
Notice of Default or Litigation
. Promptly after an Authorized Officer of
the Borrower or any of the Subsidiaries obtains knowledge thereof, notice of (i) the
occurrence of any event that constitutes a Default or Event of Default, which notice shall
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specify the nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto and (ii) any litigation or governmental proceeding
pending against the Borrower or any of the Subsidiaries that could reasonably be expected to
result in a Material Adverse Effect or a Material Adverse Change.
(i)
Environmental Matters
. The Borrower will promptly advise the
Administrative Agent in writing after obtaining knowledge of any one or more of the
following environmental matters, unless such environmental matters could not, individually
or when aggregated with all other such matters, be reasonably expected to result in a
Material Adverse Effect:
(i) Any pending or threatened Environmental Claim against any Credit Party or
any current or former Real Estate;
(ii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that (x) could reasonably be expected to result in noncompliance
by any Credit Party with any applicable Environmental Law or (y) could reasonably be
anticipated to form the basis of an Environmental Claim against any Credit Party or
any current or former Real Estate;
(iii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that could reasonably be anticipated to cause such Real Estate to
be subject to any restrictions on the ownership, occupancy, use or transferability
of such Real Estate under any Environmental Law; and
(iv) The conduct or need to conduct of any investigation, or any removal,
remedial or other corrective action in response to the actual or alleged presence,
release or threatened release of any Hazardous Material on, at, under or from any
current or former Real Estate or otherwise related to Environmental Law.
All such notices shall describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and the response thereto. The term
Real Estate shall mean land, buildings and improvements owned or leased by any Credit
Party, but excluding all operating fixtures and equipment, whether or not incorporated into
improvements.
(j)
Other Information
. Promptly upon filing thereof, copies of any filings
(including on Form 10-K, 10-Q or 8-K) or registration statements with, and reports to, the
SEC or any analogous Government Authority in any relevant jurisdiction by the Borrower or
any of the Subsidiaries (other than amendments to any registration statement (to the extent
such registration statement, in the form it becomes effective, is delivered to the Lenders
and the Administrative Agent), exhibits to any registration statement and, if applicable,
any registration statements on Form S-8) and copies of all financial statements, proxy
statements, notices and reports that the Borrower or any of the Subsidiaries shall send to
the holders of any publicly issued debt of the Borrower and/or any of the Subsidiaries in
their capacity as such holders (in each case to the extent not
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theretofore delivered to the
Lenders and the Administrative Agent pursuant to this Agreement) and, with reasonable
promptness, such other information (financial or otherwise) as the Administrative Agent on
its own behalf or on behalf of any Lender (acting through the Administrative Agent) may
reasonably request in writing from time to time.
(k)
Pro Forma Adjustment Certificate
. Not later than any date on which
financial statements are delivered with respect to any Test Period in which a Pro Forma
Adjustment is made as a result of the consummation of the acquisition of any Acquired Entity
or Business by the Borrower or any Restricted Subsidiary for which there shall be a Pro
Forma Adjustment, a certificate of an Authorized Officer of the Borrower setting forth the
amount of such Pro Forma Adjustment and, in reasonable detail, the calculations and basis
therefor.
(l)
Information Regarding Collateral
. Reasonably promptly but not later than
sixty (60) days following the occurrence of any change referred to in subclauses (i) through
(iv) below, written notice of any change (i) in the legal name of any Credit Party, (ii) in
the jurisdiction of organization or location of any Credit Party for purposes of the Uniform
Commercial Code, (iii) in the identity or type of organization of any Credit Party or (iv)
in the Federal Taxpayer Identification Number or organizational identification number of any
Credit Party. The Borrower shall also promptly provide the Collateral Agent with certified
Organizational Documents reflecting any of the changes described in the first sentence of
this clause (l).
Notwithstanding the foregoing, the obligations in paragraphs (a) and (b) of this
Section
9.1
may be satisfied with respect to financial information of the Borrower and the Restricted
Subsidiaries by furnishing (A) the applicable financial statements of any direct or indirect parent
of the Borrower or (B) the Borrowers (or any direct or indirect parent thereofs), as applicable,
Form 10-K or 10-Q, as applicable, filed with the SEC;
provided
that
, with respect
to each of clauses (A) and (B) above, to the extent such information relates to a parent of the
Borrower, such information is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to such parent, on the one hand, and the
information relating to the Borrower and the Restricted Subsidiaries on a standalone basis, on the
other hand.
9.2
Books, Records and Inspections
. The Borrower will, and will cause each of the Subsidiaries to, permit officers and
designated representatives of the Administrative Agents or the Required Lenders to visit and
inspect any of the properties or assets of the Borrower and any such Subsidiary in whomsoevers
possession to the extent that it is within such partys control to permit such inspection, and to
examine the books and records of the Borrower and any such Subsidiary and discuss the affairs,
finances and accounts of the Borrower and of any such Subsidiary with, and be advised as to the
same by, its and their officers and independent accountants, all at such reasonable times and
intervals and to such reasonable extent as the Administrative Agents or the Required Lenders may
desire;
provided
that
, excluding any such visits and inspections during the
continuation of an Event of Default, only the Administrative Agent (or any of their respective
representatives or independent contractors) on behalf of the Required Lenders may exercise rights
of the Administrative Agent and the Lenders under this
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Section 9.2
and the Administrative
Agent shall not exercise such rights more often than two times during any calendar year absent the
existence of an Event of Default and only one such time shall be at the Borrowers expense unless
Excess Availability is less than 7% of the then Existing Total Revolving Credit Commitments, in
which case the second time shall also be at the Borrowers expense; provided further that when an
Event of Default exists, the Administrative Agent (or any of its representatives or independent
contractors) or any representative of the Required Lenders may do any of the foregoing at the
expense of the Borrower at any time during normal business hours and upon reasonable advance
notice. The Administrative Agent and the Required Lenders shall give the Borrower the opportunity
to participate in any discussions with the Borrowers independent public accountants.
9.3
Maintenance of Insurance
. The Borrower will, and will cause each of the Material Subsidiaries to, at all times
maintain in full force and effect, with insurance companies that the Borrower believes (in the good
faith judgment of the management of the Borrower) are financially sound and responsible at the time
the relevant coverage is placed or renewed, insurance in at least such amounts (after giving effect
to any self-insurance which the Borrower believes (in the good faith judgment of management of the
Borrower) is reasonable and prudent in light of the size and nature of its business) and against at
least such risks (and with such risk retentions) as the Borrower believes (in the good faith
judgment of management of the Borrower) is reasonable and prudent in light of the size and nature
of its business; and will furnish to the Administrative Agent (for delivery to the Lenders), upon
written request from the Administrative Agent, information presented in reasonable detail as to the
insurance so carried. Each such policy of insurance shall (i) name Collateral Agent, on behalf of
Secured Parties as an additional insured thereunder as its interests may appear and (ii) in the
case of each casualty insurance policy, contain a loss payable clause or endorsement reasonably
satisfactory in form and substance to Collateral Agent, that names Collateral Agent, on behalf of
Lenders as the loss payee thereunder and provides for at least thirty days prior written notice to
Collateral Agent of any modification or cancellation of such policy.
9.4
Payment of Taxes
. Each Credit Party will pay and discharge, and will cause each of the Subsidiaries to pay
and discharge, all material taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits, or upon any properties belonging to it, prior to the date on
which material penalties attach thereto, and all lawful material claims that, if unpaid, could
reasonably be expected to become a material Lien upon any properties of each Credit Party or any of
the Restricted Subsidiaries,
provided
that no Credit Party, nor any of the Subsidiaries
shall be required to pay any such tax, assessment, charge, levy or claim that is being contested in
good faith and by proper proceedings if it has maintained adequate reserves (in the good faith
judgment of the management of the Borrower) with respect thereto in accordance with GAAP and the
failure to pay could not reasonably be expected to result in a Material Adverse Effect.
9.5
Consolidated Corporate Franchises
. The Borrower will do, and will cause each Material Subsidiary to do, or cause to be done,
all things necessary to preserve and keep in full force and effect its existence, corporate rights
and authority, except to the extent that the failure to do so could not reasonably be expected to
have a Material Adverse Effect;
provided
,
however
, that the Borrower and its
Subsidiaries may consummate any transaction permitted under
Section 10.3
,
10.4
or
10.5
.
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9.6
Compliance with Statutes, Regulations, etc
. The Borrower will, and will cause each Subsidiary to, comply with all applicable laws,
rules, regulations and orders applicable to it or its property, including all governmental
approvals or authorizations required to conduct its business, and to maintain all such governmental
approvals or authorizations in full force and effect, in each case except where the failure to do
so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
9.7
ERISA
. Promptly after the Borrower or any Subsidiary or any ERISA Affiliate knows or has reason to
know of the occurrence of any of the following events that, individually or in the aggregate
(including in the aggregate such events previously disclosed or exempt from disclosure hereunder,
to the extent the liability therefor remains outstanding), would be reasonably likely to have a
Material Adverse Effect, the Borrower will deliver to each of the Lenders a certificate of an
Authorized Officer or any other senior officer of the Borrower setting forth details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is
required or proposes to take, together with any notices (required, proposed or otherwise) given to
or filed with or by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant (other than notices relating to an individual participants benefits) or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that an accumulated
funding deficiency has been incurred or an application is to be made to the Secretary of the
Treasury for a waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under
Section 412
of the
Code with respect to a Plan; that a Plan having an Unfunded Current Liability has been or is to be
terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA (including the
giving of written notice thereof); that a Plan has an Unfunded Current Liability that has or will
result in a lien under ERISA or the Code; that proceedings will be or have been instituted to
terminate a Plan having an Unfunded Current Liability (including the giving of written notice
thereof); that a proceeding has been instituted against the Borrower, a Subsidiary or an ERISA
Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the
PBGC has notified the Borrower, any Subsidiary or any ERISA Affiliate of its intention to appoint a
trustee to administer any Plan; that the Borrower, any Subsidiary or any ERISA Affiliate has failed
to make a required installment or other payment pursuant to Section 412 of the Code with respect to
a Plan; or that the Borrower, any Subsidiary or any ERISA Affiliate has incurred or will incur (or
has been notified in writing that it will incur) any liability (including any contingent or
secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code.
9.8
Maintenance of Properties
. The Borrower will, and will cause each of the Restricted Subsidiaries to, keep and maintain
all property material to the conduct of its business in good working order and condition, ordinary
wear and tear excepted, except to the extent that the failure to do so could reasonably be expected
to have a Material Adverse Effect.
9.9
Transactions with Affiliates
. The Borrower will conduct, and cause each of the Restricted Subsidiaries to conduct, all
transactions with any of its Affiliates (other than the Borrower or the Restricted Subsidiaries) on
terms that are substantially as favorable to the Borrower or such Restricted Subsidiary as it would
obtain in a comparable arms-length transaction with a Person that is not an Affiliate,
provided
that the foregoing restrictions shall not
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apply to (a) the payment of customary
fees to the Sponsors for management, consulting and financial services rendered to the Borrower and
the Subsidiaries and customary investment banking fees paid to the Sponsors for services rendered
to the Borrower and the Subsidiaries in connection with divestitures, acquisitions, financings and
other transactions, (b) transactions permitted by
Section 10.6
, (c) Transaction Expenses,
(d) the issuance of Stock or Stock Equivalents of the Borrower to the management of the Borrower
(or any direct or indirect parent thereof) or any of its Subsidiaries in connection with the
Transactions or pursuant to arrangements described in clause (f) of this
Section 9.9
, (e)
loans and other transactions by the Borrower and the Restricted Subsidiaries to the extent
permitted under
Section 10
, (f) employment and severance arrangements between the Borrower
and the Restricted Subsidiaries and their respective officers and employees in the ordinary course
of business, (g) payments by the Borrower (and any direct or indirect parent thereof) and the
Restricted Subsidiaries pursuant to the tax sharing agreements among the Borrower (and any such
parent) and the Restricted Subsidiaries on customary terms to the extent attributable to the
ownership or operation of the Borrower and the Restricted Subsidiaries, (h) the payment of
customary fees and reasonable out of pocket costs to, and indemnities provided on behalf of,
directors, managers, consultants, officers and employees of the Borrower and the Restricted
Subsidiaries in the ordinary course of business to the extent attributable to the ownership or
operation of the Borrower and the Restricted Subsidiaries, (i) transactions pursuant to permitted
agreements in existence on the Closing Date and set forth on
Schedule 9.9
or any amendment
thereto to the extent such an amendment is not adverse, taken as a whole, to the Lenders in any
material respect, and (j) customary payments by the Borrower and any Restricted Subsidiaries to the
Sponsors made for any financial advisory, financing, underwriting or placement services or
in respect of other investment banking activities (including in connection with acquisitions
or divestitures), which payments are approved by the majority of the members of the board of
directors or a majority of the disinterested members of the board of directors of the Borrower (or
any direct or indirect parent thereof), in good faith.
9.10
End of Fiscal Years; Fiscal Quarters
. The Borrower will, for financial reporting purposes, cause (a) each of its, and each of its
Subsidiaries, fiscal years to end on December 31 of each year and (b) each of its, and each of its
Subsidiaries, fiscal quarters to end on dates consistent with such fiscal year-end and the
Borrowers past practice;
provided
,
however
, that the Borrower may, upon written
notice to the Administrative Agent, change the financial reporting convention specified above to
any other financial reporting convention reasonably acceptable to the Administrative Agent, in
which case the Borrower and the Administrative Agent will, and are hereby authorized by the Lenders
to, make any adjustments to this Agreement that are necessary in order to reflect such change in
financial reporting.
9.11
Additional Guarantors and Grantors
. Except as set forth in
Section 10.1(B)(j)
or
10.1(B)(k)
and subject to any
applicable limitations set forth in the Security Documents, the Borrower will cause each direct or
indirect Subsidiary (other than any Excluded Subsidiary) formed or otherwise purchased or acquired
after the date hereof (including pursuant to a Permitted Acquisition) to execute a supplement to
each of the Guarantee and the Security Agreement, substantially in the form of
Annex B
or
Annex 1
, as applicable, to the respective agreement in order to become a Guarantor under
the Guarantee and a grantor under Security Agreement or, to the extent reasonably requested by the
Collateral Agent, enter into a new Security Agreement in form and substance reasonably satisfactory
to the Collateral Agent.
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9.12
[Intentionally Omitted.]
9.13
Use of Proceeds
. (a) The Borrower will use the proceeds of all Revolving Loans made on the Closing Date
to effect the Red Man Transaction and Debt Repayment and to pay Transaction Expenses; and
(b) The Borrower will use Letters of Credit and the proceeds of all other Revolving Credit
Loans and Swingline Loans for general corporate purposes (including Permitted Acquisitions and
permitted dividends) and to pay Transaction Expenses.
9.14
Appraisals; Field Examinations
. At any time that the Administrative Agent or Collateral Agent reasonably requests, the
Borrower will, and will cause each Borrowing Base Guarantor to, permit Administrative Agent,
Collateral Agent or professionals (including consultants, accountants, lawyers and appraisers)
retained by the Administrative Agent or Collateral Agent, on reasonable prior notice and
during normal business hours and with reasonable frequency, to conduct appraisals and commercial
finance examinations or updates thereof including, without limitation, of (i) the Borrowers
practices in the computation of the Borrowing Base and (ii) the assets included in the Borrowing
Base and related financial information such as, but not limited to, sales, gross margins, payables,
accruals and reserves, in each case, prepared on a basis reasonably satisfactory to the
Administrative Agent and Collateral Agent and at the sole expense of the Borrower;
provided
, however, if no Default or Event of Default shall have occurred and be continuing,
only one (1) such appraisal and one (1) such examination or update per fiscal year shall be
conducted at Borrowers expense;
provided
,
further
, however, that if Excess
Availability is less than 7% of the then existing Total Revolving Credit Commitment, one (1)
additional appraisal and one (1) additional examination or update per fiscal year may be conducted
without cost to the Borrower.
9.15
Interest Rate Protection
. No later than 90 days following the Closing Date and at all times thereafter until the
third anniversary of the Closing Date, Borrower shall obtain and cause to be maintained protection
against fluctuations in interest rates pursuant to one or more Interest Rate Agreements in order to
ensure that no less than 50% of the aggregate principal amount of the total Indebtedness of the
Borrower and its Subsidiaries then outstanding is either (i) subject to such Interest Rate
Agreements or (ii) Indebtedness that bears interest at a fixed rate.
9.16
Collateral Access Agreements
. Borrower and each Guarantor shall use commercially reasonable efforts to obtain a
Collateral Access Agreement with respect to Inventory which is located in any location leased by
such Credit Party, located in any third-party warehouse or in the possession of a bailee, in each
case, to the extent the Cost of Inventory at such location exceeds $50,000 in the aggregate.
9.17
Further Assurances
. (a) The Borrower will, and will cause each other Credit Party to, execute any and all
further documents, financing statements, agreements and instruments, and take all such further
actions (including the filing and recording of financing statements and other documents), which may
be required under any applicable law, or which the Collateral Agent or the Required Lenders may
reasonably request, in order to grant, preserve, protect and perfect the validity and priority of
the security interests created or intended to be
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created by the Security Agreement, all at the
expense of the Borrower and the Restricted Subsidiaries.
(b) If any assets are acquired by the Borrower or any other Credit Party after the Closing
Date (other than assets constituting Collateral under the Security Agreement that become subject to
the Lien of the Security Agreement upon acquisition thereof) that are of the nature secured by the
Security Agreement, the Borrower will notify the Collateral Agent, and, if requested by the
Collateral Agent, the Borrower will cause such assets to be subjected to a Lien securing the
applicable Obligations and will take, and cause the other Credit Parties to take, such actions as
shall be necessary or reasonably requested by the Collateral Agent to grant and perfect
such Liens consistent with the applicable requirements of the Security Documents, including
actions described in clause (a) of this
Section 9.17
, all at the expense of the Borrower.
(c) The Borrower agrees that it will, or will cause its relevant Subsidiaries to, complete
each of the actions described on
Schedule 9.17(c)
as soon as commercially reasonable and by
no later than the date set forth in
Schedule 9.17(c)
with respect to such action or such
later date as the Administrative Agent may reasonably agree.
(d) The Borrower agrees that it will cause Red Man Distributors to comply with the terms of
this Agreement and the other Loan Documents and will not permit Red Man Distributors to amend,
restate, supplement or otherwise modify its Organizational Documents in a manner that amends the
subrogation rights or is materially adverse to the Lenders (other than as required by the
applicable Governmental Authority to become certified as a minority business enterprise) without
obtaining the prior written consent of the Administrative Agent and Collateral Agent to such
amendment, restatement, supplement or other modification.
SECTION 10.
Negative Covenants
The Borrower (for itself and each of its Restricted Subsidiaries) hereby covenants and agrees
that on the Closing Date (immediately after consummation of the Red Man Transaction) and
thereafter, until the Commitments, the Swingline Commitment and each Letter of Credit have
terminated and the Loans and Unpaid Drawings, together with interest, Fees and all other
Obligations incurred hereunder, are paid in full:
10.1
Limitation on Indebtedness
. (A) The Borrower will not, and will not permit any of the Restricted Subsidiaries to,
incur, create, assume or permit to exist, directly or indirectly (collectively,
incur
and
collectively, an
incurrence
), any Indebtedness;
provided
,
however
, that
Borrower and the Restricted Subsidiaries will be entitled to incur Indebtedness if the Consolidated
Total Debt to Consolidated EBITDA Ratio at the time such additional Indebtedness is incurred would
have been no greater than 5.50 to 1.0 determined on a Pro Forma Basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness had been incurred and
the application of proceeds therefrom had occurred at the beginning of the most recent Test Period;
provided
, that such additional Indebtedness shall not be secured Indebtedness unless (i)
the Secured Leverage Ratio at the time such additional Indebtedness is incurred would have been no
greater than 5.0 to 1.0, determined on a Pro Forma Basis in the manner set forth above, (ii) such
secured Indebtedness has a later final maturity and a longer weighted average life than the Term
Loans, (iii) the Liens securing such Indebtedness
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shall be subordinate to the Liens securing the
Obligations and the Obligations (as defined in the Term Loan Credit Agreement) and (iv) the
holders of such Indebtedness, the Collateral Agent and the collateral agent under the Term Loan
Credit Agreement shall have entered into an intercreditor agreement in a form reasonably
satisfactory to Collateral Agent.
(B) The limitation set forth in clause (A) of this
Section 10.1
will not prohibit any
of the following:
(a) Indebtedness arising under the Credit Documents and the Term Loan Agreement;
(b) Indebtedness of (i) the Borrower or any Subsidiary Guarantor owing to the Borrower or any
Restricted Subsidiary, (ii) any Subsidiary who is not a Guarantor owing to any other Subsidiary who
is not a Guarantor and (iii) subject to compliance with
Section 10.5
, any Subsidiary who is
not a Guarantor owing to the Borrower or any Subsidiary Guarantor;
(c) Indebtedness in respect of any bankers acceptance, bank guarantees, letter of credit,
warehouse receipt or similar facilities entered into in the ordinary course of business (including
in respect of workers compensation claims, health, disability or other employee benefits or
property, casualty or liability insurance or self-insurance or other Indebtedness with respect to
reimbursement-type obligations regarding workers compensation claims);
(d) subject to compliance with
Section 10.5
, Guarantee Obligations incurred by (i)
Restricted Subsidiaries in respect of Indebtedness of the Borrower or other Restricted Subsidiaries
that is permitted to be incurred under this Agreement and (ii) the Borrower in respect of
Indebtedness of the Restricted Subsidiaries that is permitted to be incurred under this Agreement,
provided
that, except as provided in clauses (j) and (k) below, there shall be no Guarantee
(a) by a Restricted Subsidiary that is not a Guarantor of any Indebtedness of the Borrower and (b)
in respect of any Permitted Additional Debt, unless such Guarantee is made by a Guarantor and, in
the case of Permitted Additional Debt that is subordinated, is subordinated;
(e) Guarantee Obligations (i) incurred in the ordinary course of business in respect of
obligations of (or to) suppliers, customers, franchisees, lessors and licensees or (ii) or
otherwise constituting Investments permitted by
Section 10.5
;
(f) (i) Indebtedness (including Indebtedness arising under Capital Leases) incurred within 270
days of the acquisition, construction or improvement of fixed or capital assets to finance the
acquisition, construction or improvement of such fixed or capital assets, (ii) Indebtedness arising
under Capital Leases entered into in connection with Permitted Sale Leasebacks and (iii)
Indebtedness arising under Capital Leases, other than Capital Leases in effect on the date hereof
and Capital Leases entered into pursuant to subclauses (i) and (ii) above, provided, that the
aggregate amount of Indebtedness incurred pursuant to this subclause (iii) shall not exceed
$20,000,000 at any time outstanding, and (iv) any modification, replacement, refinancing,
refunding, renewal or extension of any Indebtedness specified in subclause (i), (ii) or (iii)
above,
provided
that, except to the extent otherwise expressly permitted hereunder, the
principal amount thereof (including pursuant to clause (iii)) does not exceed the principal amount
thereof outstanding immediately prior to such modification, replacement, refinancing, refunding,
renewal or extension, except by an amount equal to the unpaid accrued
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interest and premium thereon
plus other reasonable amounts paid and fees and expenses incurred in connection with such
modification, replacement, refinancing, refunding, renewal or extension;
(g) Indebtedness outstanding on the date hereof (i) listed on
Schedule 10.1
and any
modification, replacement, refinancing, refunding, renewal or extension thereof,
provided
that, except to the extent otherwise expressly permitted hereunder, (x) the principal amount
thereof does not exceed the principal amount thereof outstanding immediately prior to such
modification, replacement, refinancing, refunding, renewal or extension, except by an amount equal
to the unpaid accrued interest and premium thereon plus other reasonable amounts paid and fees and
expenses incurred in connection with such modification, replacement, refinancing,
refunding, renewal or extension
plus
an amount equal to any existing commitment
unutilized and letters of credit undrawn thereunder and (y) the direct and contingent obligors with
respect to such Indebtedness are not changed and (ii) owing by the Borrower to any Restricted
Subsidiary or by any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary;
(h) Indebtedness in respect of Hedge Agreements;
(i) [Reserved];
(j) (i) Indebtedness of a Person or Indebtedness attaching to assets of a Person that, in
either case, becomes a Restricted Subsidiary (or is a Restricted Subsidiary that survives a merger
with such Person) or Indebtedness attaching to assets that are acquired by the Borrower or any
Restricted Subsidiary, in each case after the Closing Date as the result of a Permitted
Acquisition, provided, that (w) such Indebtedness existed at the time such Person became a
Restricted Subsidiary or at the time such assets were acquired and, in each case, was not created
in anticipation thereof, (x) such Indebtedness is not guaranteed in any respect by the Borrower or
any Restricted Subsidiary (other than by any such Person that so becomes a Restricted Subsidiary or
is the survivor of a merger with such Person and any of its Subsidiaries) and (y) such Person
executes a supplement to each of the Guarantee and the Security Agreement to the extent required
under
Section 9.11
,
provided
that the requirements of this subclause (y) shall not
apply to (I) an aggregate amount at any time outstanding of up to the greater of (A) $300,000,000
or (B) 10% of Consolidated Total Assets at the time of the incurrence of such Indebtedness
(
less
all Indebtedness as to which the proviso to clause (k)(i)(y) below then applies) at
such time of such Indebtedness (and modifications, replacements, refinancings, refundings, renewals
and extensions thereof pursuant to subclause (ii) below) and (II) any Indebtedness of the type that
could have been incurred under
Section 10.1(B)(f)
, and (ii) any modification, replacement,
refinancing, refunding, renewal or extension of any Indebtedness specified in subclause (i) above,
provided
that, except to the extent otherwise expressly permitted hereunder, (X) the
principal amount of any such Indebtedness does not exceed the principal amount thereof outstanding
immediately prior to such modification, replacement, refinancing, refunding, renewal or extension
except by an amount equal to the unpaid accrued interest and premium thereon
plus
other
reasonable amounts paid and fees and expenses incurred in connection with such modification,
replacement, refinancing, refunding, renewal or extension
plus
an amount equal to any
existing commitment unutilized and letters of credit undrawn thereunder and (Y) the direct and
contingent obligors with respect to such Indebtedness are not changed;
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(k) (i) Permitted Additional Debt of the Borrower or any Restricted Subsidiary incurred to
finance a Permitted Acquisition,
provided
that (x) if such Indebtedness is incurred by a
Restricted Subsidiary that is not a Guarantor, such Indebtedness is not guaranteed by the Borrower
or any Guarantor except as permitted by
Section 10.5(g)
and (y) such acquired Person
executes a supplement to the Guarantee and the Security Agreement (or alternative guarantee and
security arrangements in relation to the Obligations reasonably acceptable to the Collateral Agent)
to the extent required under
Section 9.11
,
provided
that the requirements of this
subclause (y) shall not apply to an aggregate amount at any time outstanding of up to the greater
of (A) $300,000,000 or (B) 10% of Consolidated Total Assets at the time of the incurrence of such
Indebtedness (
less
all Indebtedness as to which clause (I) of the proviso to clause
(j)(i)(y) above then applies) at such time of the aggregate of such Indebtedness (and
modifications, replacements, refinancings, refundings, renewals and extensions thereof pursuant to
subclause (ii) below), and (ii) any modification, replacement, refinancing, refunding, renewal or
extension of any Indebtedness specified in subclause (i) above,
provided
that, except to
the extent otherwise expressly permitted hereunder, (x) the principal amount of any such
Indebtedness does not exceed the principal amount thereof outstanding immediately prior to such
modification, replacement, refinancing, refunding, renewal or extension except by an amount equal
to the unpaid accrued interest and premium thereon
plus
other reasonable amounts paid and
fees and expenses incurred in connection with such modification, replacement, refinancing,
refunding, renewal or extension
plus
an amount equal to any existing commitment unutilized
and letters of credit undrawn thereunder and (y) the direct and contingent obligors with respect to
such Indebtedness are not changed;
(l) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety bonds and
completion guarantees and similar obligations not in connection with money borrowed, in each case
provided in the ordinary course of business, including those incurred to secure health, safety and
environmental obligations in the ordinary course of business;
(m) (i) Indebtedness incurred in connection with any Permitted Sale Leaseback
(
provided
that the Net Cash Proceeds thereof are promptly applied to the prepayment of the
Term Loans to the extent required by
Section 5.2
of the Term Loan Credit Agreement) and
(ii) any refinancing, refunding, renewal or extension of any Indebtedness specified in subclause
(i) above,
provided
that, except to the extent otherwise permitted hereunder, (x) the
principal amount of any such Indebtedness is not increased above the principal amount thereof
outstanding immediately prior to such refinancing, refunding, renewal or extension and (y) the
direct and contingent obligors with respect to such Indebtedness are not changed;
(n) (i) additional Indebtedness and (ii) any refinancing, refunding, renewal or extension of
any Indebtedness specified in subclause (i) above;
provided
that the aggregate amount of
Indebtedness incurred and remaining outstanding pursuant to this clause (n) shall not
at any time exceed the greater of (w) $150,000,000 and (x) 5% of Consolidated Total Assets at
the time of the incurrence of such Indebtedness;
provided
,
however
, not more than
the greater of (y) $50,000,000 and (z) 1.5% of Consolidated Total Assets at the time of the
incurrence of such Indebtedness in aggregate principal amount of Indebtedness of the Borrower or
any Subsidiary Guarantor incurred under this clause (n) shall be secured;
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(o) Indebtedness in respect of Permitted Additional Debt to the extent that the Net Cash
Proceeds therefrom are, immediately after the receipt thereof, applied to the prepayment of Term
Loans in accordance with
Section 5.2
of the Term Loan Credit Agreement;
(p) Indebtedness in respect of overdraft facilities, employee credit card programs and other
cash management arrangements in the ordinary course of business;
(q) unsecured Indebtedness in respect of obligations of the Borrower or any Restricted
Subsidiary to pay the deferred purchase price of goods or services or progress payments in
connection with such goods and services,
provided
that such obligations are incurred in
connection with open accounts extended by suppliers on customary trade terms (which require that
all such payments be made within 60 days after the incurrence of the related obligation) in the
ordinary course of business and not in connection with the borrowing of money or Hedging
Agreements;
(r) Indebtedness arising from agreements of the Borrower or any Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar obligations, in each case
entered into in connection with Permitted Acquisitions, other Investments and the disposition of
any business, assets or Capital Stock permitted hereunder, other than Guarantee Obligations
incurred by any Person acquiring all or any portion of such business, assets or Capital Stock for
the purpose of financing such acquisition,
provided
that (i) such Indebtedness is not
reflected on the balance sheet of the Borrower or any Restricted Subsidiary (contingent obligations
referred to in a footnote to financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of this clause (i)) and (ii)
the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds, including non-cash proceeds (the fair market value of such non-cash proceeds being
measured at the time received and without giving effect to any subsequent changes in value),
actually received by the Borrower and the Restricted Subsidiaries in connection with such
disposition;
(s) Indebtedness of the Borrower or any Restricted Subsidiary consisting of (i) obligations to
pay insurance premiums or (ii) take or pay obligations contained in supply agreements, in each case
arising in the ordinary course of business and not in connection with the borrowing of money or
Hedging Agreements;
(t) Indebtedness representing deferred compensation to employees of the Borrower (or any
direct or indirect parent thereof) and the Restricted Subsidiaries incurred in the ordinary course
of business;
(u) Unsecured, subordinated Indebtedness consisting of promissory notes in an aggregate
principal amount of not more than $10,000,000 issued by the Borrower or any
Guarantor to current or former officers, managers, consultants, directors and employees (or
their respective spouses, former spouses, successors, executors, administrators, heirs, legatees or
distributees) to finance the purchase or redemption of Stock or Stock Equivalents of the Borrower
(or any direct or indirect parent thereof) permitted by
Section 10.6
;
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(v) Indebtedness consisting of obligations of the Borrower or the Restricted Subsidiaries
under deferred compensation or other similar arrangements incurred by such Person in connection
with the Transactions and Permitted Acquisitions or any other Investment expressly permitted
hereunder;
(w) cash management obligations and other Indebtedness in respect of netting services,
automatic clearinghouse arrangements, overdraft protections and similar arrangements in each case
in connection with deposit accounts; and
(x) all premiums (if any), interest (including post-petition interest), fees, expenses,
charges and additional or contingent interest on obligations described in clauses (a) through (w)
above.
10.2
Limitation on Liens
. The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any property or
assets of any kind (real or personal, tangible or intangible) of the Borrower or any Restricted
Subsidiary, whether now owned or hereafter acquired, except:
(a) Liens arising under the Credit Documents;
(b) Permitted Liens;
(c) (i) Liens securing Indebtedness permitted pursuant to
Section 10.1(B)(f)
,
provided
that (x) such Liens attach at all times only to the assets so financed except for
accessions to such property Indebtedness and the proceeds and the products thereof and (y) that
individual financings of equipment provided by one lender may be cross collateralized to other
financings of equipment provided by such lender, and (ii) Liens on the assets of Restricted
Subsidiaries that are not Guarantors securing Indebtedness permitted pursuant to
Section
10.1(B)(n)
and
(p)
;
(d) Liens existing on the date hereof and listed on
Schedule 10.2
;
(e) the replacement, extension or renewal of any Lien permitted by clauses (a) through (d)
above and clause (f) of this
Section 10.2
upon or in the same assets (other than after
acquired property that is affixed or incorporated into the property covered by such Lien or
financed by Indebtedness permitted under
Section 10.1(B)
and proceeds and products thereof)
theretofore subject to such Lien or the replacement, extension or renewal (without increase in the
amount or change in any direct or contingent obligor except to the extent otherwise permitted
hereunder) of the Indebtedness secured thereby;
(f) Liens existing on the assets of any Person that becomes a Restricted Subsidiary (or is a
Restricted Subsidiary that survives a merger with such Person), or existing on assets
acquired, pursuant to a Permitted Acquisition or other Investment to the extent the Liens on
such assets secure Indebtedness permitted by
Section 10.1(B)(j)
or other obligations
permitted by this Agreement,
provided
that such Liens attach at all times only to the same
assets that such Liens (other than after acquired property that is affixed or incorporated into the
property covered by such Lien or financed by Indebtedness permitted under
Section 10.1(B)
and proceeds and products thereof) attached to, and secure only the same Indebtedness or
obligations (or any modifications, refinancings, extensions, renewals, refundings or replacements
of such
-96-
Indebtedness permitted by Section 10.1(B)) that such Liens secured, immediately prior to
such Permitted Acquisition or other Investment, as applicable;
(g) (i) Liens placed upon the Stock and Stock Equivalents of any Restricted Subsidiary
acquired pursuant to a Permitted Acquisition to secure Indebtedness incurred pursuant to
Section 10.1(B)(k)
in connection with such Permitted Acquisition and (ii) Liens placed upon
the assets of such Restricted Subsidiary to secure a guarantee by, or Indebtedness of, such
Restricted Subsidiary of any Indebtedness of the Borrower or any other Restricted Subsidiary
incurred pursuant to
Section 10.1(B)(k)
;
(h) Liens securing Indebtedness or other obligations of the Borrower or a Subsidiary in favor
of the Borrower or any Subsidiary that is a Guarantor and Liens securing Indebtedness or other
obligations of any Subsidiary that is not a Guarantor in favor of any Subsidiary that is not a
Guarantor;
(i) Liens (i) of a collection bank arising under
Section 4-210
of the Uniform
Commercial Code on items in the course of collection, (ii) attaching to commodity trading accounts
or other commodities brokerage accounts incurred in the ordinary course of business; and (iii) in
favor of a banking institution arising as a matter of law encumbering deposits (including the right
of set-off) and which are within the general parameters customary in the banking industry;
(j) Liens (i) on cash advances in favor of the seller of any property to be acquired in an
Investment permitted pursuant to
Sections 10.5
to be applied against the purchase price for
such Investment, and (ii) consisting of an agreement to sell, transfer, lease or otherwise dispose
of any property in a transaction permitted under
Section 10.4
, in each case, solely to the
extent such Investment or sale, disposition, transfer or lease, as the case may be, would have been
permitted on the date of the creation of such Lien;
(k) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for sale of goods entered into by the Borrower or any of the Restricted Subsidiaries
in the ordinary course of business permitted by this Agreement;
(l) Liens deemed to exist in connection with Investments in repurchase agreements permitted
under
Section 10.5
;
(m) Liens encumbering reasonable customary initial deposits and margin deposits and similar
Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary
course of business and not for speculative purposes;
(n) Liens that are contractual rights of set-off (i) relating to the establishment of
depository relations with banks not given in connection with the issuance of Indebtedness, (ii)
relating to pooled deposit or sweep accounts of the Borrower or any Restricted Subsidiary to permit
satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the
Borrower and the Restricted Subsidiaries or (iii) relating to purchase orders and other agreements
entered into with customers of the Borrower or any Restricted Subsidiary in the ordinary course of
business;
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(o) Liens solely on any cash earnest money deposits made by the Borrower or any of the
Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted
hereunder;
(p) Liens on insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto;
(q) Liens securing obligations under the Term Loan Agreement; and
(r) additional Liens so long as the aggregate principal amount of the obligations so secured
does not exceed the greater of (y) $50,000,000 at any time outstanding and (z) 1.5% of Consolidated
Total Assets at the time of the incurrence of such obligations.
10.3
Limitation on Fundamental Changes
. Except as expressly permitted by
Section
10.4
or
10.5
, the Borrower will not, and will not permit any of the Restricted
Subsidiaries to, enter into any merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all its business units, assets or other
properties, except that:
(a) so long as no Default or Event of Default would result therefrom, any Subsidiary of
the Borrower or any other Person may be merged or consolidated with or into the Borrower,
provided
that (i) the Borrower shall be the continuing or surviving corporation or
(ii) if the Person formed by or surviving any such merger or consolidation is not the
Borrower (such Person, the
Successor Borrower
), (A) the Successor Borrower shall
be an entity organized or existing under the laws of the United States, any state thereof,
the District of Columbia or any territory thereof, (B) the Successor Borrower shall
expressly assume all the obligations of the Borrower under this Agreement and the other
Credit Documents pursuant to a supplement hereto or thereto in form reasonably satisfactory
to the Administrative Agent, (C) each Guarantor, unless it is the other party to such merger
or consolidation, shall have by a supplement to the Guarantee confirmed that its Guarantee
shall apply to the Successor Borrowers obligations under this Agreement, (D) each
Subsidiary grantor and each Subsidiary pledgor, unless it is the other party to such merger
or consolidation, shall have by a supplement to the Security Agreement confirmed that its
obligations thereunder shall apply to the Successor Borrowers obligations under this
Agreement, and (E) the Borrower shall have delivered to the Administrative Agent (x) an
officers certificate stating that such merger or consolidation and such supplements to this
Agreement
preserve the enforceability of the Guarantee and the perfection and priority of the
Liens under the Security Documents and (y) if reasonably requested by the Administrative
Agent, an opinion of counsel to the effect that such merger or consolidation does not
violate this Agreement or any other Credit Document, and
provided
further
that if the foregoing are satisfied, the Successor Borrower will succeed to, and be
substituted for, such Borrower under this Agreement;
(b) any Subsidiary of the Borrower or any other Person may be merged, amalgamated or
consolidated with or into any one or more Subsidiaries of the Borrower,
provided
that (i) in the case of any merger, amalgamation or consolidation involving one
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or more
Restricted Subsidiaries, (A) a Restricted Subsidiary shall be the continuing or surviving
corporation or (B) the Borrower shall take all steps necessary to cause the Person formed by
or surviving any such merger, amalgamation or consolidation (if other than a Restricted
Subsidiary) to become a Restricted Subsidiary, (ii) in the case of any merger, amalgamation
or consolidation involving one or more Guarantors, a Guarantor shall be the continuing or
surviving corporation or the Person formed by or surviving any such merger, amalgamation or
consolidation (if other than a Guarantor) shall execute a supplement to the Guarantee
Agreement and the Security Agreement in form and substance reasonably satisfactory to the
Collateral Agent in order to become a Guarantor and grantor of Collateral for the benefit
of the Secured Parties, (iii) no Default or Event of Default would result from the
consummation of such merger, amalgamation or consolidation, (iv) the Borrower shall be in
compliance, on a Pro Forma Basis after giving effect to such merger, amalgamation or
consolidation, with the covenant set forth in
Section 10.9
of the Term Loan
Agreement, as such covenant is recomputed as at the last day of the most recently ended Test
Period under such Section as if such merger or consolidation had occurred on the first day
of such Test Period, and (v) the Borrower shall have delivered to the Administrative Agent
an officers certificate stating that such merger, amalgamation or consolidation and such
supplements to any Security Document preserve the enforceability of the Guarantee and the
perfection and priority of the Liens under the Security Documents;
(c) any Restricted Subsidiary that is not a Guarantor may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Borrower, a Guarantor or any other Restricted Subsidiary;
(d) any Guarantor may sell, lease, transfer or otherwise dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any other Guarantor; and
(e) any Restricted Subsidiary may liquidate or dissolve if (i) the Borrower determines
in good faith that such liquidation or dissolution is in the best interests of the Borrower
and is not materially disadvantageous to the Lenders and (ii) to the extent such Restricted
Subsidiary is a Credit Party, any assets or business not otherwise disposed of or
transferred in accordance with
Section 10.4
or
10.5
, or, in the case of any
such business, discontinued, shall be transferred to, or otherwise owned or conducted by,
another Credit Party after giving effect to such liquidation or dissolution.
10.4
Limitation on Sale of Assets
. The Borrower will not, and will not permit any of
the Restricted Subsidiaries to, (i) convey, sell, lease, assign, transfer or otherwise dispose of
any of its property, business or assets (including receivables and leasehold interests), whether
now owned or hereafter acquired (other than any such sale, transfer, assignment or other
disposition resulting from any casualty or condemnation, of any assets of the Borrower or the
Restricted Subsidiaries) or (ii) sell to any Person (other than the Borrower or a Guarantor) any
shares owned by it of any Restricted Subsidiarys Stock and Stock Equivalents, except that:
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(a) the Borrower and the Restricted Subsidiaries may sell, transfer or otherwise
dispose of (i) used or surplus equipment, vehicles, inventory and other assets in the
ordinary course of business and (ii) Permitted Investments;
(b) the Borrower and the Restricted Subsidiaries may sell, transfer or otherwise
dispose of other assets (other than accounts receivable) (each a
Disposition
) for
fair value,
provided
that:
(i) with respect to any Disposition pursuant to this clause (b) for a purchase
price in excess of $10,000,000, the Borrower or a Restricted Subsidiary shall
receive not less than 75% of such consideration in the form of cash or Permitted
Investments;
provided
that for the purposes of this clause (i):
(A) any liabilities (as shown on the Borrowers or such Restricted
Subsidiarys most recent balance sheet provided hereunder or in the
footnotes thereto) of the Borrower or such Restricted Subsidiary, other than
liabilities that are by their terms subordinated to the payment in cash of
the Obligations, that are assumed by the transferee with respect to the
applicable Disposition and for which the Borrower and all of the Restricted
Subsidiaries shall have been validly released by all applicable creditors in
writing,
(B) any securities received by the Borrower or such Restricted
Subsidiary from such transferee that are converted by the Borrower or such
Restricted Subsidiary into cash (to the extent of the cash received) within
180 days following the closing of the applicable Disposition, and
(C) any Designated Non-Cash Consideration received by the Borrower or
such Restricted Subsidiary in respect of such Disposition having an
aggregate fair market value, taken together with all other Designated
Non-Cash Consideration received pursuant to this
Section 10.4(b)
and
Section 10.4(c)
that is at that time outstanding, not in excess of
6% of Consolidated Total Assets at the time of the receipt of such
Designated Non-Cash Consideration, with the fair market value of each item
of Designated Non-Cash Consideration being measured at the time received and
without giving effect to subsequent changes in value,
shall in each case under this clause (i) be deemed to be cash;
(ii) [intentionally omitted];
(iii) with respect to any such sale, transfer or disposition (or series of
related sales, transfers or dispositions), the Borrower shall be in compliance, on a
Pro Forma Basis after giving effect to such sale, transfer or disposition, with the
covenant set forth in
Section 10.9
of the Term Loan Agreement), as such
covenant is recomputed as at the last day of the most recently ended Test Period
under such Section as if such sale, transfer or disposition had occurred on the
first day of such Test Period; and
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(iv) after giving effect to any such sale, transfer or disposition, no Default
or Event of Default shall have occurred and be continuing;
(c) the Borrower and the Restricted Subsidiaries may make sales of assets to the
Borrower or to any Restricted Subsidiary,
provided
that with respect to any such
sales to Restricted Subsidiaries that are not Guarantors:
(i) such sale, transfer or disposition shall be for fair value;
(ii) with respect to any Disposition pursuant to this clause (c) for a purchase
price in excess of $10,000,000, the Borrower or a Restricted Subsidiary shall
receive not less than 75% of such consideration in the form of cash or Permitted
Investments;
provided
that for the purposes of this clause (ii):
(A) any liabilities (as shown on the Borrowers or such Restricted
Subsidiarys most recent balance sheet provided hereunder or in the
footnotes thereto) of the Borrower or such Restricted Subsidiary, other than
liabilities that are by their terms subordinated to the payment in cash of
the Obligations, that are assumed by the transferee with respect to the
applicable Disposition and for which the Borrower and all of the Restricted
Subsidiaries shall have been validly released by all applicable creditors in
writing,
(B) any securities received by the Borrower or such Restricted
Subsidiary from such transferee that are converted by the Borrower or such
Restricted Subsidiary into cash (to the extent of the cash received) within
180 days following the closing of the applicable Disposition,
(C) any Designated Non-Cash Consideration received by the Borrower or
such Restricted Subsidiary in respect of such Disposition having an
aggregate fair market value, taken together with all other Designated
Non-Cash Consideration received pursuant to this
Section 10.4(c)
and
Section 10.4(b)
that is at that time outstanding, not in excess of
6% of Consolidated Total Assets at the time of the receipt of such
Designated Non-Cash Consideration, with the fair market value of each item
of Designated Non-Cash Consideration being measured at the time received and
without giving effect to subsequent changes in value,
shall in each case under this clause (ii) be deemed to be cash; and
(iii) [intentionally omitted].
(d) the Borrower and any Restricted Subsidiary may effect any transaction permitted by
Section 10.3
,
10.5
or
10.6
;
(e) in addition to selling or transferring accounts receivable pursuant to the other
provisions hereof, the Borrower and the Restricted Subsidiaries may sell or discount without
recourse accounts receivable arising in the ordinary course of business
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in connection with
the compromise or collection thereof consistent with such Persons current credit and
collection practices;
(f) the Borrower and the Restricted Subsidiaries may lease, sublease, license or
sublicense (on a non-exclusive basis with respect to any intellectual property) real,
personal or intellectual property in the ordinary course of business;
(g) sales, transfers and other dispositions of property to the extent that (i) such
property is exchanged for credit against the purchase price of similar replacement property
or (ii) the proceeds of such Disposition are promptly applied to the purchase price of such
replacement property;
(h) sales, transfers and other dispositions of property pursuant to Permitted Sale
Leaseback transactions;
(i) Dispositions of Non-Core Assets; and
(j) sales, transfers and other dispositions of Investments in joint ventures to the
extent required by, or made pursuant to customary buy/sell arrangements between, the joint
venture parties set forth in joint venture arrangements and similar binding arrangements.
10.5
Limitation on Investments
. The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, make any advance, loan, extensions of credit or capital contribution
to, or purchase any stock, bonds, notes, debentures or other securities of or any assets of, or
make any other Investment in, any Person, except:
(a) extensions of trade credit and asset purchases in the ordinary course of business;
(b) Permitted Investments;
(c) loans and advances to officers, directors and employees of the Borrower (or any
direct or indirect parent thereof) or any of its Subsidiaries (i) for reasonable and
customary business-related travel, entertainment, relocation and analogous ordinary business
purposes (including employee payroll advances), (ii) in connection with such
Persons purchase of Stock or Stock Equivalents of the Borrower (or any direct or
indirect parent thereof) to the extent that the amount of such loans and advances are
contributed to the Borrower in cash and (iii) for purposes not described in the foregoing
clauses (i) and (ii), in an aggregate principal amount outstanding not to exceed $5,000,000;
(d) Investments existing on, or contemplated as of, the date hereof and listed on
Schedule 10.5
and any extensions, renewals or reinvestments thereof, so long as the
aggregate amount of all Investments pursuant to this clause (d) is not increased at any time
above the amount of such Investments existing on the date hereof;
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(e) Investments received in connection with the bankruptcy or reorganization of
suppliers or customers and in settlement of delinquent obligations of, and other disputes
with, customers arising in the ordinary course of business or upon foreclosure with respect
to any secured Investment or other transfer of title with respect to any secured Investment;
(f) Investments to the extent that payment for such Investments is made solely with
Stock or Stock Equivalents of the Borrower;
(g) Investments (i) in any Guarantor or the Borrower, (ii) in Restricted Subsidiaries
that are not Guarantors, in an aggregate amount pursuant to this clause (ii) not to exceed
(x) the greater of (A) $50,000,000 and (B) 1.5% of Consolidated Total Assets at the time of
the incurrence of such Investment
plus
(y) the Applicable Amount at such time, and
(iii) in Restricted Subsidiaries that are not Guarantors so long as such Investment is part
of a series of simultaneous Investments by Restricted Subsidiaries in other Restricted
Subsidiaries that result in the proceeds of the initial Investment being invested in one or
more Guarantors;
(h) Investments constituting Permitted Acquisitions;
(i) (i) Investments (including Investments in Unrestricted Subsidiaries) and (ii)
Investments in joint ventures or similar entities that do not constitute Restricted
Subsidiaries, in each case, as valued at the fair market value of such Investment at the
time each such Investment is made, in an amount that, at the time such Investment is made,
would not exceed the sum of (x) the greater of (A) $100,000,000 and (B) 3% of Consolidated
Total Assets at the time of the incurrence of such Investment,
plus
(y) the
Applicable Amount at such time
plus
(z) an amount equal to any repayments, interest,
returns, profits, distributions, income and similar amounts actually received in cash in
respect of any such Investment (which amount shall not exceed the amount of such Investment
valued at the fair market value of such Investment at the time such Investment was made),
(j) Investments constituting non-cash proceeds of sales, transfers and other
dispositions of assets to the extent permitted by
Section 10.4
;
(k) Investments made to repurchase or retire Stock of the Borrower or any direct or
indirect parent thereof owned by any employee stock ownership plan or key employee stock
ownership plan of the Borrower (or any direct or indirect parent thereof);
(l) Investments permitted under
Section 10.6
;
(m) loans and advance to any direct or indirect parent of the Borrower in lieu of, and
not in excess of the amount of, dividends to the extent permitted to be made to such parent
in accordance with
Section 10.6
;
(n) Investments consisting of extensions of credit in the nature of accounts receivable
or notes receivable arising from the grant of trade credit in the ordinary course of
business, and Investments received in satisfaction or partial satisfaction thereof from
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financially troubled account debtors and other credits to suppliers in the ordinary course
of business;
(o) Investments in the ordinary course of business consisting of Article 3 endorsements
for collection or deposit and Article 4 customary trade arrangements with customers
consistent with past practices;
(p) advances of payroll payments to employees in the ordinary course of business;
(q) [
Intentionally Omitted
];
(r) Guarantee Obligations of the Borrower or any Restricted Subsidiary of leases (other
than Capitalized Leases) or of other obligations that do not constitute Indebtedness, in
each case entered into in the ordinary course of business;
(s) Investments made to repurchase or retire equity interests of the Borrower (or any
direct or indirect parent thereof) owned by any employee stock ownership plan or key
employee stock ownership plan of the Borrower (or any direct or indirect parent thereof);
(t) Investments of a Restricted Subsidiary acquired after the Closing Date or of any
Person merged into the Borrower or merged or consolidated with a Restricted Subsidiary in
accordance with
Section 10.3
after the Closing Date to the extent that such
Investments were not made in contemplation of or in connection with such acquisition, merger
or consolidation and were in existence on the date of such acquisition, merger or
consolidation; and
(u) Investments with respect to the purchase of the outstanding Stock and Stock Equivalents of
Red Man Pipe and Supply Canada, Ltd. in accordance with the exercise of the CanHCo Call Right (as
defined in the Redman Acquisition Agreement) so long as no Default or Event of Default exists or
would exist after giving effect thereto.
10.6
Limitation on Dividends
. The Borrower will not declare or pay any dividends (other than dividends payable solely in
its Stock) or return any capital to its stockholders or make any other distribution, payment or
delivery of property or cash to its stockholders as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for consideration, any shares of any class of its Stock or Stock
Equivalents or the Stock or Stock Equivalents of any direct or indirect parent now or hereafter
outstanding, or set aside any funds for any of the foregoing purposes, or permit any of the
Restricted Subsidiaries to purchase or otherwise acquire for consideration (other than in
connection with an Investment permitted by
Section 10.5
) any Stock or Stock Equivalents of
the Borrower, now or hereafter outstanding (all of the foregoing
dividends
),
provided
that, (x) to the extent that a dividend, distribution or any other return of
capital pursuant to paragraph (c) below is funded with a Borrowing hereunder, Excess Availability
is not less than $100,000,000 after giving effect to such dividend, distribution or other return of
capital and (y) so long as no Default or Event of Default exists or would exist after giving effect
thereto:
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(a) the Borrower may redeem in whole or in part any of its Stock or Stock Equivalents
for another class of its Stock or Stock Equivalents or with proceeds from substantially
concurrent equity contributions or issuances of new Stock or Stock Equivalents,
provided
that such new Stock or Stock Equivalents contain terms and provisions at
least as advantageous to the Lenders in all respects material to their interests as those
contained in the Stock or Stock Equivalents redeemed thereby;
(b) the Borrower may (or may make dividends to permit any direct or indirect parent
thereof to) repurchase shares of its (or such parents) Stock or Stock Equivalents held by
officers, directors and employees of the Borrower and its Subsidiaries, so long as such
repurchase is pursuant to, and in accordance with the terms of, management and/or employee
stock plans, stock subscription agreements or shareholder agreements;
provided
, that
the aggregate amount of all cash paid in respect of all such shares so repurchased in any
calendar year does not exceed the sum of (i) $10,000,000 plus (ii) all amounts obtained by
the Borrower during such calendar year from the sale of such Stock or Stock Equivalents to
other officers, directors and employees of the Borrower and its Subsidiaries in connection
with any permitted compensation and incentive arrangements plus (iii) all amounts obtained
from any key-man life insurance policies received during such calendar year;
provided
further
that the aggregate amount permitted by the foregoing
proviso with respect to any calendar year commencing with 2008 shall be increased by 100% of
the amount of unused share repurchases for the immediately preceding year (such amount, a
carry-over amount
) without giving effect to any carry-over amount that was added
in such preceding calendar year and assuming any such carry-over amount is utilized first
and so long as the aggregate amount of cash paid in respect of all such shares so
repurchased in any calendar year does not exceed $20,000,000; and
provided
still
further
the aggregate amount of all cash paid in respect of all such
shares so repurchased in any calendar year may exceed the aggregate amount permitted by the
foregoing provisos if Excess Availability is not less than $100,000,000 after giving effect
to such dividend, distribution or other return of capital;
(c) the Borrower may pay dividends on the Stock or Stock Equivalents,
provided
that
the amount of any such dividends pursuant to this clause (c) shall not exceed
an amount equal to (i)(a) $50,000,000 or (b) $100,000,000, if the Consolidated
Total Debt to Consolidated EBITDA Ratio for the Test Period last ended is less than
4.00:1.00, determined on a Pro Forma Basis after giving effect to such dividend,
less
any
amount expended pursuant to Section 10.7(a)(i)(x)
plus
(ii) the Applicable Amount at such
time; and
(d) the Borrower may pay dividends:
(i) so long as the Borrower is a member of a group filing a consolidated,
combined, unitary or affiliated tax return with a parent, the proceeds of which
will be used to pay (or to make dividends to allow any direct or indirect parent of
the Borrower to pay) within 30 days of the receipt thereof, the tax liability to
each relevant jurisdiction in respect of such consolidated, combined, unitary or
affiliated returns for the relevant jurisdiction of such parent to the extent such
tax liability is directly attributable to the taxable income of the
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Borrower or its
Subsidiaries (that are included in such consolidated, combined, unitary or
affiliated tax return), determined as if the Borrower and such Subsidiaries filed a
separate consolidated, combined, unitary or affiliated tax return as a stand-alone
group;
(ii) the proceeds of which shall be used to allow any direct or indirect parent
of Borrower to pay (A) its operating expenses incurred in the ordinary course of
business and other corporate overhead costs and expenses (including administrative,
legal, accounting and similar expenses provided by third parties), which are
reasonable and customary and incurred in the ordinary course of business, in an
aggregate amount not to exceed $2,000,000 in any fiscal year of the Borrower plus
any reasonable and customary indemnification claims made by directors or officers of
the Borrower (or any parent thereof) attributable to the ownership or operations of
the Borrower and its Subsidiaries or (B) fees and expenses otherwise (x) due and
payable by the Borrower or any of its Subsidiaries and (y) permitted to be paid by
the Borrower or such Subsidiary under this Agreement;
(iii) the proceeds of which shall be used to pay franchise taxes and other
fees, taxes and expenses required to maintain the corporate existence of any direct
or indirect parent of the Borrower, within thirty (30) days of the receipt thereof;
(iv) in amount equal to the Net Cash Proceeds of any Disposition of Non-Core
Assets for the purposes of complying with the requirements of the Red Man
Transaction Agreement or the Merger Agreement (as defined in the Existing Revolving
Credit Agreement), as applicable, relating thereto;
(v) to any direct or indirect parent of the Borrower to finance any Investment
permitted to be made pursuant to
Section 10.5
;
provided
that (A)
such dividend shall be made substantially concurrently with the closing of such
Investment and (B) such parent shall, immediately following the closing thereof,
cause (1) all property acquired (whether assets, Stock or Stock Equivalents) to be
contributed to the Borrower or its Restricted Subsidiaries or (2) the merger
(to the extent permitted in
Section 10.5
) of the Person formed or acquired
into the Borrower or its Restricted Subsidiaries in order to consummate such
Permitted Acquisition; and
(vi) in an amount not to exceed the amount necessary to effect the Investment described in
Section 10.5(u).
10.7
Limitations on Debt Payments and Amendments
. (a) The Borrower will not, and
will not permit any Restricted Subsidiary to, prepay, repurchase or redeem or otherwise defease any
Subordinated Indebtedness;
provided
,
however
, that so long as no Default or Event
of Default shall have occurred and be continuing at the date of such prepayment, repurchase,
redemption or other defeasance or would result after giving effect thereof and Excess Availability
is not less than $50,000,000 after giving effect to such prepayment, repurchase,
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redemption or
other defeasance, the Borrower or any Restricted Subsidiary may prepay, repurchase or redeem
Subordinated Indebtedness (i) for an aggregate price not in excess of (x)(A) $50,000,000 or (B)
$100,000,000, if the Consolidated Total Debt to Consolidated EBITDA Ratio for the Test Period last
ended is less than 4.00:1.00, determined on a Pro Forma Basis after giving effect to such
prepayment, repurchase, redemption or other defeasance,
less
any amount expended pursuant to
Section 10.6(c)(i)
plus
(y) the Applicable Amount at the time of such prepayment, repurchase or
redemption, or (ii) with the proceeds of Subordinated Indebtedness that (A) is permitted by
Section 10.1(B)
(other than
Section 10.1(B)(o)
) and (B) has terms material to the
interests of the Lenders not materially less advantageous to the Lenders than those of such
Subordinated Indebtedness being refinanced.
(b) The Borrower will not waive, amend, modify, terminate or release any Subordinated
Indebtedness to the extent that any such waiver, amendment, modification, termination or release
would be adverse to the Lenders in any material respect.
10.8
Limitations on Sale Leasebacks
. The Borrower will not, and will not permit any
of the Restricted Subsidiaries to, enter into or effect any Sale Leasebacks, other than Permitted
Sale Leasebacks.
10.9
[Reserved]
.
10.10
Changes in Business
. The Borrower and the Subsidiaries, taken as a whole, will
not fundamentally and substantively alter the character of their business, taken as a whole, from
the business conducted by the Borrower and the Subsidiaries, taken as a whole, on the Closing Date
and other business activities incidental or related to any of the foregoing.
10.11
Burdensome Agreements
. The Borrower will not, and will not permit any Restricted Subsidiary to, enter into or
permit to exist any contractual obligation (other than this Agreement or any other Credit Document)
that limits the ability of (a) any Restricted Subsidiary that is not a Guarantor to make dividends
to the Borrower or any Guarantor or (b) the Borrower or any Subsidiary Guarantor to create, incur,
assume or suffer to exist Liens on property of such Person for the benefit of the Lenders with
respect to the Obligations;
provided
that the foregoing clauses (a) and (b) shall not apply
to contractual obligations which (i) (x) exist on the date hereof and (to the extent not otherwise
permitted by this
Section 10.11
) are listed on
Schedule 10.11
and (y) to the extent
contractual obligations permitted by clause (x) are set forth in an agreement evidencing
Indebtedness, are set forth in any agreement evidencing any permitted renewal, extension or
refinancing of such Indebtedness so long as such renewal, extension or refinancing does not expand
the scope of such contractual obligation, (ii) are binding on a Restricted Subsidiary at the time
such Restricted Subsidiary first becomes a Restricted Subsidiary of the Borrower, so long as such
contractual obligations were not entered into solely in contemplation of such Person becoming a
Restricted Subsidiary of the Borrower; (iii) represent Indebtedness of a Restricted Subsidiary of
the Borrower which is not a Credit Party which is permitted by
Section 10.1
, (iv) arise in
connection with any Disposition permitted by
Section 10.4
, (v) are customary provisions in
joint venture agreements and other similar agreements applicable to joint ventures permitted under
Section 10.5
and applicable solely to such joint venture entered into in the ordinary
course of business, (vi) are negative pledges and restrictions on Liens in favor of any holder of
Indebtedness permitted under
Section 10.1
but solely to the extent any
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negative pledge
relates to the property financed by or the subject of such Indebtedness, (vii) are customary
restrictions on leases, subleases, licenses or asset sale agreements otherwise permitted hereby so
long as such restrictions relate to the assets subject thereto, (viii) comprise restrictions
imposed by any agreement relating to secured Indebtedness permitted pursuant to
Section
10.1
to the extent that such restrictions apply only to the property or assets securing such
Indebtedness or, in the case of secured Indebtedness incurred pursuant to
Section
10.1(B)(j)
or
Section 10.1(B)(k)
) only, to the Restricted Subsidiaries incurring or
guaranteeing such Indebtedness, (ix) are customary provisions restricting subletting or assignment
of any lease governing a leasehold interest of the Borrower or any Restricted Subsidiary, (x) are
customary provisions restricting assignment of any agreement entered into in the ordinary course of
business, (xi) are restrictions on cash or other deposits imposed by customers under contracts
entered into in the ordinary course of business, and (xii) exist under the Term Loan Credit
Agreement or any documentation relating to such debt.
SECTION 11.
Events of Default
Upon the occurrence of any of the following specified events (each an
Event of
Default
):
11.1
Payments
. The Borrower shall (a) default in the payment when due of any
principal of the Loans or (b) default, and such default shall continue for five or more days, in
the payment when due of any interest or stamping fees on the Loans or any Fees or any Unpaid
Drawings or of any other amounts owing hereunder or under any other Credit Document; or
11.2
Representations, etc
. Any representation, warranty or statement made or deemed
made by any Credit Party herein or in any Security Document or any certificate, statement, report
or other document delivered or required to be delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or deemed made; or
11.3
Covenants
. Any Credit Party shall:
(a) default in the due performance or observance by it of any term, covenant or
agreement contained in
Section 9.1(h)
or
Section 10
;
(b) default in the due performance or observance by it of any term, covenant or
agreement contained in
Section 9.1(f)
and such default shall continue unremedied for
a period of at least ten (10) Business Days after the earlier of the date on which an
Authorized Officer of the Borrower has knowledge of such default and the date of receipt of
written notice by the Borrower from the Administrative Agent or the Required Lenders; or
(c) default in the due performance or observance by it of any term, covenant or
agreement (other than those referred to in
Section 11.1
or
11.2
or clauses
(a) or (b) of this
Section 11.3
) contained in this Agreement, any Security Document
or the Fee Letter and such default shall continue unremedied for a period of at least thirty
(30) days after receipt of written notice by the Borrower from the Administrative Agent or
the Required Lenders; or
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11.4
Default Under Other Agreements
. (a) The Borrower or any of the Restricted
Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the
Obligations) in excess of $30,000,000 in the aggregate, for the Borrower and such Restricted
Subsidiaries, beyond the period of grace, if any, provided in the instrument or agreement under
which such Indebtedness was created or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall occur or condition
exist (other than, with respect to Indebtedness consisting of any Hedge Agreements, termination
events or equivalent events pursuant to the terms of such Hedge Agreements), the effect of which
default or other event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, any such
Indebtedness to become due prior to its stated maturity; or (b) without limiting the provisions of
clause (a) above, any such Indebtedness shall be declared to be due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment or as a mandatory prepayment (and,
with respect to Indebtedness consisting of any Hedge Agreements, other than due to a termination
event or equivalent event pursuant to the terms of such Hedge Agreements), prior to the stated
maturity thereof; or
11.5
Bankruptcy, etc
. The Borrower or any Specified Subsidiary shall commence a voluntary case, proceeding or
action concerning itself under (a) Title 11 of the United States Code entitled Bankruptcy, or (b)
in the case of any Foreign Subsidiary that is a Specified Subsidiary, any domestic or foreign law
relating to bankruptcy, judicial management, insolvency reorganization or relief of debtors
legislation of its jurisdiction of incorporation, in each case as now or hereafter in effect, or
any successor thereto (collectively, the
Bankruptcy Code
); or an involuntary case,
proceeding or action is commenced against the Borrower or any Specified Subsidiary and the petition
is not controverted within 10 days after commencement of the case, proceeding or action; or an
involuntary case, proceeding or action is commenced against the Borrower or any Specified
Subsidiary and the petition is not dismissed within 60 days after commencement of the case,
proceeding or action; or a custodian (as defined in the Bankruptcy Code), judicial manager,
receiver, receiver manager, trustee or similar person is appointed for, or takes charge of, all or
substantially all of the property of the Borrower or any Specified Subsidiary; or the Borrower or
any Specified Subsidiary commences any other proceeding or action under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any
Specified Subsidiary; or there is commenced against the Borrower or any Specified Subsidiary any
such proceeding or action that remains undismissed for a period of 60 days; or the Borrower or any
Specified Subsidiary is adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding or action is entered; or the Borrower or any Specified
Subsidiary suffers any appointment of any custodian receiver, receiver manager, trustee or the like
for it or any substantial part of its property to continue undischarged or unstayed for a period of
60 days; or the Borrower or any Specified Subsidiary makes a general assignment for the benefit of
creditors; or any corporate action is taken by the Borrower or any Specified Subsidiary for the
purpose of effecting any of the foregoing; or
11.6
ERISA
. (a) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or extension of any
amortization
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period is sought or granted under Section 412 of the Code; any Plan is or shall have
been terminated or is the subject of termination proceedings under ERISA (including the giving of
written notice thereof); an event shall have occurred or a condition shall exist in either case
entitling the PBGC to terminate any Plan or to appoint a trustee to administer any Plan (including
the giving of written notice thereof); any Plan shall have an accumulated funding deficiency
(whether or not waived); the Borrower or any Subsidiary or any ERISA Affiliate has incurred or is
likely to incur a liability to or on account of a Plan under Section 409, 502(i), 502(l), 515,
4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code (including the
giving of written notice thereof); (b) there could result from any event or events set forth in
clause (a) of this
Section 11.6
the imposition of a lien, the granting of a security
interest, or a liability, or the reasonable likelihood of incurring a lien, security interest or
liability; and (c) such lien, security interest or liability will or would be reasonably likely to
have a Material Adverse Effect; or
11.7
Guarantee
. Any Guarantee provided by any Material Subsidiary or any material
provision thereof shall cease to be in full force or effect or any such Guarantor thereunder or any
Credit Party shall
deny or disaffirm in writing any such Guarantors obligations under the Guarantee (or any of
the foregoing shall occur with respect to a Guarantee provided by a Subsidiary that is not a
Material Subsidiary and shall continue unremedied for a period of at least 5 Business Days after
receipt of written notice by the Borrower from the Administrative Agent, the Collateral Agent or
the Required Lenders); or
11.8
[Reserved]
.; or
11.9
Security Agreement
. The Security Agreement pursuant to which the assets of the
Borrower or any Material Subsidiary are pledged as Collateral or any material provision thereof
shall cease to be in full force or effect (other than pursuant to the terms hereof or thereof or as
a result of acts or omissions of the Collateral Agent or any Lender) or any grantor thereunder or
any Credit Party shall deny or disaffirm in writing any grantors obligations under the Security
Agreement (or any of the foregoing shall occur with respect to Collateral provided by a Subsidiary
that is not a Material Subsidiary and shall continue unremedied for a period of at least 5 Business
Days after receipt of written notice by the Borrower from the Administrative Agent, the Collateral
Agent or the Required Lenders); or
11.10
[Intentionally Omitted]
.
11.11
Judgments
. One or more judgments or decrees shall be entered against the
Borrower or any of the Restricted Subsidiaries involving a liability of $30,000,000 or more in the
aggregate for all such judgments and decrees for the Borrower and the Restricted Subsidiaries (to
the extent not paid or fully covered by insurance provided by a carrier not disputing coverage) and
any such judgments or decrees shall not have been satisfied, vacated, discharged or stayed or
bonded pending appeal within 60 days from the entry thereof; or
11.12
Change of Control
. A Change of Control shall occur; or
11.13
Subordination
. The subordination provisions of any document or instrument
evidencing any Permitted Additional Debt having a principal amount in excess of $15,000,000
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that
are subordinated shall be invalidated or otherwise cease to be legal, valid and binding obligations
of the holders of such Permitted Additional Debt, enforceable in accordance with their terms;
then, (1) upon the occurrence of any Event of Default described in Section 11.5,
automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or
with the consent of) Required Lenders, upon notice to the Borrower by Administrative Agent,
(A) the Revolving Credit Commitments of each Lender and the obligation of the Letter of Credit
Issuer to issue any Letter of Credit shall immediately terminate; (B) each of the following shall
immediately become due and payable, in each case without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by each Credit Party: (I) the
unpaid principal amount of and accrued interest on the Loans, (II) an amount equal to the maximum
amount that may at any time be drawn under all Letters of Credit then outstanding (regardless of
whether any beneficiary under any such Letter of Credit shall have presented, or shall be entitled
at such time to present, the drafts or other documents or certificates required to draw under such
Letters of Credit), and (III) all other Obligations;
provided
, the foregoing shall not
affect in any way the obligations of Lenders under Section 2.1(d) or Section 3.3(a); (C)
Administrative Agent may cause Collateral Agent to enforce any and all Liens and security interests
created pursuant to Security Documents; and (D) Administrative Agent shall direct the Borrower to
pay (and the Borrower hereby agrees upon receipt of such notice, or upon the occurrence of any
Event of Default specified in Section 11.5 to pay) to Administrative Agent such additional amounts
of cash as reasonably requested by the Letter of Credit Issuer, to be held as security for the
Borrowers reimbursement Obligations in respect of Letters of Credit then outstanding.
SECTION 12.
[Reserved]
.
SECTION 13.
The Administrative Agent
13.1
Appointment
. (a) Each Lender hereby irrevocably designates and appoints the
Administrative Agent as the agent of such Lender under this Agreement and the other Credit
Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity,
to take such action on its behalf under the provisions of this Agreement and the other Credit
Documents and to exercise such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Credit Documents, together with
such other powers as are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Credit Document or otherwise exist against the
Administrative Agent. The provisions of this Section 13 are solely for the benefit of the Agents,
any sub-agent and the Lenders and no Credit Party shall have any rights as a third party
beneficiary of any of the provisions hereof. In performing its functions and duties hereunder,
each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to
have assumed any obligation towards or relationship of agency or trust with or for Borrower or any
of its Subsidiaries. Except as expressly otherwise provided in this Agreement, the Administrative
Agent shall have and may use its sole discretion with respect to
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(i) the determination of the
applicability of ineligibility criteria and other determinations with
respect to the calculation of the Borrowing Base, (ii) the making of Protective Advances
pursuant to
Section 2.15
, and (iii) the exercise of remedies pursuant to
Section
11
.
(b) The Administrative Agent, each Lender, the Swingline Lender and the Letter of Credit
Issuer hereby irrevocably designate and appoint the Collateral Agent as its agent under this
Agreement and the other Credit Documents, and the Administrative Agent, each Lender, the Swingline
Lender and the Letter of Credit Issuer irrevocably authorize the Collateral Agent, in such
capacity, (i) to take such action on their behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as are expressly
delegated to the Collateral Agent by the terms of this Agreement and the other Credit Documents,
together with such other powers as are reasonably incidental thereto and (ii) to enter into any and
all of the Security Documents (including, for the avoidance of doubt, the Intercreditor Agreement)
together with such other documents as shall be necessary to give effect to (x) the ranking and
priority of Indebtedness contemplated by the Intercreditor Agreement and (y) the Collateral
contemplated by the other Security Documents, on its behalf. For the avoidance of doubt, each
Lender agrees to be bound by the terms of the Intercreditor Agreement to the same extent as if it
were a party thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement,
the Collateral Agent shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with the Administrative Agent, any Lender, the
Swingline Lender or the Letter of Credit Issuer, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other
Credit Document or otherwise exist against the Collateral Agent.
(c) The Syndication Agent, in its capacity as such, shall not have any obligations, duties or
responsibilities under this Agreement but shall be entitled to all benefits of this
Section
13
.
(d) Each Co-Documentation Agent, in its capacity as such, shall not have any obligations,
duties or responsibilities under this Agreement but shall be entitled to all benefits of this
Section 13
.
13.2
Delegation of Duties
. Administrative Agent may perform any and all of its duties
and exercise its rights and powers under this Agreement or under any other Credit Document by or
through any one or more sub-agents appointed by Administrative Agent. 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 Affiliates. The exculpatory, indemnification and other provisions of this
Section 13.2 and of Section 13.7 shall apply to any the Affiliates of Administrative 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
.
All of the rights,
benefits, and privileges (including the exculpatory and indemnification provisions) of this Section
13 and Section 14.5 shall apply to any such sub-agent and to the Affiliates of any such sub-agent,
and shall apply to their respective activities as sub-agent as if such sub-agent and Affiliates
were named herein. Notwithstanding anything herein to the contrary, with respect to each sub-agent
appointed by the Administrative Agent, (i) such sub-agent shall be a third party beneficiary under
this Agreement with respect to all such rights, benefits and privileges (including exculpatory
rights and rights to indemnification) and shall
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have all of the rights and benefits of a third party beneficiary,
including an independent right of action to enforce such rights, benefits and privileges (including
exculpatory rights and rights to indemnification) directly, without the consent or joinder of any
other Person, against any or all of the Credit Parties and the Lenders, (ii) such rights, benefits
and privileges (including exculpatory rights and rights to indemnification) shall not be modified
or amended without the consent of such sub-agent, and (iii) such sub-agent shall only have
obligations to Administrative Agent and not to any Credit Party, Lender or any other Person and no
Credit Party, Lender or any other Person shall have any rights, directly or indirectly, as a third
party beneficiary or otherwise, against such sub-agent
.
13.3
General Immunity
. (a)
No Responsibility for Certain Matters
. No Agent
shall be responsible to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency hereof or any other Credit Document or for any
representations, warranties, recitals or statements made herein or therein or made in any written
or oral statements or in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by any Agent to Lenders or by or on behalf of any Credit
Party, or for the financial condition or business affairs of any Credit Party or any other Person
liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions, provisions, covenants or
agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans
or as to the existence or possible existence of any Event of Default or Default or to make any
disclosures with respect to the foregoing. Anything contained herein to the contrary
notwithstanding, Administrative Agent shall not have any liability arising from confirmations of
the amount of outstanding Loans or the Letters of Credit Outstanding or the component amounts
thereof.
(b)
Exculpatory Provisions
. No Agent nor any of its officers, partners, directors,
employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under
or in connection with any of the Credit Documents except to the extent caused by such Agents gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the
taking of any action (including the failure to take an action) in connection herewith or any of the
other Credit Documents or from the exercise of any power, discretion or authority vested in it
hereunder or thereunder unless and until such Agent shall have received instructions in respect
thereof from Required Lenders (or such other Lenders as may be required to give such instructions
under Section 14.1) and, upon receipt of such instructions from Required Lenders (or such other
Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain
from acting, or to exercise such power, discretion or authority, in accordance with such
instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any communication, instrument or
document believed by it to be genuine and correct and to have been signed or sent by the proper
Person or Persons and shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Borrower and its Subsidiaries), accountants,
experts and other professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against any Agent as a result of such Agent acting or (where so instructed)
refraining from acting hereunder or any of the other Credit Documents in accordance
with the instructions of Required Lenders (or such other Lenders as may be required to give
such instructions under Section 14.1)
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13.4
Reliance by Agents
. The Administrative Agent and the Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts selected by the
Administrative Agent or the Collateral Agent. The Administrative Agent may deem and treat the
Lender specified in the Register with respect to any amount owing hereunder as the owner thereof
for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have
been filed with the Administrative Agent. The Administrative Agent and the Collateral Agent shall
be fully justified in failing or refusing to take any action under this Agreement or any other
Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as
it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against
any and all liability and expense that may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent and the Collateral Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future
holders of the Loans.
13.5
Notice of Default
. Neither the Administrative Agent nor the Collateral Agent
shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a notice of default.
In the event that the Administrative Agent receives such a notice, it shall give notice thereof to
the Lenders. The Administrative Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders,
provided
that unless
and until the Administrative Agent shall have received such directions, the Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the best interests of the
Lenders (except to the extent that this Agreement requires that such action be taken only with the
approval of the Required Lenders or each of the Lenders, as applicable).
13.6
Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders
. Each
Lender expressly acknowledges that neither the Administrative Agent nor the Collateral Agent nor
any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the Administrative Agent or the
Collateral Agent hereinafter taken, including any review of the affairs of the Borrower, any
Guarantor or any other Credit Party, shall be deemed to constitute
any representation or warranty by the Administrative Agent or the Collateral Agent to any
Lender, the Swingline Lender or the Letter of Credit Issuer. Each Lender, Swingline Lender and
Letter of Credit Issuer represents to the Administrative Agent and the Collateral Agent that it
has, independently and without reliance upon the Administrative Agent, the Collateral Agent or any
other Lender, and based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower, any Guarantor and any other Credit Party and made
its own decision to make its Loans hereunder and enter into this Agreement. Each Lender
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also
represents that it will, independently and without reliance upon the Administrative Agent, the
Collateral Agent 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 analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Credit Documents, and to make such
investigation as it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower, any Guarantor and any other
Credit Party. Except for notices, reports and other documents expressly required to be furnished
to the Lenders by the Administrative Agent hereunder, neither the Administrative Agent nor the
Collateral Agent shall have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, assets, operations, properties, financial condition,
prospects or creditworthiness of the Borrower, any Guarantor or any other Credit Party that may
come into the possession of the Administrative Agent or the Collateral Agent any of their
respective officers, directors, employees, agents, attorneys-in-fact or Affiliate. Notwithstanding
anything herein to the contrary, each Lender acknowledges that the lien and security interest
granted to the Collateral Agent pursuant to the Security Agreement or other applicable Security
Document, and the exercise of any right or remedy by the Collateral Agent thereunder, are subject
to the provisions of the Intercreditor Agreement and that in the event of any conflict between the
terms of the Intercreditor Agreement and such Security Document, the terms of the Intercreditor
Agreement shall govern and control.
13.7
Indemnification
. The Lenders agree to indemnify the Administrative Agent and the
Collateral Agent and any sub-agent thereof, each in its capacity as such (to the extent not
reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably
according to their respective portions of the Total Credit Exposure in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance
with their respective portions of the Total Credit Exposure in effect immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs (including legal fees and costs), expenses or disbursements of any kind
whatsoever that may at any time (including at any time following the payment of the Loans) be
imposed on, incurred by or asserted against the Administrative Agent or the Collateral Agent or
such sub-agent in any way relating to or arising out of, the Commitments, this Agreement, any of
the other Credit Documents or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by the Administrative
Agent or the Collateral Agent or such sub-agent under or in connection with any of the foregoing,
provided
that no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agents or the Collateral Agents or such
sub-agents gross negligence or willful misconduct. The agreements in this Section 13.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
13.8
Agents in their Individual Capacity
. The agency hereby created shall in no way
impair or affect any of the rights and powers of, or impose any duties or obligations upon, any
Agent or any sub-agent thereof in its individual capacity as a Lender hereunder. With respect to
its participation in the Loans and the Letters of Credit, each Agent and any sub-agent thereof
shall have the same rights and powers hereunder as any other Lender and may exercise the same
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as if
it were not performing the duties and functions delegated to it hereunder, and the term Lender
shall, unless the context clearly otherwise indicates, include each Agent or any sub-agent thereof
in its individual capacity. Any Agent or any sub-agent thereof and its respective Affiliates may
accept deposits from, lend money to, own securities of, and generally engage in any kind of
banking, trust, financial advisory or other business with Borrower or any of its Affiliates as if
it were not performing the duties specified herein, and may accept fees and other consideration
from the Borrower for services in connection herewith and otherwise without having to account for
the same to Lenders.
13.9
Successor Agents
. The Administrative Agent may resign as Administrative Agent
and the Collateral Agent may resign as Collateral Agent upon 20 days prior written notice to the
Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent or the
Collateral Agent shall resign as Collateral Agent under this Agreement and the other Credit
Documents, then the Required Lenders shall appoint from among the Lenders a successor
Administrative Agent or successor Collateral Agent, as applicable, which successor agent in each
case, shall be approved by the Borrower (which approval shall not be unreasonably withheld) so long
as no Default or Event of Default is continuing, whereupon such successor agent shall succeed to
the rights, powers and duties of the Administrative Agent or the Collateral Agent, as the case may
be, and the term Administrative Agent or Collateral Agent, as the case may be, shall mean such
successor agent effective upon such appointment and approval, and the former Administrative Agents
or Collateral Agents rights, powers and duties as Administrative Agent or Collateral Agent, as the
case may be, shall be terminated, without any other or further act or deed on the part of such
former Administrative Agent or Collateral Agent, as the case may be, or any of the parties to this
Agreement or any holders of the Loans. After any retiring Administrative Agents or Collateral
Agents resignation as Administrative Agent or Collateral Agent, as the case may be, the provisions
of this
Section 13
shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent or Collateral Agent under this Agreement and the
other Credit Documents.
13.10
Withholding Tax
. To the extent required by any applicable law, the
Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to
any applicable withholding tax. If the Internal Revenue Service or any authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent did not properly
withhold tax from amounts paid to
or for the account of any Lender (because the appropriate form was not delivered, was not
properly executed, or because such Lender failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason), such Lender shall indemnify the Administrative Agent (to the extent that the
Administrative Agent has not already been reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) fully for all amounts paid, directly or indirectly, by the
Administrative Agent as tax or otherwise, including penalties and interest, together with all
expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.
13.11
REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS
. By signing this
Agreement, each Lender:
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(a) is deemed to have requested that the Agents furnish such Lender and Agents hereby
agree to deliver to each Lender, promptly after it becomes available, (i) a copy of all
financial statements and Borrowing Base Certificates to be delivered by the Borrower
hereunder, (ii) a copy of any notice of Default or Event of Default received by such Agent,
(iii) a copy of each Report and (iv) a copy of each budget and certificate to be delivered
by the Borrower pursuant to
Sections 9.1(d)
and
(e)
;
(b) expressly agrees and acknowledges that no Agent (i) makes any representation or
warranty as to the accuracy of any Report, or (ii) shall be liable for any information
contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that the Agent or other party performing any audit or examination will inspect
only specific information regarding the Borrower and will rely significantly upon the
Borrowers books and records, as well as on representations of the Borrowers personnel;
(d) agrees to keep all Reports confidential in accordance with
Section 14.16
;
and
without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold the Agents and any such other Person or Lender preparing a Report
harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may
reach or draw from any Report in connection with any loans or other credit accommodations that the
indemnifying Lender has made or may make to the Borrower, or the indemnifying Lenders
participation in, or the indemnifying Lenders purchase of, a loan or loans of the Borrower; and
(ii) to pay and protect, and indemnify, defend, and hold the Agents and any such other Person or
Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages,
costs, expenses, and other amounts (including reasonable costs of counsel) incurred by the Agents
and any such other Lender preparing a Report as the direct or
indirect result of any third parties who might obtain all or part of any Report through the
indemnifying Lender. Upon a Lenders reasonable request, the Administrative Agent agrees to
deliver to such Lender a copy of the documents delivered by the Borrower to the Administrative
Agent pursuant to
Section 9.1
.
SECTION 14.
Miscellaneous
14.1
Amendments and Waivers
. Neither this Agreement nor any other Credit Document,
nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with
the provisions of this
Section 14.1
. The Required Lenders may, or, with the written
consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into
with the relevant Credit Party or Credit Parties written amendments, supplements or modifications
hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement
or the other Credit Documents or changing in any manner the rights of the Lenders or of the Credit
Parties hereunder or thereunder or (b) waive, on such terms and
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conditions as the Required Lenders
or the Administrative Agent, as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Credit Documents or any Default or Event of Default and
its consequences;
provided
,
however
, that no such waiver and no such amendment,
supplement or modification shall directly (i) forgive or reduce any portion of any Loan or Unpaid
Drawing or extend the final scheduled maturity date of any Loan or Unpaid Drawing or reduce the
stated rate (it being understood that any change to the definitions of Consolidated Total Debt to
Consolidated EBITDA Ratio, Secured Leverage Ratio or Consolidated Fixed Charge Coverage Ratio or in
the component definitions thereof shall not constitute a reduction in the stated rate and only the
consent of the Required Lenders shall be necessary to waive any obligation of the Borrower to pay
interest at the default rate or amend
Section 2.8(c)
), or forgive any portion, or extend
the date for the payment, of any interest or fee payable hereunder (other than as a result of
waiving the applicability of any post-default increase in interest rates), or extend the final
expiration date of any Lenders Commitment or extend the final expiration date of any Letter of
Credit beyond the L/C Maturity Date, or increase the aggregate amount of the Commitments of any
Lender, or amend or modify any provisions of
Section 5.3(a)
(with respect to the ratable
allocation of any payments only),
2.4
(with respect to the ratable disbursement of funds)
and
14.8(a)
, in each case without the written consent of each Lender directly and adversely
affected thereby, or (ii) amend, modify or waive any provision of this
Section 14.1
or
reduce the percentages specified in the definitions of the term Required Lenders or
Super-Majority Lenders or consent to the assignment or transfer by the Borrower of its rights and
obligations under any Credit Document to which it is a party (except as permitted pursuant to
Section 10.3
), in each case without the written consent of each Lender directly and
adversely affected thereby, or (iii) amend, modify or waive any provision of
Section 13
without the written consent of the then-current Administrative Agent, or (iv) amend, modify or
waive any provision of Section 3 with respect to any rights or obligations of the Letter of Credit
Issuer, Section 5.4 in a manner that directly and adversely affects the rights of the Letter of
Credit Issuer set forth therein or Section 14.6(b) or Section 14.7 to eliminate or reduce the
Letter of Credit Issuers right to consent to assignments of Revolving Credit Commitments or
Revolving Credit Loans, without the written consent of the Letter of Credit Issuer, or (v) amend,
modify or waive any provisions hereof relating to Swingline Loans without the written consent
of the Swingline Lender, or (vi) increase the advance rates or modify the definition of
Borrowing Base or any component definition thereof if such increase or modification is intended
to have the effect of making more credit available, in each case without the prior written consent
of the Super-Majority Lenders and, solely in the case of an increase to the $30,000,000 figure in
clause (o) of the definition of Eligible Account and/or clause (a) of the definition of Eligible
Red Man Business Account, the prior written consent of all Lenders;
provided
that the
foregoing shall not limit the discretion of the Administrative Agent to establish, change or
eliminate Reserves or otherwise exercise its Permitted Discretion, or (vii) release or limit the
liability of all or substantially all of the Guarantors under the Guarantee (except as expressly
permitted by the Guarantee) or release all or substantially all of the Collateral under the
Security Agreement (except with respect to transactions in accordance with Section 10.4) without
the prior written consent of each Lender, or (viii) amend
Section 2.9
so as to permit
Interest Period intervals greater than six months without regard to availability to Lenders,
without the written consent of each Lender directly and adversely affected thereby; or (ix) amend,
modify or waive any provisions hereof relating to the Administrative Agent in a manner that
directly and adversely affects it rights and obligations hereunder without the written consent
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of
the Administrative Agent; or (x) amend, modify or waive any provisions hereof relating to the
Collateral Agent in a manner that directly and adversely affects it rights and obligations
hereunder without the written consent of the Collateral Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the affected Lenders and shall
be binding upon the Borrower, such Lenders, the Administrative Agent and all future holders of the
affected Loans. In the case of any waiver, the Borrower, the Lenders and the Administrative Agent
shall be restored to their former positions and rights hereunder and under the other Credit
Documents, and any Default or Event of Default waived shall be deemed to be cured and not
continuing, it being understood that no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any right consequent thereon.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of
such Lender may not be increased or extended without the consent of such Lender (it being
understood that any Commitments or Loans held or deemed held by any Defaulting Lender shall be
excluded for a vote of the Lenders hereunder requiring any consent of the Lenders).
14.2
Notices
. Unless otherwise expressly provided herein, all notices and other
communications provided for hereunder or under any other Credit Document shall be in writing
(including by facsimile transmission). All such written notices shall be mailed, faxed or
delivered to the applicable address, facsimile number or electronic mail address, and all notices
and other communications expressly permitted hereunder to be given by telephone shall be made to
the applicable telephone number, as follows:
(a) if to the Borrower, the Administrative Agent, the Letter of Credit Issuer or the
Swingline Lender, to the address, facsimile number, electronic mail address or telephone
number specified for such Person on
Schedule 14.2
or to such other address,
facsimile number, electronic mail address or telephone number as shall be designated by
such party in a notice to the other parties; and
(b) if to any other Lender, to the address, facsimile number, electronic mail address
or telephone number specified in its Administrative Questionnaire or to such other address,
facsimile number, electronic mail address or telephone number as shall be designated by such
party in a notice to the Borrower, the Administrative Agent, the Letter of Credit Issuer and
the Swingline Lender.
All such notices and other communications shall be deemed to be given or made upon the earlier to
occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by
courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail,
three (3) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile,
when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail,
when delivered;
provided
that notices and other communications to the Administrative Agent
or the Lenders pursuant to Sections 2.3, 2.6, 2.9, 4.2 and 5.1 shall not be effective until
received.
14.3
No Waiver; Cumulative Remedies
. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent, the Collateral Agent or any Lender, any
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right,
remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
14.4
Survival of Representations and Warranties
. All representations and warranties
made hereunder, in the other Credit Documents and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the making of the Loans hereunder.
14.5
Payment of Expenses and Taxes
. The Borrower agrees (a) to pay or reimburse the
Agents for all their reasonable and documented out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Credit Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including the reasonable and documented costs, fees and expenses
associated with the initial collateral appraisal and field examination and all subsequent
appraisals, examinations or updates to the extent set forth in Section 9.14 and the reasonable
fees, disbursements and other charges of Latham & Watkins LLP, one local counsel in each relevant
local jurisdiction and such additional counsel to the extent consented to by the Borrower, (b) to
pay or reimburse each Lender, Letter of Credit Issuer and Agent for all its reasonable and
documented costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Credit Documents and any such other
documents, including the reasonable fees, disbursements and other charges of one counsel to the
Administrative Agent, Collateral Agent and the other Agents (unless there is an actual or perceived
conflict of interest in which case each such Person may retain its own counsel), (c) to pay,
indemnify, and hold harmless each Lender, Letter of Credit Issuer and Agent from, any and all
recording and filing fees and (d) to pay, indemnify, and hold harmless each Lender, Letter of
Credit Issuer and Agent and their respective directors, officers, employees, trustees, investment
advisors and agents from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including reasonable and documented fees, disbursements and other charges of one
primary counsel and one local counsel in each relevant jurisdiction to such indemnified Persons
(unless there is an actual or perceived conflict of interest or the availability of different
claims or defenses in which case each such Person may retain its own counsel), related to the
Transactions or with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Credit Documents and any such other documents,
including, without limitation, any of the foregoing relating to the violation of, noncompliance
with or liability under, any Environmental Law or to any actual or alleged presence, release or
threatened release of Hazardous Materials or any other Environmental Claims involving or
attributable to the operations of the Borrower, any of its Subsidiaries or any of the Real Estate
(all the foregoing in this clause (d), collectively, the
indemnified liabilities
),
provided
that the Borrower shall have no obligation hereunder to the Administrative Agent
or any Lender nor any of their Related Parties with respect to indemnified liabilities to the
extent attributable to the bad faith, gross negligence or willful misconduct of, or material breach
of the Credit Documents by, the party to be indemnified or any of its Related Parties (other than
its trustees and advisors). All amounts
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payable under this Section 14.5 shall be paid within ten
(10) Business Days of receipt by the Borrower of an invoice relating thereto setting forth such
expense in reasonable detail. No Person indemnified under this Section 14.5 shall be liable for
any special, indirect, consequential or punitive damages relating to this Agreement or any other
Credit Document or arising out of its activities in connection herewith or therewith. The
agreements in this Section 14.5 shall survive repayment of the Loans and all other amounts payable
hereunder
14.6
Successors and Assigns; Participations and Assignments
. (a) The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of the Letter of Credit
Issuer that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written consent of each
Lender (and any attempted assignment or transfer by the Borrower or without such consent shall be
null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations
hereunder except in accordance with this
Section 14.6
. Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than the parties hereto,
their respective successors and assigns permitted hereby (including any Affiliate of the Letter of
Credit Issuer that issues any Letter of Credit), Participants (to the extent provided in paragraph
(c) of this
Section 14.6
) and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, the Letter of Credit Issuer and the Lenders) any legal
or equitable right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any
Lender may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitments and
the Loans at the time owing to it) with the prior written consent of:
(A) the Borrower (which consent shall not be unreasonably withheld or
delayed;
provided
that it being understood that, without limitation,
the Borrower shall have the right to withhold its consent to any assignment
if, in order for such assignment to comply with applicable law, the Borrower
would be required to obtain the consent of, or make any filing or
registration with, any Governmental Authority),
provided
that no
consent of the Borrower shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund (unless increased costs would result
therefrom at any time when no Event of Default under
Section 11.1
or
Section 11.5
is continuing) or, if an Event of Default under
Section 11.1
or
Section 11.5
has occurred and is continuing,
any other assignee;
(B) the Administrative Agent (which consent shall not be unreasonably
withheld or delayed;
provided
that no consent of the Administrative
Agent shall be required for an assignment to a Lender, an Affiliate of a
Lender, an Approved Fund), or, in the case of assignments in connection with
the initial syndication of Commitments and Loans only, the Co-Lead
Arrangers, and, except in connection with the initial syndication of
Revolving Credit Commitments or Revolving Loans, the Swingline Lender and
the applicable Letter of Credit Issuer;
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(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an Affiliate of a
Lender or an Approved Fund or an assignment of the entire remaining amount
of the assigning Lenders Commitment or Loans, or assignments in connection
with the initial syndication of Commitments and Loans (in amounts, and to
such Persons, as previously agreed between the Borrower and the Co-Lead
Arrangers), the amount of the Commitment or Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000, and increments of
$1,000,000 in excess thereof, unless each of the Borrower and the
Administrative Agent otherwise consents (which consents shall not be
unreasonably withheld or delayed),
provided
that
no such
consent of the Borrower shall be required if an Event of Default under
Section 11.1
or
Section 11.5
has occurred and is continuing;
provided
,
further
, that contemporaneous assignments to a
single assignee
made by Affiliates of Lenders and related Approved Funds shall be
aggregated for purposes of meeting the minimum assignment amount
requirements stated above;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lenders rights and obligations
under this Agreement,
provided
that this clause shall not be
construed to prohibit the assignment of a proportionate part of all the
assigning Lenders rights and obligations in respect of one Class of
Commitments or Loans;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500,
provided
that only one
such fee shall be payable in the event of simultaneous assignments to or
from two or more Approved Funds; and
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an administrative questionnaire in a form approved by
the Administrative Agent (the
Administrative Questionnaire
).
For the purpose of this
Section 14.6(b)
, the term Approved Fund means
any Person (other than a natural person) that is engaged in making, purchasing,
holding or investing in bank loans and similar extensions of credit in the ordinary
course and that is administered, advised or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that
administers, advises or manages a Lender.
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(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(v)
of this
Section 14.6
, from and after the effective date specified in each
Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance, 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
Acceptance, be released from its obligations under this Agreement (and, in the case
of an Assignment and Acceptance covering all of the assigning Lenders rights and
obligations under this Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of
Sections 2.10, 2.11, 3.5,
5.4
and
14.5
). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this
Section 14.6
shall be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (c) of
this
Section 14.6
.
(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower shall maintain at the Administrative Agents Office a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of the
names and addresses of the Lenders, and the Commitments of, and principal
amount of the Loans and any payment made by the Letter of Credit Issuer under
any Letter of Credit owing to, each Lender pursuant to the terms hereof from time to
time (the
Register
). Further, the Register shall contain the name and
address of the Administrative Agent and the lending office through which each such
Person acts under this Agreement. The entries in the Register shall be conclusive
absent manifest error, and the Borrower, the Administrative Agent, the Letter of
Credit Issuer 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. The Register shall be available for inspection by the Borrower or any
Lender (with respect to any entry relating to such Lenders Loans) at any reasonable
time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Acceptance executed by
an assigning Lender and an assignee, the assignees completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this
Section 14.6
and any written consent to such assignment required by paragraph (b) of this
Section 14.
6, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register.
(c) (i) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Letter of Credit Issuer or the Swingline Lender, sell
participations to one or more banks or other entities (each, a
Participant
) in all or a portion of such Lenders rights and obligations
under this Agreement (including all or a portion of its Commitments and the Loans
owing to it),
provided
that (A) such Lenders obligations under this
Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations and (C) the
Borrower, the
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Administrative Agent, the
Letter of Credit Issuer and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lenders rights and obligations
under this Agreement. Any agreement or instrument pursuant to which a Lender sells
such a participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of any
provision of this Agreement or any other Credit Document,
provided
that such
agreement or instrument may provide that such Lender will not, without the consent
of the Participant, agree to any amendment, modification or waiver described in the
first proviso to
Section 14.1
under subsections (i), (vi), and (vii) that
affects such Participant. Subject to paragraph (c)(ii) of this
Section
14.6
, the Borrower agrees that each Participant shall be entitled to the
benefits of
Sections 2.10
,
2.11
and
5.4
to the same extent
as if it were a Lender (subject to the requirements of those Sections) and had
acquired its interest by assignment pursuant to paragraph (b) of this
Section
14.6
. To the extent permitted by law, each Participant also shall be entitled
to the benefits of
Section 14.8(b)
as though it were a Lender, provided such
Participant agrees to be subject to
Section 14.8(a)
as though it were a
Lender.
(ii) A Participant shall not be entitled to receive any greater payment under
Section 2.10 or 5.4
than the applicable Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the sale
of the participation to such Participant is made with the Borrowers prior written
consent (which consent shall not be unreasonably withheld).
(d) Any Lender may, without the consent of the Borrower or the Administrative Agent, at any
time pledge or assign a security interest in all or any portion of its rights under this Agreement
to secure obligations of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this
Section 14.6
shall not apply to any such pledge or
assignment of a security interest,
provided
that no such pledge or assignment of a security
interest shall release a Lender from any of its obligations hereunder or substitute any such
pledgee or assignee for such Lender as a party hereto. In order to facilitate such pledge or
assignment, the Borrower hereby agrees that, upon request of any Lender at any time and from time
to time after the Borrower has made its initial borrowing hereunder, the Borrower shall provide to
such Lender, at the Borrowers own expense, a promissory note, substantially in the form of
Exhibit L
evidencing the Revolving Credit Loans and Swingline Loans, respectively, owing to
such Lender.
(e) Subject to
Section 14.16
, the Borrower authorizes each Lender to disclose to any
Participant, secured creditor of such Lender or assignee (each, a
Transferee
) and any
prospective Transferee any and all financial information in such Lenders possession
concerning the Borrower and its Affiliates that has been delivered to such Lender by or on behalf
of the Borrower and its Affiliates pursuant to this Agreement or which has been delivered to such
Lender by or on behalf of the Borrower and its Affiliates in connection with such Lenders credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement.
14.7
Replacements of Lenders under Certain Circumstances
. (a) The Borrower shall be permitted to
replace any Lender that (a) requests
reimbursement for amounts owing pursuant
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to
Section 2.10, 3.5
or
5.4
, (b) is
affected in the manner described in
Section 2.10(a)(iii)
and as a result thereof any of the
actions described in such Section is required to be taken or (c) becomes a Defaulting Lender, with
a replacement bank or other financial institution,
provided
that (i) such replacement does
not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time of such replacement, (iii) the Borrower shall repay (or the replacement bank
or institution shall purchase, at par) all Loans and other amounts (other than any disputed
amounts), pursuant to
Section 2.10, 2.11, 3.5
or
5.4
, as the case may be) owing to
such replaced Lender prior to the date of replacement, (iv) the replacement bank or institution, if
not already a Lender, and the terms and conditions of such replacement, shall be reasonably
satisfactory to the Administrative Agent, the Swingline Lender and the Letter of Credit Issuer, (v)
the replaced Lender shall be obligated to make such replacement in accordance with the provisions
of
Section 14.6
(
provided
that
the Borrower shall be obligated to pay the
registration and processing fee referred to therein) and (vi) any such replacement shall not be
deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender
shall have against the replaced Lender.
(b) If any Lender (such Lender, a
Non-Consenting Lender
) has failed to consent to a
proposed amendment, waiver, discharge or termination, then provided no Event of Default then
exists, the Borrower shall have the right (unless such Non-Consenting Lender grants such consent)
to replace such Non-Consenting Lender by requiring such Non-Consenting Lender to assign its Loans,
and its Commitments hereunder to one or more assignees reasonably acceptable to the Administrative
Agent, the Swingline Lender and the Letter of Credit Issuer,
provided
that: (a) all
Obligations of the Borrower owing to such Non-Consenting Lender being replaced shall be paid in
full to such Non-Consenting Lender concurrently with such assignment, (b) the replacement Lender
shall purchase the foregoing by paying to such Non-Consenting Lender a price equal to the principal
amount thereof plus accrued and unpaid interest thereon and (c) the replacement Lender shall grant
such consent. In connection with any such assignment, the Borrower, Administrative Agent, such
Non-Consenting Lender and the replacement Lender shall otherwise comply with
Section 14.6
.
14.8
Adjustments; Set-off
. (a) If any Lender (a
benefited Lender
) shall at
any time receive any payment
of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in
Section 11.5
, or otherwise), in a greater proportion than any such payment
to or collateral received by any other Lender, if any, in respect of such other Lenders Loans, or
interest thereon, such benefited Lender shall purchase for cash from the other Lenders a
participating interest in
such portion of each such other Lenders Loan, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such
benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders;
provided
,
however
, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall
be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but
without interest.
(b) After the occurrence and during the continuance of an Event of Default, in addition to any
rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior
notice to the Borrower, any such notice being expressly waived by the
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Borrower to the extent
permitted by applicable law, subject to the consent of the Administrative Agent (such consent not
to be unreasonably withheld) upon any amount becoming due and payable by the Borrower hereunder
(whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply
against such amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any currency, in each
case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender or any branch or agency thereof to or for the credit or the account of the
Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after
any such set-off and application made by such Lender,
provided
that the failure to give
such notice shall not affect the validity of such set-off and application.
14.9
Counterparts
. This Agreement may be executed by one or more of the parties to this Agreement on any
number of separate counterparts (including by facsimile or other electronic transmission), and all
of said counterparts taken together shall be deemed to constitute one and the same instrument. A
set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and
the Administrative Agent.
14.10
Severability
. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
14.11
Integration
. This Agreement and the other Credit Documents represent the agreement of the Borrower, the
Collateral Agent, the Administrative Agent and the Lenders with respect to the subject matter
hereof, and there are no promises, undertakings, representations or warranties by the Borrower, the
Administrative Agent, the Collateral Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Credit Documents.
14.12
GOVERNING LAW
. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
14.13
Submission to Jurisdiction; Waivers
. Each party hereto hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the courts of the United States of America for the
Southern District of New York and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such
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action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Person at its address set forth on
Schedule 14.2
at
such other address of which the Administrative Agent shall have been notified pursuant to
Section 14.2
;
(d) agrees that nothing herein shall affect the right to effect service of process in
any other manner permitted by law or shall limit the right to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this
Section 14.13
any
special, exemplary, punitive or consequential damages.
14.14
Acknowledgments
. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Credit Documents;
(b) neither the Administrative Agent nor the Collateral Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in connection with
this Agreement or any of the other Credit Documents, and the relationship between
Administrative Agent, the Collateral Agent and Lenders, on one hand, and the Borrower, on
the other hand, in connection herewith or therewith is solely that of debtor and creditor;
and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Lenders or among the
Borrower and the Lenders.
14.15
WAIVERS OF JURY TRIAL
. THE BORROWER, EACH AGENT AND EACH LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
14.16
Confidentiality
. The Administrative Agent, each Co-Lead Arranger and each Lender shall hold all non-public
information furnished by or on behalf of the Borrower in connection with such Lenders evaluation
of whether to become a Lender hereunder or obtained by such Lender, the Administrative Agent or the
Co-Lead Arrangers pursuant to the requirements of this Agreement (
Confidential
Information
), confidential in accordance with its customary procedure for handling
confidential information of this nature and (in the case of a Lender that is a bank) in accordance
with safe and sound banking practices and in any event may (i) make disclosure as required or
requested by any governmental agency or representative thereof or pursuant to legal process or to
such Lenders, the Administrative Agents or Co-Lead
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Arrangers attorneys, professional advisors or
independent auditors or Affiliates,
provided
that unless specifically prohibited by
applicable law or court order, each Lender, each Co-Lead Arranger and the Administrative Agent
shall notify the Borrower of any request by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial condition of such
Lender by such governmental agency or other routine examinations of such Lender by such
governmental agency) for disclosure of any such non-public information prior to disclosure of such
information, and
provided
,
further
, that in no event shall any Lender, Co-Lead Arranger or the
Administrative Agent be obligated or required to return any materials furnished by the Borrower or
any Subsidiary of the Borrower, (ii) make disclosures of such information reasonably required by
any bona fide or potential assignee, transferee or participant in connection with the contemplated
assignment, transfer or participation by such Lender of any Loans or any participations therein or
by any direct or indirect contractual counterparties (or the professional advisors thereto) in
Hedge Agreements or any other swap or derivative transaction relating to the Borrower and its
obligations (provided, such assignees, transferees, participants, counterparties and advisors are
advised of and agree to be bound by provisions that in substance are equivalent to those in this
Section 14.16), (iii) make disclosure of such information reasonably required by any lender or
other Person providing financing to such Lender (provided such lenders or other Persons are advised
of the confidential nature of such information and agree to keep such information confidential on
terms consistent with this Section 14.16), and (iv) make disclosure to any rating agency,
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 Agents
or any Lender.
14.17
Direct Website Communications
.
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(a)
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(i) The Borrower may, at its option, provide to the Administrative Agent
any information, documents and other materials that it is obligated to furnish to
the Administrative Agent pursuant to the Credit Documents, including, without
limitation, all notices, requests, financial statements, financial and other
reports, certificates and other information materials, but excluding any such
communication that (A) relates to a request for a new, or a conversion of an
existing, borrowing or other extension of credit (including any election of an
interest rate or interest period relating thereto), (B) relates to the payment of
any principal or other amount due under the Credit Agreement prior to the scheduled
date therefor, (C) provides notice of any default or event of default under the
Credit Agreement or (D) is required to be delivered to satisfy any condition
precedent to the effectiveness of the Credit Agreement and/or any borrowing or other
extension of credit thereunder (all such non-excluded communications being referred
to herein collectively as
Communications
), by transmitting the
Communications in an electronic/soft medium in a format reasonably acceptable to the
Administrative Agent at (212) 461-7760, Attn: Relationship Manager/McJunkin.
Nothing in this
Section 14.17
shall prejudice the right of the Borrower, the
Administrative Agent or any Lender to give any notice or other communication
pursuant to any Credit Document in any other manner specified in such Credit
Document.
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(ii) The Administrative Agent agrees that the receipt of the Communications by
the Administrative Agent at its e-mail address set forth above shall constitute
effective delivery of the Communications to the Administrative Agent for purposes of
the Credit Documents. Each Lender agrees that notice to it (as provided in the next
sentence) specifying that the Communications have been posted to the Platform shall
constitute effective delivery of the Communications to such Lender for purposes of
the Credit Documents. Each Lender agrees (A) to notify the Administrative Agent in
writing (including by electronic communication) from time to time of such Lenders
e-mail address to which the foregoing notice may be sent by electronic transmission
and (B) that the foregoing notice may be sent to such e-mail address.
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(b) The Borrower further agrees that the Administrative Agent may make the Communications
available to the Lenders by posting the Communications on Intralinks or a substantially similar
electronic transmission system (the
Platform
), so long as the access to such Platform is
limited (i) to the Agents and the Lenders and (ii) remains subject the confidentiality requirements
set forth in
Section 14.16
.
(c) The Platform is provided as is and as available. The Agent Parties do not warrant the
accuracy or completeness of the Communications, or the adequacy of the platform and expressly
disclaim liability for errors or omissions in the Communications. No warranty of any kind,
express, implied or statutory, including, without limitation, 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 the Agent Parties in connection with the
Communications or the platform. In no event shall the Administrative Agent, the Collateral Agent
or any of its affiliates or any of their respective officers, directors, employees, agents,
advisors or representatives (collectively,
Agent Parties
) have any liability to the
Borrower, any Lender or any other person or entity for damages of any kind, including, without
limitation, direct or indirect, special, incidental or consequential damages, losses or expenses
(whether in tort, contract or otherwise) arising out of the Borrowers or the Administrative
Agents transmission of Communications through the internet, except to the extent the liability of
any Agent Party resulted from such Agent Partys (or any of its Related Parties (other than
trustees and advisors)) gross negligence, bad faith or willful misconduct or material breach of the
Credit Documents.
(d) The Borrower and each Lender acknowledge that certain of the Lenders may be public-side
Lenders (Lenders that do not wish to receive material non-public information with respect to the
Borrower, its Subsidiaries or their securities) and, if documents or notices required to be
delivered pursuant to the Credit Documents or otherwise are being distributed through the Platform,
any document or notice that the Borrower has indicated contains only publicly available information
with respect to the Borrower may be posted on that portion of the Platform designated for such
public-side Lenders. If the Borrower has not indicated whether a document or notice delivered
contains only publicly available information, the Administrative Agent shall post such document or
notice solely on that portion of the Platform designated for Lenders who wish to receive material
nonpublic information with respect to the Borrower, its Subsidiaries and their securities.
Notwithstanding the foregoing, the
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Borrower shall be under no obligation under this Section 14.17
(d) to indicate any document or notice as containing only publicly available information.
14.18
USA PATRIOT Act
. Each 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 Guarantor, which information includes the name and address of the Borrower and each Guarantor
and other information that will allow such Lender to identify the Borrower and each Guarantor in
accordance with the Patriot Act.
SECTION 15.
Limitation on Permitted Discretion; Special Provisions regarding Accounts,
Inventory, and Application of Collateral Proceeds
15.1
Accounts and Account Collections
.
(a) At any time that an Event of Default exists or has occurred and is continuing and
after notice of such action has been provided to the Borrower, Collateral Agent shall, at
its option, have the exclusive right to settle, adjust or compromise any
claim, offset, counterclaim or dispute with Account Debtors of any Credit Party or
grant any credits, discounts or allowances.
(b) Collateral Agent shall have the right at any time or times during the continuance
of an Event of Default or Cash Dominion Event and after notice of such action has been
provided to the Borrower, in Collateral Agents name or in the name of a nominee of
Collateral Agent, and may communicate directly with any Account Debtor, to verify the
validity, amount or any other matter relating to any Account or other Collateral, by mail,
telephone, e-mail, facsimile transmission or otherwise. To facilitate the exercise of the
right described in the immediately preceding sentence, Borrower hereby agrees to provide
Collateral Agent upon request, at any time during the continuance of an Event of Default,
the name and address of each material Account Debtor of Borrower or any Borrowing Base
Guarantor.
(c) Within sixty (60) days after the Closing Date (or such later date as the
Administration Agent may reasonably agree in writing), the Borrower will, and will cause
each of the Guarantors to establish and maintain, at its sole expense, blocked accounts or
lockboxes and related deposit accounts (in each case,
Blocked Accounts
) with such
banks as are reasonably acceptable to Collateral Agent into which Borrower and the
Guarantors shall promptly deposit and direct their respective Account Debtors to directly
remit all payments on Accounts and all payments constituting proceeds of Inventory or other
Collateral in the identical form in which such payments are made, whether by cash, check or
other manner and shall be identified and segregated from all other funds of the Credit
Parties. All proceeds of the Loans shall be deposited into a Blocked Account. Borrower and
Guarantors shall deliver, or cause to be delivered, to Collateral Agent a Control Agreement
duly authorized, executed and delivered by each bank where a Blocked Account for the benefit
of Borrower or any Guarantor is maintained. Except as permitted by
Section
15.1(d)(iii)
, Borrower and Guarantors shall not establish any deposit accounts after the
Closing Date, unless Borrower or Guarantor
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(as applicable) have complied in full with the
provisions of this
Section 15.1
with respect to such deposit accounts.
(d) At all times after the initial Blocked Accounts are established pursuant to the
foregoing paragraph (c), Borrower and each Guarantor shall maintain a cash management system
which is acceptable to the Administrative Agent and the Collateral Agent (the
Cash
Management System
). The Cash Management System shall contain, among other things, the
following:
(i) With respect to the Blocked Accounts of Borrower and such Guarantors as the
Collateral Agent shall determine in its sole discretion, the applicable bank
maintaining such Blocked Accounts shall agree, pursuant to the applicable Control
Agreement, to forward daily all amounts in each Blocked Account to one Blocked
Account designated as concentration account in the name of Borrower (the
Concentration Account
) at the bank that shall be designated as the
Concentration Account bank for Borrower (the
Concentration Account Bank
).
The Concentration Account Bank shall agree, pursuant to the applicable Control
Agreement from and after the receipt of a notice (an
Activation Notice
)
from the Collateral Agent (which Activation Notice may be given by Collateral
Agent at any time during the existence of a Cash Dominion Event) and so long as such
Cash Dominion Event is continuing, to forward daily all amounts in the Concentration
Account to the account designated as collection account (the
Collection
Account
) which shall be under the exclusive dominion and control of the
Collateral Agent;
provided
that at any time when no Cash Dominion Event is
continuing, the balance standing to the credit of the Concentration Account shall be
distributed as directed by the Borrower in accordance with this Section 15.1;
(ii) With respect to the Blocked Accounts of such Guarantors as the Collateral
Agent shall determine in its sole discretion, the applicable bank maintaining such
Blocked Accounts shall agree, from and after the receipt of an Activation Notice
from the Collateral Agent (which Activation Notice may be given by Collateral Agent
at any time during the existence of a Cash Dominion Event) and so long as such Cash
Dominion Event is continuing, to forward all amounts in each Blocked Account to the
Collection Account and to commence the process of daily sweeps from such Blocked
Account into the Collection Account; and
(iii) Any provision of this
Section 15.1
to the contrary
notwithstanding, Credit Parties may maintain payroll accounts, trust accounts or
other accounts that are not a part of the Cash Management Systems or subject to a
Control Agreement provided that no Credit Party shall accumulate or maintain cash in
such accounts (other than cash not constituting proceeds of Collateral or Loans) as
of any date of determination in excess of checks outstanding against such accounts
as of that date and amounts necessary to meet minimum balance requirements plus
$1,000,000 in the aggregate for all such accounts.
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(e) At all times following the establishment of the Cash Management System pursuant to
this
Section 15.1
and after the occurrence and during the continuation of a Cash
Dominion Event, on each Business Day, at or before 1:00 p.m. New York City time, the
Collateral Agent shall apply all funds received in the Collection Account on a daily basis
to the repayment (by transferring same to the account of or pursuant to direction of
Administrative Agent) of (i) first, fees and reimbursable expenses of Agents then due and
payable; (ii) second, to interest then due and payable on all Loans, (iii) third, the Swing
Line Loans, (iv) fourth, ABR Loans (including Protection Advances), (v) fifth, LIBOR Loans,
together with all accrued and unpaid interest thereon, and (vi) last, other amounts which
are then due and owing by the Borrower hereunder or under any other Credit Document, in each
case without a reduction in the Revolving Commitments; all further funds received in any of
the Collection Account shall, unless an Event of Default has occurred and is continuing, be
transferred or applied by the Collateral Agent in accordance with the directions of Borrower
or the respective other Borrowing Base Guarantor. If an Event of Default has occurred and
is continuing, the Collateral Agent shall not transfer or apply any such funds from the
Collection Account in accordance with such directions unless the Administrative Agent and
the Collateral Agent determine to release such funds to Borrower. Absent any such
determination by the Administrative
Agent and the Collateral Agent, all such funds in the Collection Account shall be
transferred to the Cash Collateral Account to be applied to the Obligations as they come due
(whether at stated maturity, by acceleration or otherwise). If consented to by the
Administrative Agent, the Collateral Agent and the Required Lenders, such funds in the Cash
Collateral Account may be released to Borrower.
(f) Borrower and its directors, employees, agents and other Affiliates and Guarantors
shall, acting as trustee for Collateral Agent, receive, as the property of Collateral Agent,
any monies, checks, notes, drafts or any other payment relating to and/or proceeds of
Accounts, Inventory or other Collateral which come into their possession or under their
control and, following the establishment of the Cash Management Systems pursuant to this
Section 15.1
, within three (3) Business Days after receipt thereof, shall deposit or
cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same
to be remitted, in kind, to Collateral Agent.
15.2
Limitation on Permitted Discretion.
.
(a) The Administrative Agent shall have the right to establish, modify or eliminate
Reserves against Eligible Accounts and Eligible Inventory from time to time in its Permitted
Discretion. In addition, the Administrative Agent reserves the right, at any time and from
time to time after the Closing Date, to adjust any of the applicable criteria, to establish
new criteria and to adjust advance rates with respect to Eligible Accounts and Eligible
Inventory, in its Permitted Discretion, subject to clause (vi) of the proviso to
Section
14.1
.
(b) Notwithstanding the foregoing or any provision in this Agreement to the contrary,
circumstances, conditions, events or contingencies arising prior to the Closing Date and
disclosed to the Co-Lead Arrangers, Administrative Agent or Collateral Agent prior to the
Closing Date shall not be the basis for any establishment or modification of
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Reserves,
eligibility criteria or advance rates unless (i) in the case of Reserves and eligibility
criteria, such Reserves or eligibility criteria were established on the Closing Date or (ii)
such circumstances, conditions, events or contingencies shall have changed in a material
respect since the Closing Date.
(c) Any exercise of Permitted Discretion shall be based on a good faith reasonable
determination of the Administrative Agent that (i) the circumstances, conditions, events or
contingencies giving rise thereto will or reasonably could be expected to adversely affect a
material portion of the value of the Eligible Accounts or Eligible Inventory, the
enforceability or priority of the Collateral Agents Liens thereon or the amount the Secured
Parties would likely receive in the liquidation of any material portion of Eligible Accounts
or Eligible Inventory and (ii) the proposed action to be taken by the Administrative Agent
to mitigate the effects described in clause (i) (including the amount of any Reserve) bears
a reasonable relationship to the circumstance, condition, event or other contingency that is
the basis therefor.
(d) Upon delivery of notice to Borrower by the Administrative Agent of its intent to
establish or increase a Reserve, the Administrative Agent shall be available to discuss the
proposed Reserve or increase, and the Borrower may take such action as may be required so
that the circumstance, condition, event or other contingency that is the basis for such
Reserve or increase no longer exists, in a manner and to the extent reasonably satisfactory
to the Administrative Agent in the exercise of its Permitted Discretion. In no event shall
such notice and opportunity limit the right of the Administrative Agent to establish or
change such Reserve, unless the Administrative Agent shall have determined in its Permitted
Discretion that the circumstance, condition, event or other contingency that is the basis
for such new Reserve or such change no longer exists or has otherwise been adequately
addressed by the Borrower.
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to
be duly executed and delivered as of the date first above written.
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MCJUNKIN CORPORATION
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By:
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/s/
J.F. UNDERHILL
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Name:
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J.F. Underhill
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Title:
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Chief Financial Officer
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Co-Lead Arranger and Joint Bookrunner
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By:
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/s/
WALTER A. JACKSON
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Name:
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Walter A. Jackson
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Title:
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Authorized Signatory
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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THE CIT GROUP/BUSINESS CREDIT, INC., as
Administrative Agent and Co-Collateral Agent
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By:
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/s/
CYNTRA A. TRANI
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Name:
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Cyntra A. Trani
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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BANK OF AMERICA, N.A., as Co-Collateral Agent
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By:
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/s/
J.L. BARTHOLOMEW
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Name:
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J.L. Bartholomew
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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LEHMAN BROTHERS INC., as Co-Lead Arranger
and Joint Bookrunner
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By:
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/s/ LAURIE PERPER
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Name:
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Laurie Perper
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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BANK OF AMERICA, N.A., as Syndication Agent
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By:
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/s/ JOY L. BARTHOLOMEW
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Name:
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Joy L. Bartholomew
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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Allied Irish Banks, p.l.c.,
as a
Lender
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By:
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/s/ ALBERT D. PEREZ
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Name:
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Albert D. Perez
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Title:
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Vice President
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By:
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/s/ EANNA P. MULKERE
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Name:
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Eanna P. Mulkere
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Title:
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Assistant Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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BANK OF AMERICA, N.A., as a Lender
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By:
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/s/ JOY L. BARTHOLOMEW
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Name:
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Joy L. Bartholomew
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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Bank
of Oklahoma, N.A.
as a Lender
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By:
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/s/ DAN HUGHES
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Name:
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Dan Hughes
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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Branch Banking & Trust Company,
as a Lender
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By:
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/s/ STEPHANIE J. COOK
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Name:
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Stephanie J. Cook
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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Burdale Financial Limited,
as a Lender
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By:
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/s/ DAVID GRENDE
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Name:
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David Grende
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Title:
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Managing Director
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By:
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/s/ JASON D. SCHICK
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Name:
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Jason Schick
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Title:
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Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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CATERPILLAR FINANCIAL SERVICES CORPORATION,
as a Lender
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By:
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/s/ CHRISTOPHER C. PATTERSON
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Name:
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Christopher C. Patterson
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Title:
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Global Operations Manager Capital Markets
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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THE CIT GROUP/BUSINESS CREDIT, INC., as a Lender
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By:
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/s/ CYNTRA A. TRANI
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Name:
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Cyntra A. Trani
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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Citizens Bank, as a Lender
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By:
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/s/ TIMOTHY D. HANCHETT
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Name:
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Timothy D. Hanchett
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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City National Bank of West Virginia,
as a Lender
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By:
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/s/ JACK CAVENDER
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Name:
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Jack Cavender
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Title:
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Executive Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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Fifth Third Bank an Ohio Banking Corporation,
as a Lender
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By:
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/s/ WILLIAM R. HARROD
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Name:
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William R. Harrod
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Title:
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Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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General
Electric Capital Corporation,
as a Lender
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By:
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/s/ MARTIN J. MAHONEY
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Name:
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Martin Mahoney
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Title:
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Duly Authorized Signatory
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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The Huntington National Bank,
as a Lender
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By:
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/s/ L. BLAIR DEVAN
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Name:
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L. Blair DeVan
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Title:
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Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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Israel Discount Bank of New York,
as a Lender
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By:
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/s/ RAHUM N. WILLIAMS
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Name:
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Rahum N. Williams
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Title:
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Vice President
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By:
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/s/ JEFFREY S. ACKERMAN
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Name:
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Jeffrey S. Ackerman
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Title:
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Senior Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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JPMorgan Chase Bank, N.A.,
as a Lender
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By:
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/s/ KIM NGUYEN
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Name:
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Kim Nguyen
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Title:
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Vice President
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[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
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Mizuho Corporate Bank,
as a Lender
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By:
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/s/ JAMES R. FAYEN
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Name:
|
James R. Fayen
|
|
|
|
Title:
|
Deputy General Manager
|
|
|
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
|
|
|
|
|
|
National City Business Credit, Inc.,
as a Lender
|
|
|
By:
|
/s/ THOMAS J. EVANS
|
|
|
|
Name:
|
Thomas J. Evans
|
|
|
|
Title:
|
Vice President
|
|
|
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
|
|
|
|
|
|
North Fork Business Capital Corporation,
as a Lender
|
|
|
By:
|
/s/ MICHAEL S. BURNS
|
|
|
|
Name:
|
Michael S. Burns
|
|
|
|
Title:
|
Senior Vice President
|
|
|
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
|
|
|
|
|
|
PNC Bank, National Association,
as a Lender
|
|
|
By:
|
/s/ SAM V. TRABERMAN
|
|
|
|
Name:
|
Sam V. Traberman
|
|
|
|
Title:
|
Vice President
|
|
|
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
|
|
|
|
|
|
RZB Finance LLC,
as a Lender
|
|
|
By:
|
/s/ SHIRLEY M. RITCH
|
|
|
|
Name:
|
Shirley M. Ritch
|
|
|
|
Title:
|
Assistant Vice President
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ NICOLAS M. MORIATIS
|
|
|
|
Name:
|
Nicolas M. Moriatis
|
|
|
|
Title:
|
Group Vice President
Controller
|
|
|
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
|
|
|
|
|
|
United Bank, Inc,
as a Lender
|
|
|
By:
|
/s/ JAMES A. WARD
|
|
|
|
Name:
|
James A. Ward
|
|
|
|
Title:
|
Vice President
|
|
|
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
|
|
|
|
|
|
UPS
Capital Corporation,
as a Lender
|
|
|
By:
|
/s/ JOHN P. HOLLOWAY
|
|
|
|
Name:
|
John P. Holloway
|
|
|
|
Title:
|
Director of Portfolio Management
|
|
|
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
|
|
|
|
|
|
Wachovia Bank National Association,
as a Lender
|
|
|
By:
|
/s/ STEVEN J. HAAS
|
|
|
|
Name:
|
Steven J. Haas
|
|
|
|
Title:
|
Director
|
|
|
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
SCHEDULE 1.1(A) EXISTING
LETTERS OF CREDIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficiary
|
|
Expiration Date
|
|
|
Amount
|
|
|
Purpose
|
|
Issuing Bank
|
Brickstreet
|
|
|
11/1/08
|
|
|
$
|
200,000
|
|
|
Workers Comp
|
|
JPMorgan Chase
|
St. Paul Travelers
|
|
|
12/31/07
|
|
|
$
|
1,775,000
|
|
|
Insurance
|
|
United Bank
|
State of West Virginia
|
|
|
1/31/08
|
|
|
$
|
1,000,000
|
|
|
Workers Comp
|
|
JPMorgan Chase
|
Sentry Insurance
|
|
|
11/1/08
|
|
|
$
|
75,000
|
|
|
Insurance
|
|
JPMorgan Chase
|
Lumbermans Mutual
|
|
|
7/1/08
|
|
|
$
|
45,000
|
|
|
Insurance
|
|
JPMorgan Chase
|
SCHEDULE 1.1(B)
BORROWING BASE GUARANTORS
|
|
|
|
|
|
|
|
|
McJunkin Appalachian Oilfield Supply Company
McJunkin Development Corporation
McJunkin Nigeria Limited
McJunkin-Puerto Rico Corporation
McJunkin-West Africa Corporation
Milton Oil & Gas Company
Ruffner Realty Company
Greenbrier Petroleum Corporation
Midway-Tristate Corporation
West Oklahoma PVF Company
Red Man Pipe & Supply Co.
Wesco Acquisition Partners, Inc.
|
|
|
|
|
SCHEDULE
1.1(C) COMMITMENTS AND ADDRESSES OF
LENDERS
1
Allied Irish
Bank, p.l.c.
Bank of America, N.A.
Bank of Oklahoma, N.A.
Branch Banking & Trust Company
Burdale Financial Limited
Caterpillar Financial Services Corporation
The CIT Group/Business Credit, Inc.
Citizens Bank
City National Bank of West Virginia
Fifth Third Bank an Ohio Banking Corporation
General Electric Capital Corporation
The Huntington National Bank
Israel Discount Bank of New York
JPMorgan Chase Bank, N.A.
Mizuho Corporate Bank, Ltd.
National City Business Credit, Inc.
North Fork Business Capital Corporation
PNC Bank, National Association
RZB Finance LLC
United Bank, Inc.
UPS Capital Corporation
Wachovia Bank, National Association
1
Addresses and commitments on file with Administrative
Agent.
SCHEDULE
1.1(D) EXCLUDED SUBSIDIARIES
McJunkin
Receivables Corporation
Red Man
Pipe & Supply International, Ltd.
SCHEDULE
1.1(E) COST SAVINGS
12/31/07 $1,120,357
SCHEDULE
1.1(F) NON-CORE ASSETS
623,521 shares
of common stock of PrimeEnergy Corporation, which comprise
approximately 19% of outstanding stock
19/60
ownership interest in Vision Exploration & Production Co.,
LLC
Hansford
Street property and building (1400, 1401 and 1403 Hansford
Street, Charleston, WV 25301)
Beekman
apartment (575 Park Avenue, Apt. 401, New York, NY 10021)
Piedmont
Farm (State Route 3, Union, WV)
Vacant lot
at Hillcrest Drive (835 Hillcrest Drive, Charleston, WV, 25311)
SCHEDULE
8.12 SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
Name
|
|
|
Owner
|
|
|
Type
|
|
|
(Y/N)
|
McJunkin Appalachian Oilfield Supply Company
|
|
|
McJunkin Corporation
|
|
|
corporation
|
|
|
Y
|
McJunkin Nigeria Limited
|
|
|
McJunkin Corporation
|
|
|
corporation
|
|
|
N
|
McJunkin Development Corporation
|
|
|
McJunkin Corporation
|
|
|
corporation
|
|
|
N
|
McJunkin-Puerto Rico Corporation
|
|
|
McJunkin Corporation
|
|
|
corporation
|
|
|
N
|
McJunkin Receivables Corporation
|
|
|
McJunkin Corporation
|
|
|
corporation
|
|
|
N
|
McJunkin-West Africa Corporation
|
|
|
McJunkin Corporation
|
|
|
corporation
|
|
|
N
|
Milton Oil & Gas Company
|
|
|
McJunkin Corporation
|
|
|
corporation
|
|
|
N
|
Greenbrier Petroleum Corporation
|
|
|
Milton Oil & Gas Company
|
|
|
corporation
|
|
|
N
|
Ruffner Realty Company
|
|
|
McJunkin Corporation
|
|
|
corporation
|
|
|
N
|
Midway-Tristate Corporation
|
|
|
McJunkin Appalachian Oilfield Supply Company
|
|
|
corporation
|
|
|
Y
|
West Oklahoma PVF Company
|
|
|
McJunkin Corporation
|
|
|
corporation
|
|
|
Y
|
McJunkin de Angola, Lda
|
|
|
McJunkin-West Africa Corporation (49%)/McJunkin Development
Corporation (51%)
|
|
|
limited liability company
|
|
|
N
|
Red Man Pipe & Supply Co.
|
|
|
West Oklahoma PVF Company
|
|
|
corporation
|
|
|
Y
|
Wesco Acquisition Partners, Inc.
|
|
|
Red Man Pipe & Supply Co.
|
|
|
corporation
|
|
|
N
|
Red Man Pipe and Supply Canada, Ltd.
|
|
|
Red Man Pipe & Supply Co.
|
|
|
corporation
|
|
|
Y
|
Midfield Supply ULC
|
|
|
Red Man Pipe and Supply Canada, Ltd.
|
|
|
corporation
|
|
|
Y
|
Midfield Supply USA, Ltd.
|
|
|
Midfield Supply ULC
|
|
|
corporation
|
|
|
N
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
Name
|
|
|
Owner
|
|
|
Type
|
|
|
(Y/N)
|
Mega Production Testing Inc.
|
|
|
Midfield Supply ULC
|
|
|
corporation
|
|
|
N
|
|
|
|
|
|
|
|
|
|
|
Northern Boreal Supply Ltd.
|
|
|
Midfield Supply ULC
|
|
|
corporation
|
|
|
N
|
|
|
|
|
|
|
|
|
|
|
Red Man Pipe & Supply
International, Ltd.
|
|
|
Red Man Pipe & Supply Co.
|
|
|
corporation
|
|
|
N
|
|
|
|
|
|
|
|
|
|
|
Hagan Oilfield Supply Ltd.
|
|
|
Midfield Supply ULC
|
|
|
corporation
|
|
|
N
|
|
|
|
|
|
|
|
|
|
|
1048025 Alberta Ltd.
|
|
|
Midfield Supply ULC
|
|
|
corporation
|
|
|
N
|
|
|
|
|
|
|
|
|
|
|
1236564 Alberta Ltd.
|
|
|
Midfield Supply ULC
|
|
|
corporation
|
|
|
N
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE
9.9 CLOSING DATE AFFILIATE TRANSACTIONS
None.
SCHEDULE 9.17(C) POST
CLOSING ACTIONS
The Borrower agrees that it will, or will cause its relevant
Subsidiaries to, complete each of the actions set forth below as
soon as commercially reasonable and by no later than the date
set forth opposite such action or such later date as the
Administrative Agent may reasonably agree. All documentation
shall be in form and substance reasonably acceptable to the
Administrative Agent.
|
|
|
|
|
|
Action
|
|
|
Date
|
1.
|
|
Deed of Trust for property located in Davis County, Utah
|
|
|
10 Business Days
|
|
|
|
|
|
|
2.
|
|
Opinion from Utah counsel relating to item (1)
|
|
|
10 Business Days
|
|
|
|
|
|
|
3.
|
|
Indemnity Agreement relating to item (1)
|
|
|
10 Business Days
|
|
|
|
|
|
|
4.
|
|
Title insurance relating to item (1)
|
|
|
10 Business Days
|
|
|
|
|
|
|
5.
|
|
Mortgage for property located in Tulsa County, Oklahoma
|
|
|
10 Business Days
|
|
|
|
|
|
|
6.
|
|
Fixture filing for property located in Tulsa County, Oklahoma
|
|
|
10 Business Days
|
|
|
|
|
|
|
7.
|
|
Opinion from Oklahoma counsel relating to item (5)
|
|
|
10 Business Days
|
|
|
|
|
|
|
8.
|
|
Title insurance relating to item (5)
|
|
|
10 Business Days
|
|
|
|
|
|
|
9.
|
|
Corrective/quit claim vesting deed for Red Man Pipe &
Supply Co relating to OK property
|
|
|
10 Business Days
|
|
|
|
|
|
|
10.
|
|
Deed of Trust Amendment for property located in Harris County,
Texas
|
|
|
10 Business Days
|
|
|
|
|
|
|
11.
|
|
Title Insurance relating to item (10)
|
|
|
10 Business Days
|
|
|
|
|
|
|
12.
|
|
Mortgage Amendment for property located in West Baton Rouge
Parish, Louisiana
|
|
|
10 Business Days
|
|
|
|
|
|
|
13.
|
|
Title insurance relating to item (12)
|
|
|
10 Business Days
|
|
|
|
|
|
|
14.
|
|
Deed of Trust Amendment for property located in Kanawha County,
West Virginia
|
|
|
10 Business Days
|
|
|
|
|
|
|
15.
|
|
Title insurance relating to item (13)
|
|
|
10 Business Days
|
|
|
|
|
|
|
16.
|
|
Deed of Trust Amendment for property located in Putnam County,
West Virginia
|
|
|
10 Business Days
|
|
|
|
|
|
|
17.
|
|
Title insurance relating to item (16)
|
|
|
10 Business Days
|
|
|
|
|
|
|
18.
|
|
Delivery of original stock certificates, and and executed stock
powers in blank, for Red Man Pipe & Supply Co., Wesco
Acquisition Partners, Inc., Red Man Pipe & Supply
Canada, Ltd. and
|
|
|
3 Business Days
|
|
|
|
|
|
|
2
|
|
|
|
West Oklahoma PVF Company
|
|
|
|
19. Releases of mortgages set forth on Schedule 10.2,
other than those mortgages relating to the Oklahoma and Utah
properties which shall be released within 10 Business Days
of the closing
|
|
|
20 Business Days
|
20. Termination of fixture filings relating the terminated
Bank of America revolving loan and security agreement naming Red
Man Pipe & Supply Co. and its Subsidiaries as debtor,
other than that fixture filing relating to the Utah property,
which shall be released within 10 Business Days of the
closing
|
|
|
20 Business Days
|
21. Loss payable endorsements contemplated by
Section 6.14
|
|
|
10 Business Days
|
22. Delivery of documents effecting name change of McJunkin
Corporation
|
|
|
5 Business Days
|
23. Certified copies of name change certificate for
recording in all necessary county recorder offices
|
|
|
5 Business Days
|
24. Ministerial revisions to insurance certificates as
agreed
|
|
|
5 Business Days
|
25. Payment of final, approved title company invoice
|
|
|
10 Business Days
|
26. Execute and deliver title company closing instructions
|
|
|
10 Business Days
|
|
|
|
|
SCHEDULE 10.1 CLOSING DATE INDEBTEDNESS
Letters of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficiary
|
|
|
Expiration Date
|
|
|
Amount
|
|
|
Purpose
|
|
|
Issuing Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brickstreet
|
|
|
11/1/08
|
|
|
$
|
200,000
|
|
|
|
Workers Comp
|
|
|
JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St. Paul Travelers
|
|
|
12/31/07
|
|
|
$
|
1,775,000
|
|
|
|
Insurance
|
|
|
United Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State of West Virginia
|
|
|
1/31/08
|
|
|
$
|
1,000,000
|
|
|
|
Workers Comp
|
|
|
JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sentry Insurance
|
|
|
11/1/08
|
|
|
$
|
75,000
|
|
|
|
Insurance
|
|
|
JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumbermans Mutual
|
|
|
7/1/08
|
|
|
$
|
45,000
|
|
|
|
Insurance
|
|
|
JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Expiration
|
|
|
Warehouse
|
|
|
State
|
|
|
County
|
|
|
Lessor
|
|
|
Date
|
|
|
Little Rock
|
|
|
AR
|
|
|
Pulaski
|
|
|
Hansford Associates, LP
|
|
|
12/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bakersfield
|
|
|
CA
|
|
|
Kern
|
|
|
Hansford Associates, LP
|
|
|
3/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Augusta
|
|
|
GA
|
|
|
Richmond
|
|
|
Hansford Associates, LP
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granite City
|
|
|
IL
|
|
|
Madison
|
|
|
Hansford Associates, LP
|
|
|
9/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calvert City
|
|
|
KY
|
|
|
Marshall
|
|
|
Hansford Associates, LP
|
|
|
10/31/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleveland
|
|
|
OH
|
|
|
Summit
|
|
|
Hansford Associates, LP
|
|
|
10/31/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Charleston
|
|
|
SC
|
|
|
Charleston
|
|
|
Hansford Associates, LP
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LaMarque
|
|
|
TX
|
|
|
Galveston
|
|
|
Hansford Associates, LP
|
|
|
12/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rock Springs
|
|
|
WY
|
|
|
Sweetwater
|
|
|
Hansford Associates, LP
|
|
|
3/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
|
|
|
|
|
|
|
Debtor
|
|
|
Debt Description
|
|
|
Principal
|
|
|
Lender/Obligee
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midfield Supply ULC
|
|
|
Loan and Security
Agreement
|
|
|
CAD
$150,000,000
|
|
|
Bank of America
N.A.
|
|
|
11/2/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midfield Supply ULC
|
|
|
Revolving Term Loan
Facility
|
|
|
CAD
$15,000,000
|
|
|
Alberta Treasury
Branch
|
|
|
5/17/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midfield Supply ULC
|
|
|
Note Payable
|
|
|
CAD
$2,500,000
|
|
|
Dougins Halwa,
Daryl Loney, Don
Dashney
|
|
|
3/31/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midfield Supply ULC
|
|
|
Note Payable
|
|
|
CAD $750,000
|
|
|
Selling
shareholders of
Hagan Oilfield
|
|
|
4/3/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midfield Supply ULC
|
|
|
Note Payable
|
|
|
CAD
$16,389,500
|
|
|
Midfield
Holdings, Inc.
|
|
|
11/2/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midfield Supply ULC
|
|
|
Note Payable
|
|
|
CAD
$8,156,115
|
|
|
Midfield
Holdings, Inc.
|
|
|
4/27/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE 10.2
CLOSING DATE LIENS
Miscellaneous
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debtor
|
|
|
Debt
Description
|
|
|
|
Commitment
|
|
|
|
Lender/Obligee
|
|
|
|
Date
|
|
Midfield Supply ULC
|
|
|
|
Loan and Security
Agreement
|
|
|
|
CAD $150,000,000
|
|
|
|
|
|
Bank of America, N.A.
|
|
|
|
|
11/2/06
|
|
Midfield Supply ULC
|
|
|
|
Revolving Term Loan
Facility
|
|
|
|
CAD $15,000,000
|
|
|
|
|
|
Alberta Treasury Branch
|
|
|
|
|
5/17/07
|
|
Red Man Pipe &
Supply Co. and its Subsidiaries
|
|
|
|
Mortgages relating to
the terminated Bank of
America revolving loan
and security agreement,
to the extent such
mortgage releases are
not filed on the Closing
Date
|
|
|
|
N/A
|
|
|
|
|
|
Bank of America, N.A.
|
|
|
|
|
N/A
|
|
Midfield Supply USA,
Ltd.
|
|
|
|
All indebtedness and
proceeds relating
thereto of Canadian
Advanced Inc. owing to
the Debtor
|
|
|
|
N/A
|
|
|
|
|
|
Canadian Western Bank
|
|
|
|
|
N/A
|
|
Midfield Supply USA,
Ltd.
|
|
|
|
All indebtedness and
proceeds relating
thereto of Stanley
Smith Professional
Corporation owing to
the Debtor
|
|
|
|
N/A
|
|
|
|
|
|
HSBC Bank Canada
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE
10.5 CLOSING DATE INVESTMENTS
1. Investments
held by McJunkin Corporation
|
|
|
|
Investment
|
|
|
Percentage Of Interest
|
Greenbrier Development Drilling
Partners 1976
P.O. Box 513
Charleston, West Virginia 25322
|
|
|
47 Units, 8.07%
|
|
|
|
|
W.T. Massey
200 N.W. 66th, Suite 935
Oklahoma City, Oklahoma 73116
|
|
|
Own various overriding royalty
interests in oil and gas wells in
Oklahoma
|
|
|
|
|
&
|
|
|
|
|
|
|
|
H.A. Moore
4013 N.W. Expressway
Suite 605
Oklahoma City, Oklahoma 73116
|
|
|
Own various overriding royalty
interests in oil and gas wells in
Oklahoma.
|
|
|
|
|
|
|
|
|
|
|
|
|
PrimeEnergy Corporation
One Landmark Square
Stamford, Connecticut 06901
|
|
|
Purchased 49.8% interest in K.R.M.
Petroleum Company in 1984. Name
changed on 5/17/90 from K.R.M.
Petroleum to PrimeEnergy (percentage
owned approximately 19.33% as of
11/13/06
|
|
|
|
|
2. Investments
held by Milton Oil & Gas Company, a wholly owned
subsidiary of McJunkin Corporation:
|
|
|
|
Investment
|
|
|
Percentage Of Interest
|
Butcher & Singer
C/O Butcher & Singer, Inc.
211 South Broad Street
Philadelphia, Pennsylvania 15105
|
|
|
|
|
|
|
|
Buttes 1976-1 (931)
|
|
|
Overriding royalty interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabot Oil & Gas Corporation
(formerly Appalachian Exploration
& Development)
C/O Cabot Petroleum Corporation
Joint Interest Section
921 Main Street, Suite 900
Houston, Texas 77002
|
|
|
|
|
|
|
|
B & H Partnership (935)
|
|
|
60% working interest
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Percentage
of Interest
|
Milton Option (938)
P & H Partnership (942)
|
|
|
|
60% working interest
60% working interest
|
|
|
|
|
|
|
|
Dunne Equities
C/O Dunne Equities
8100 E. 22nd Street North
Building 1100
Wichita, Kansas 67226
Currently (16) Productive Wells/Programs
|
|
|
|
Various %
|
|
|
|
|
|
|
|
Quad D Operating
P.O. Box 5567
Huntington, West Virginia 25703
Closterman M-1 And M-2 (952)
Closterman M-3 And M-4 (953)
Closterman M-5 (954)
Closterman M-6 (955)
D.P. Morris Lease Well (956)
|
|
|
|
25% working interest
18.75% working interest
18.75% working interest
18.75% working interest
25% working interest
|
|
|
|
|
|
|
|
Devon Energy Production Co LP
20 North Broadway
Oklahoma City, Oklahoma 73102
Clifton #1 (946)
Hawkins #1 (948)
Prichard #1 (949), #2, #3
Whisenhunt (950)
Clifton #2 (947)
Clifton #3 (951)
|
|
|
|
0.90868% working interest
1.82364% working interest
0.32835% over-riding royalty interest
0.161948% over-riding royalty interest
1.0138% working interest
1.0447% working interest
|
|
|
|
|
|
|
|
3. Investments
held by Ruffner Realty Company, a wholly owned subsidiary of
McJunkin Corporation:
|
|
|
|
|
|
Investment
|
|
|
Percentage
of Interest
|
Auburn Lakes Cost Basis
185 Acres + 370 Units
Condominium
2901 Cedar Road
Cleveland, Ohio
|
|
|
|
2.08%
|
|
|
|
|
|
|
|
First Interstate Elyria
Shopping Center
Elyria, Ohio
|
|
|
|
1.04%
|
|
|
|
|
|
|
|
First Interstate Hawthorne Cost Basis
|
|
|
|
1.85%
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Percentage Of Interest
|
Equity Investors
Shopping Center
29425 Chagrin Boulevard
Cleveland, Ohio
|
|
|
|
First Interstate Mentor Centers
Equity Investors
Shopping Center
29425 Chagrin Boulevard
Cleveland, Ohio
|
|
|
1.39%
|
Merc-Ex Investors Ltd. Partnership. -
Cost Basis
Equity Investors, Inc.
Apartment Complex
Beachwood, Ohio
|
|
|
7.75%
|
One Congress Square - Cost Basis
Sovereign Realty
Office Building - Historic Structure
Chicago, Illinois
|
|
|
1.5%
|
|
|
|
|
|
|
4.
|
Investments held by Midfield Supply ULC, a non-wholly owned subsidiary
of McJunkin Corporation:
|
|
|
|
|
Investment
|
|
|
Percentage Of Interest
|
Altus Energy Services, Inc.
1,000,000 shares of common stock
|
|
|
Not Available
|
Altus Energy Services, Inc.
Warrants with respect to 1,000,000
shares of common stock
|
|
|
Not available
|
Energize Oil & Gas
|
|
|
6.6% equity interest
|
Brooks, Clay & Feathers Ltd.
|
|
|
6.6% equity interest
|
|
|
|
|
SCHEDULE 10.11
CLOSING DATE RESTRICTIONS
N
one.
Exhibit 10.3
EXECUTION VERSION
$575,000,000
TERM LOAN CREDIT AGREEMENT
Dated as of January 31, 2007
among
MCJUNKIN CORPORATION,
as the Borrower
The Several Lenders
from Time to Time Parties Hereto
GOLDMAN SACHS CREDIT PARTNERS L.P. and
LEHMAN BROTHERS INC.,
as Co-Lead Arrangers and Joint Bookrunners
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent and Collateral Agent
and
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Syndication Agent
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
SECTION 1. DEFINITIONS
|
|
|
2
|
|
|
|
|
|
|
1.1 Defined Terms
|
|
|
2
|
|
1.2 Other Interpretive Provisions
|
|
|
36
|
|
1.3 Accounting Terms; Exchange Rates
|
|
|
37
|
|
1.4 Rounding
|
|
|
37
|
|
1.5 References to Agreements, Laws, Etc
|
|
|
38
|
|
|
|
|
|
|
SECTION 2. AMOUNT AND TERMS OF CREDIT
|
|
|
38
|
|
|
|
|
|
|
2.1 Commitments
|
|
|
38
|
|
2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings
|
|
|
38
|
|
2.3 Notice of Borrowing
|
|
|
38
|
|
2.4 Disbursement of Funds
|
|
|
39
|
|
2.5 Repayment of Loans; Evidence of Debt
|
|
|
40
|
|
2.6 Conversions and Continuations
|
|
|
41
|
|
2.7
Pro Rata
Borrowings
|
|
|
42
|
|
2.8 Interest
|
|
|
42
|
|
2.9 Interest Periods
|
|
|
43
|
|
2.10 Increased Costs, Illegality, etc
|
|
|
44
|
|
2.11 Compensation
|
|
|
46
|
|
2.12 Change of Lending Office
|
|
|
46
|
|
2.13 Notice of Certain Costs
|
|
|
46
|
|
2.14 Incremental Facilities
|
|
|
47
|
|
|
|
|
|
|
SECTION 3. [INTENTIONALLY OMITTED]
|
|
|
48
|
|
|
|
|
|
|
SECTION 4. FEES; COMMITMENTS
|
|
|
48
|
|
|
|
|
|
|
4.1 Fees
|
|
|
48
|
|
4.2 [Intentionally Omitted]
|
|
|
48
|
|
4.3 Mandatory Termination of Commitments
|
|
|
48
|
|
|
|
|
|
|
SECTION 5. PAYMENTS
|
|
|
48
|
|
5.1 Voluntary Prepayments
|
|
|
48
|
|
5.2 Mandatory Prepayments
|
|
|
49
|
|
5.3 Method and Place of Payment
|
|
|
51
|
|
5.4 Net Payments
|
|
|
51
|
|
5.5 Computations of Interest and Fees
|
|
|
54
|
|
5.6 Limit on Rate of Interest
|
|
|
54
|
|
-i-
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
SECTION 6. CONDITIONS PRECEDENT TO INITIAL BORROWING
|
|
|
55
|
|
|
|
|
|
|
6.1 Credit Documents
|
|
|
55
|
|
6.2 Collateral
|
|
|
55
|
|
6.3 Legal Opinions
|
|
|
56
|
|
6.4 [Intentionally Omitted]
|
|
|
56
|
|
6.5 Equity Investments; Existing Indebtedness
|
|
|
56
|
|
6.6 Closing Certificates
|
|
|
56
|
|
6.7 Organizational Documents; Incumbency
|
|
|
56
|
|
6.8 Fees
|
|
|
56
|
|
6.9 Representations and Warranties
|
|
|
57
|
|
6.10 Related Agreements
|
|
|
57
|
|
6.11 Solvency Certificate
|
|
|
57
|
|
6.12 Historical Financial Statements
|
|
|
57
|
|
6.13 Merger
|
|
|
57
|
|
6.14 Insurance
|
|
|
57
|
|
6.15 Pro Forma Financial Statements
|
|
|
57
|
|
6.16 [Intentionally Omitted]
|
|
|
57
|
|
6.17 [Intentionally Omitted]
|
|
|
57
|
|
6.18 Leverage
|
|
|
57
|
|
6.19 [Intentionally Omitted]
|
|
|
58
|
|
6.20 Legal and Organizational Structure
|
|
|
58
|
|
|
|
|
|
|
SECTION 7. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS
|
|
|
58
|
|
|
|
|
|
|
7.1 No Default; Representations and Warranties
|
|
|
58
|
|
7.2 Notice of Borrowing
|
|
|
58
|
|
|
|
|
|
|
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
|
|
|
58
|
|
|
|
|
|
|
8.1 Corporate Status
|
|
|
58
|
|
8.2 Corporate Power and Authority
|
|
|
59
|
|
8.3 No Violation
|
|
|
59
|
|
8.4 Litigation
|
|
|
59
|
|
8.5 Margin Regulations
|
|
|
59
|
|
8.6 Governmental Approvals
|
|
|
59
|
|
8.7 Investment Company Act
|
|
|
60
|
|
8.8 True and Complete Disclosure
|
|
|
60
|
|
8.9 Financial Condition; Financial Statements
|
|
|
60
|
|
8.10 Tax Returns and Payments
|
|
|
60
|
|
8.11 Compliance with ERISA
|
|
|
61
|
|
8.12 Subsidiaries
|
|
|
61
|
|
8.13 Intellectual Property
|
|
|
61
|
|
8.14 Environmental Laws
|
|
|
62
|
|
-ii-
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
8.15 Properties
|
|
|
62
|
|
8.16 Solvency
|
|
|
62
|
|
|
|
|
|
|
SECTION 9. AFFIRMATIVE COVENANTS
|
|
|
62
|
|
|
|
|
|
|
9.1 Information Covenants
|
|
|
62
|
|
9.2 Books, Records and Inspections
|
|
|
66
|
|
9.3 Maintenance of Insurance
|
|
|
67
|
|
9.4 Payment of Taxes
|
|
|
67
|
|
9.5 Consolidated Corporate Franchises
|
|
|
67
|
|
9.6 Compliance with Statutes, Regulations, etc
|
|
|
67
|
|
9.7 ERISA
|
|
|
68
|
|
9.8 Maintenance of Properties
|
|
|
68
|
|
9.9 Transactions with Affiliates
|
|
|
68
|
|
9.10 End of Fiscal Years; Fiscal Quarters
|
|
|
69
|
|
9.11 Additional Guarantors and Grantors
|
|
|
69
|
|
9.12 Pledges of Additional Stock and Evidence of Indebtedness
|
|
|
69
|
|
9.13 Use of Proceeds
|
|
|
70
|
|
9.14 [Intentionally Omitted]
|
|
|
70
|
|
9.15 Interest Rate Protection
|
|
|
70
|
|
9.16 [Intentionally Omitted]
|
|
|
70
|
|
9.17 Further Assurances
|
|
|
70
|
|
|
|
|
|
|
SECTION 10. NEGATIVE COVENANTS
|
|
|
71
|
|
|
|
|
|
|
10.1 Limitation on Indebtedness
|
|
|
71
|
|
10.2 Limitation on Liens
|
|
|
75
|
|
10.3 Limitation on Fundamental Changes
|
|
|
77
|
|
10.4 Limitation on Sale of Assets
|
|
|
79
|
|
10.5 Limitation on Investments
|
|
|
82
|
|
10.6 Limitation on Dividends
|
|
|
84
|
|
10.7 Limitations on Debt Payments and Amendments
|
|
|
85
|
|
10.8 Limitations on Sale Leasebacks
|
|
|
86
|
|
10.9 Consolidated Total Debt to Consolidated EBITDA Ratio
|
|
|
86
|
|
10.10 Consolidated EBITDA to Consolidated Interest Expense Ratio.
|
|
|
87
|
|
10.11 Capital Expenditures:
|
|
|
87
|
|
10.12 Changes in Business
|
|
|
88
|
|
10.13 Burdensome Agreements
|
|
|
88
|
|
|
|
|
|
|
SECTION 11. EVENTS OF DEFAULT
|
|
|
89
|
|
|
|
|
|
|
11.1 Payments
|
|
|
89
|
|
11.2 Representations, etc
|
|
|
89
|
|
11.3 Covenants
|
|
|
89
|
|
-iii-
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
11.4 Default Under Other Agreements
|
|
|
89
|
|
11.5 Bankruptcy, etc
|
|
|
90
|
|
11.6 ERISA
|
|
|
90
|
|
11.7 Guarantee
|
|
|
91
|
|
11.8 Pledge Agreement
|
|
|
91
|
|
11.9 Security Agreement
|
|
|
91
|
|
11.10 Mortgages
|
|
|
91
|
|
11.11 Judgments
|
|
|
91
|
|
11.12 Change of Control
|
|
|
91
|
|
11.13 Subordination
|
|
|
91
|
|
|
|
|
|
|
SECTION 12. INVESTORS RIGHT TO CURE
|
|
|
92
|
|
|
|
|
|
|
SECTION 13. THE ADMINISTRATIVE AGENT
|
|
|
92
|
|
|
|
|
|
|
13.1 Appointment
|
|
|
92
|
|
13.2 Delegation of Duties
|
|
|
93
|
|
13.3 General Immunity
|
|
|
94
|
|
13.4 Reliance by Agents
|
|
|
95
|
|
13.5 Notice of Default
|
|
|
95
|
|
13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders
|
|
|
95
|
|
13.7 Indemnification
|
|
|
96
|
|
13.8 Agents in their Individual Capacity
|
|
|
97
|
|
13.9 Successor Agents
|
|
|
97
|
|
13.10 Withholding Tax
|
|
|
97
|
|
13.11 REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS
|
|
|
98
|
|
|
|
|
|
|
SECTION 14. MISCELLANEOUS
|
|
|
98
|
|
|
|
|
|
|
14.1 Amendments and Waivers
|
|
|
98
|
|
14.2 Notices
|
|
|
100
|
|
14.3 No Waiver; Cumulative Remedies
|
|
|
101
|
|
14.4 Survival of Representations and Warranties
|
|
|
101
|
|
14.5 Payment of Expenses and Taxes
|
|
|
101
|
|
14.6 Successors and Assigns; Participations and Assignments
|
|
|
102
|
|
14.7 Replacements of Lenders under Certain Circumstances
|
|
|
105
|
|
14.8 Adjustments; Set-off
|
|
|
106
|
|
14.9 Counterparts
|
|
|
107
|
|
14.10 Severability
|
|
|
107
|
|
14.11 Integration
|
|
|
107
|
|
14.12 GOVERNING LAW
|
|
|
107
|
|
-iv-
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
14.13 Submission to Jurisdiction; Waivers
|
|
|
107
|
|
14.14 Acknowledgments
|
|
|
108
|
|
14.15
WAIVERS OF JURY TRIAL
|
|
|
108
|
|
14.16 Confidentiality
|
|
|
108
|
|
14.17 Direct Website Communications
|
|
|
109
|
|
14.18 USA PATRIOT Act
|
|
|
111
|
|
-v-
|
|
|
SCHEDULES
|
|
|
|
|
|
Schedule 1.1(A)
|
|
Existing Letters of Credit
|
Schedule 1.1 (B)
|
|
Mortgaged Properties
|
Schedule 1.1 (C)
|
|
Commitments and Addresses of Lenders
|
Schedule 1.1 (D)
|
|
Excluded Subsidiaries
|
Schedule 1.1(E)
|
|
Initial Cost Savings
|
Schedule 1.1(F)
|
|
Non-Core Assets
|
Schedule 8.12
|
|
Subsidiaries
|
Schedule 9.9
|
|
Closing Date Affiliate Transactions
|
Schedule 9.17(C)
|
|
Post-Closing Actions
|
Schedule 10.1
|
|
Closing Date Indebtedness
|
Schedule 10.2
|
|
Closing Date Liens
|
Schedule 10.5
|
|
Closing Date Investments
|
Schedule 10.11
|
|
Closing Date Restrictions
|
Schedule 14.2
|
|
Notice Addresses
|
|
|
|
EXHIBITS
|
|
|
|
|
|
Exhibit C
|
|
Form of Guarantee
|
Exhibit D
|
|
Form of Mortgage (Real Property)
|
Exhibit E
|
|
Form of Perfection Certificate
|
Exhibit F
|
|
Form of Pledge Agreement
|
Exhibit G
|
|
Form of Security Agreement
|
Exhibit H
|
|
[Intentionally Omitted]
|
Exhibit I-1
|
|
Form of Legal Opinion of Simpson Thacher & Bartlett LLP
|
Exhibit I-2
|
|
Form of Legal Opinion of Bowles Rice McDavid Graff & Love LLP
|
Exhibit J
|
|
Form of Closing Certificate
|
Exhibit K
|
|
Form of Assignment and Acceptance
|
Exhibit L
|
|
Form of Promissory Note
|
Exhibit M
|
|
Form of Joinder Agreement
|
Exhibit N
|
|
[Intentionally Omitted]
|
Exhibit O
|
|
Form of Intercreditor Agreement
|
-vi-
TERM LOAN CREDIT AGREEMENT dated as of January 31, 2007, among MCJUNKIN CORPORATION, a West
Virginia corporation (the
Borrower
), the lending institutions from time to time parties
hereto (each a
Lender
and, collectively, the
Lenders
), Goldman Sachs Credit
Partners L.P. and Lehman Brothers Inc., as Co-Lead Arrangers and Joint Bookrunners, Lehman
Commercial Paper Inc., as Administrative Agent and Collateral Agent, and Goldman Sachs Credit
Partners L.P., as Syndication Agent (such term and each other capitalized term used but not defined
in this introductory statement having the meaning provided in
Section 1
).
WHEREAS, pursuant to the Agreement and Plan of Merger (as amended from time to time in
accordance therewith, the
Merger Agreement
), dated as of December 4, 2006, among
Borrower, McJ Holding Corporation, a Delaware corporation, and Hg Acquisition Corp., a West
Virginia corporation (
Merger Sub
), Merger Sub will merge (the
Merger
) with and
into the Borrower with the Borrower as the surviving corporation;
WHEREAS, to fund, in part, the Merger, (a) the Sponsors and certain other investors (including
the Management Investors) will contribute an amount in cash to Merger Sub and/or a direct or
indirect parent thereof (the
Equity Contribution
) in exchange for Stock and Stock
Equivalents (which cash, if received by a parent company, will be contributed to Merger Sub in
exchange for common and/or preferred Stock), which shall be no less than an amount (the
Minimum Equity Contribution Amount
) equal to 15% of the aggregate pro forma
capitalization of the Borrower on the Closing Date and (b) certain equity investments in McJunkin
Corporation held by existing shareholders of McJunkin Corporation (or any direct or indirect parent
thereof) will be rolled over as equity of Borrower (the
Rollover Equity
and together with
the Equity Contribution, the
Equity Investments
), which together with the amount of the
Equity Contribution, shall be no less than an amount (the
Minimum Equity Investment
Amount
) equal to 30% of the aggregate pro forma capitalization of the Borrower on the Closing
Date;
WHEREAS, in connection with the foregoing, the Borrower has requested that the Lenders extend
credit in the form of (a) Term Loans, in an aggregate principal amount of $575,000,000 and (b)
revolving credit loans (the
Revolving Credit Loans
) made available to the Borrower
pursuant to the Revolving Loan Credit Agreement (as defined below) at any time and from time to
time prior to the Revolving Credit Maturity Date as defined in the Revolving Loan Credit Agreement,
in an aggregate principal amount at any time outstanding not in excess of the aggregate of
$300,000,000 plus the amount of New Revolving Credit Commitments (as defined below).
WHEREAS, the repayment of the Revolving Credit Loans will be secured by perfected security
interests in and liens upon substantially all of the accounts and inventory and certain personal
property relating to such accounts and inventory of the Borrower and each Guarantor, and the
repayment of the Term Loans will be secured by perfected security interests in and liens upon
substantially all of the personal property and certain real property of the Borrower and each
Guarantor. The respective rights and priorities of the Lenders and the lenders under the Revolving
Loan Credit Agreement to such collateral will be as set forth in the Intercreditor Agreement;
WHEREAS, the proceeds of up to $75,000,000 of Revolving Credit Loans will be used by the
Borrower, together with (a) the net proceeds of the Term Loans and (b) the net proceeds of the
Equity Investments, on the Closing Date solely to repay existing indebtedness of the Borrower, to
effect the Merger and to pay Transaction Expenses; and
WHEREAS, the Lenders are willing to make available to the Borrower such term loans, upon the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained
herein, the parties hereto hereby agree as follows:
SECTION 1.
Definitions
1.1
Defined Terms
. (a) As used herein, the following terms shall have the meanings
specified in this
Section 1.1
unless the context otherwise requires (it being understood
that defined terms in this Agreement shall include in the singular number the plural and in the
plural the singular):
ABR
shall mean, for any day, a rate
per annum
(rounded upwards, if necessary, to the
next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day or (b) the
Federal Funds Effective Rate in effect on such day plus
1
/
2
of 1%. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening
of business on the effective day of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
ABR Loan
shall mean each Loan bearing interest at the rate provided in
Section 2.8(a)
.
Acquired EBITDA
shall mean, with respect to any Acquired Entity or Business, any
Converted Restricted Subsidiary (any of the foregoing, a
Pro Forma Entity
) for any
period, the amount for such period of Consolidated EBITDA of such Pro Forma Entity (determined
using such definitions as if references to the Borrower and its Subsidiaries therein were to such
Pro Forma Entity and its Subsidiaries), all as determined on a consolidated basis for such Pro
Forma Entity in accordance with GAAP.
Acquired Entity or Business
shall have the meaning provided in the definition of the
term Consolidated EBITDA.
Adjusted Total Term Loan Commitment
shall mean at any time the Total Term Loan
Commitment less the Term Loan Commitments of all Defaulting Lenders.
Administrative Agent
shall mean Lehman Commercial Paper Inc., as the administrative
agent for the Lenders under this Agreement and the other Credit Documents, or any successor
administrative agent pursuant to
Section 13
.
Administrative Agents Office
shall mean in respect of all Credit Events for the
account of the Borrower, the office of the Administrative Agent located at 745 Seventh Avenue,
New York City, New York, or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto.
-2-
Administrative Questionnaire
shall have the meaning provided in
Section 14.6(b)
.
Affiliate
shall mean, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common control with such Person.
A Person shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power (a) to vote 20% or more of the securities having ordinary voting power for
the election of directors of such corporation or (b)to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of voting securities, by
contract or otherwise.
Agent Parties
shall have the meaning provided in
Section 14.17(c)
.
Agents
shall mean each Co-Lead Arranger, the Administrative Agent, the Collateral
Agent and the Syndication Agent.
Agreement
shall mean this Term Loan Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
Applicable ABR Margin
shall mean at any date, with respect to each ABR Loan that is
a Term Loan, the applicable percentage
per annum
set forth below based upon the Status in effect on
such date:
|
|
|
|
|
|
|
Applicable ABR Margin for
|
Status
|
|
Term Loans
|
Level I Status
|
|
|
1.25
|
%
|
Level II Status
|
|
|
1.00
|
%
|
Notwithstanding the foregoing, the term Applicable ABR Margin shall mean, with respect to
all ABR Loans, 1.25%
per annum
, during the period from and including the Closing Date to but
excluding the Trigger Date.
Applicable Amount
shall mean, at any time (the Reference Time), an amount equal to
(a) the sum, without duplication, of:
(i) an amount (which shall not be less than zero) equal to 50% of Consolidated Net Income
commencing on the Closing Date and ending on the last day of the most recent fiscal quarter for
which Section 9.1 Financials have been delivered (taken as one accounting period); and
(ii) the amount of any capital contributions (other than the Equity Investments and any Cure
Amount) made in cash to, or any proceeds of an equity issuance received by, the Borrower from and
including the Business Day immediately following the Closing Date through and including the
Reference Time, including proceeds from the issuance of Stock or Stock Equivalents of any direct or
indirect parent of the Borrower,
minus
(b) the sum, without duplication, of:
-3-
(iii) the aggregate amount of Investments made pursuant to
Section 10.5(g)(ii)(y)
or
10.5(i)(ii)(y)
since the Closing Date and prior to the Reference Time;
(iv) the aggregate amount of dividends pursuant to
Section 10.6(c)(ii)
since the
Closing Date and prior to the Reference Time; and
(v) the aggregate amount of prepayments, repurchases and redemptions of Subordinated
Indebtedness pursuant to
Section 10.7(a)(i)(y)
since the Closing Date and prior to the
Reference Time.
Applicable LIBOR Margin
shall mean at any date, with respect to each LIBOR Loan that
is a Term Loan, the applicable percentage
per annum
set forth below based upon the Status in effect
on such date:
|
|
|
|
|
|
|
Applicable LIBOR Margin for
|
Status
|
|
Term Loans
|
Level I Status
|
|
|
2.25
|
%
|
Level II Status
|
|
|
2.00
|
%
|
Notwithstanding the foregoing, the term Applicable LIBOR Margin shall mean, with respect to
all LIBOR Loans, 2.25%
per annum
, during the period from and including the Closing Date to but
excluding the Trigger Date.
Approved Fund
shall have the meaning provided in
Section 14.6
.
Asset Sale Prepayment Event
shall mean any Disposition of any business units, assets
or other property of the Borrower or any of the Restricted Subsidiaries not in the ordinary course
of business (including any Disposition of any Stock or Stock Equivalents of any Subsidiary of the
Borrower owned by the Borrower or a Restricted Subsidiary, including any sale of any Stock or Stock
Equivalents of any Restricted Subsidiary). Notwithstanding the foregoing, the term Asset Sale
Prepayment Event shall not include any (a) transaction permitted by
Section 10.4
, other
than transactions permitted by
Section 10.4(b)
or (b) Disposition of Revolving Credit
Collateral (as defined in the Intercreditor Agreement);
provided
, that this clause (b)
shall only apply prior to a Discharge of Revolving Credit Obligations (as defined in the
Intercreditor Agreement).
Assignment and Acceptance
shall mean an assignment and acceptance substantially in
the form of
Exhibit K
.
Authorized Officer
shall mean the President, the Chief Financial Officer, the
Treasurer or any other senior officer of the Borrower designated as such in writing to the
Administrative Agent by the Borrower.
Bankruptcy Code
shall have the meaning provided in
Section 11.5
.
Board
shall mean the Board of Governors of the Federal Reserve System of the United
States (or any successor).
-4-
Borrower
shall have the meaning provided in the preamble to this Agreement.
Borrowing
shall mean and include the incurrence of one Type of Term Loan on the
Closing Date (or resulting from conversions on a given date after the Closing Date) having, in the
case of LIBOR Loans, the same Interest Period (
provided
that ABR Loans incurred pursuant to
Section 2.10(b)
shall be considered part of any related Borrowing of LIBOR Loans).
Business Day
shall mean (a) for all purposes other than as covered by clause (b)
below, any day excluding Saturday, Sunday and any day that shall be in New York City a legal
holiday or a day on which banking institutions are authorized by law or other governmental actions
to close and (b) with respect to all notices and determinations in connection with, and payments of
principal and interest on, LIBOR Loans, any day which is a Business Day described in clause (a) and
which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar
market.
Capital Expenditures
shall mean, for any period, the aggregate of all expenditures
(whether paid in cash or accrued as liabilities and including in all events all amounts expended or
capitalized under Capital Leases, but excluding any amount representing capitalized interest) by
the Borrower and the Restricted Subsidiaries during such period that, in conformity with GAAP, are
or are required to be included as additions during such period to property, plant or equipment
reflected in the consolidated balance sheet of the Borrower and its Subsidiaries,
provided
that the term Capital Expenditures shall not include (a) expenditures made in connection with the
replacement, substitution, restoration or repair of assets (i) to the extent financed from
insurance proceeds paid on account of the loss of or damage to the assets being replaced, restored
or repaired or (ii) with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced, (b) the purchase price of equipment that is purchased
simultaneously with the trade-in of existing equipment pursuant to Section 10.4 to the extent that
the gross amount of such purchase price is reduced by the credit granted by the seller of such
equipment for the equipment being traded in at such time, (c) the purchase of plant, property or
equipment made within fifteen months of the sale of any asset to the extent purchased with the
proceeds of such sale, (d) expenditures that constitute any part of Consolidated Lease Expense, (e)
expenditures that are accounted for as capital expenditures by the Borrower or any Restricted
Subsidiary and that actually are paid for by a Person other than the Borrower or any Restricted
Subsidiary and for which neither the Borrower nor any Restricted Subsidiary has provided or is
required to provide or incur, directly or indirectly, any consideration or obligation to such
Person or any other Person (whether before, during or after such period), (f) the book value of any
asset owned by the Borrower or any Restricted Subsidiary prior to or during such period to the
extent that such book value is included as a capital expenditure during such period as a result of
such Person reusing or beginning to reuse such asset during such period without a corresponding
expenditure actually having been made in such period,
provided
that (x) any expenditure
necessary in order to permit such asset to be reused shall be included as a Capital Expenditure
during the period in which such expenditure actually is made and (y) such book value shall have
been included in Capital Expenditures when such asset was originally acquired, (g) expenditures
that constitute Permitted Acquisitions or (h) Transaction Expenses.
-5-
Capital Lease
shall mean, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is
required to be, accounted for as a capital lease on the balance sheet of that Person.
Capitalized Lease Obligations
shall mean, as applied to any Person, all obligations
under Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount
thereof accounted for as liabilities in accordance with GAAP.
Casualty Event
shall mean, with respect to any Collateral, any loss of or damage to,
or any condemnation or other taking by a Governmental Authority of, such property for which such
Collateral for which the Borrower or any of its Restricted Subsidiaries receives insurance
proceeds, or proceeds of a condemnation award or other compensation.
Change in Law
shall mean (a) the adoption of any law, treaty, order, policy, rule or
regulation after the date of this Agreement, (b) any change in any law, treaty, order, policy, rule
or regulation or in the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by the Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental or quasi
governmental authority (whether or not having the force of law).
Change of Control
shall mean and be deemed to have occurred if (a) the Sponsors
shall at any time not own, in the aggregate, directly or indirectly, beneficially and of record, at
least 35% of the voting power of the outstanding Voting Stock of Borrower (other than as the result
of one or more widely distributed offerings of the common Stock of the Borrower or any direct or
indirect parent thereof, in each case whether by the Borrower, such parent, or the Sponsors); or
(b) any person, entity or group (within the meaning of
Section 13(d)
or
14(d)
of
the Securities Exchange Act of 1934, as amended) shall at any time have acquired direct or indirect
beneficial ownership of a percentage of the voting power of the outstanding Voting Stock of
Borrower that exceeds the percentage of the voting power of such Voting Stock then beneficially
owned, in the aggregate, by the Sponsors, unless, in the case of either clause (a) or (b) above,
the Sponsors have, at such time, the right or the ability by voting power, contract or otherwise to
elect or designate for election at least a majority of the board of directors of Borrower; or (c)
Continuing Directors shall not constitute at least a majority of the board of directors of the
Borrower.
Class
, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are Term Loans or New Term Loans and, when used in
reference to any Commitment, refers to whether such Commitment is a Term Loan Commitment or a New
Term Loan Commitment.
Closing Date
shall mean the date of the initial Borrowing hereunder.
Code
shall mean the Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated and rulings issued thereunder. Section references to the Code are to
the Code, as in effect at the date of this Agreement, and any subsequent provisions of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
Co-Lead Arrangers
shall mean Goldman Sachs Credit Partners L.P. and Lehman Brothers
Inc.
-6-
Collateral
shall have the meaning provided in the Security Agreement or any other
Security Document, as applicable.
Collateral Agent
shall mean Lehman Commercial Paper Inc., a New York corporation, as
collateral agent for the Lenders and the other Secured Parties.
Commitments
shall mean, with respect to each Lender (to the extent applicable), such
Lenders Term Loan Commitment and New Term Loan Commitment.
Communications
shall have the meaning provided in
Section 14.17(a)
.
Confidential Information
shall have the meaning provided in
Section 14.16
.
Confidential Information Memorandum
shall mean the Confidential Information
Memorandum of the Borrower dated January 2007, delivered to the Lenders in connection with this
Agreement.
Consolidated EBITDA
shall mean, for any period, Consolidated Net Income for such
period,
plus
:
(a) without duplication and to the extent already deducted (and not added back) in arriving at
such Consolidated Net Income, the sum of the following amounts for such period:
(i) total interest expense and to the extent not reflected in such total interest
expense, any losses on hedging obligations or other derivative instruments entered into for
the purpose of hedging interest rate risk, net of interest income and gains on such hedging
obligations, and costs of surety bonds in connection with financing activities,
(ii) provision for taxes based on income, profits or capital of the Borrower and the
Restricted Subsidiaries, including state, franchise and similar taxes and foreign
withholding taxes paid or accrued during such period,
(iii) depreciation and amortization,
(iv) Non-Cash Charges (including, for the purposes of
Section 6.18
only, LIFO
expenses),
(v) extraordinary losses and unusual or non-recurring charges, severance, relocation
costs and curtailments or modifications to pension and post-retirement employee benefit
plans,
(vi) restructuring charges or reserves (including restructuring costs related to
acquisitions after the date hereof and to closure and/or consolidation of facilities),
(vii) any deductions attributable to minority interests,
-7-
(viii) the amount, if any, of management, monitoring, consulting and advisory fees and
related expenses paid to the Sponsors,
(ix) any costs or expenses incurred by the Borrower or a Restricted Subsidiary pursuant
to any management equity plan or stock option plan or any other management or employee
benefit plan or agreement or any stock subscription or shareholder agreement, to the extent
that such costs or expenses are funded with cash proceeds contributed to the capital of the
Borrower or net cash proceeds of an issuance of Stock or Stock Equivalents of the Borrower;
and
(x) (A) for any period that includes a fiscal quarter occurring prior to fifth fiscal
quarter occurring after the Closing Date, the cost savings described on Schedule 1.1(e) and
(B) for any period that includes a fiscal quarter occurring thereafter, the amount of net
cost savings projected by the Borrower in good faith to be realized as a result of specified
actions taken by the Borrower and its Restricted Subsidiaries in connection with the
Transactions (calculated on a Pro Forma Basis as though such cost savings had been realized
on the first day of such period), net of the amount of actual benefits realized during such
period from such actions,
provided
that
(A) such cost savings are reasonably
identifiable and factually supportable, (B) such actions are taken on or prior to the third
anniversary of the Closing Date, (C) no cost savings shall be added pursuant to this clause
(x) to the extent duplicative of any expenses or charges relating to such cost savings that
are included in clause (vi) above with respect to such period and (D) the aggregate amount
of cost savings added pursuant to this clause (x)(B) shall not exceed $5,000,000 for any
period consisting of four consecutive quarters,
less
(b) without duplication and to the extent included in arriving at such Consolidated Net
Income, the sum of the following amounts for such period:
(i) extraordinary gains and unusual or non-recurring gains,
(ii) non-cash gains (excluding any non-cash gain to the extent it represents the
reversal of an accrual or reserve for a potential cash item that reduced Consolidated Net
Income in any prior period),
(iii) gains on asset sales (other than asset sales in the ordinary course of business),
(iv) any net after-tax income from the early extinguishment of Indebtedness or hedging
obligations or other derivative instruments, and
(v) all gains from investments recorded using the equity method,
in each case, as determined on a consolidated basis for the Borrower and the Restricted
Subsidiaries in accordance with GAAP;
provided
that, to the extent included in Consolidated
Net Income,
(A) there shall be excluded in determining Consolidated EBITDA currency translation
gains and losses related to currency remeasurements of
-8-
Indebtedness or intercompany balances (including the net loss or gain resulting from
Hedge Agreements for currency exchange risk),
(B) there shall be excluded in determining Consolidated EBITDA for any period any
adjustments resulting from the application of Statement of Financial Accounting Standards
No. 133, and
(C) there shall be included in determining Consolidated EBITDA for any period, without
duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by
the Borrower or any Restricted Subsidiary during such period (but not the Acquired EBITDA of
any related Person, property, business or assets to the extent not so acquired) to the
extent not subsequently sold, transferred, abandoned or otherwise disposed by the Borrower
or such Restricted Subsidiary (each such Person, property, business or asset acquired and
not subsequently so disposed of, an
Acquired Entity or Business
) and the Acquired
EBITDA of any Unrestricted Subsidiary that is converted into a Restricted Subsidiary during
such period (each, a
Converted Restricted Subsidiary
), based on the actual
Acquired EBITDA of such Acquired Entity or Business or Converted Restricted Subsidiary for
such period (including the portion thereof occurring prior to such acquisition or
conversion) and (B) an adjustment in respect of each Acquired Entity or Business equal to
the amount of the Pro Forma Adjustment with respect to such Acquired Entity or Business for
such period (including the portion thereof occurring prior to such acquisition) as specified
in a Pro Forma Adjustment Certificate and delivered to the Lenders and the Administrative
Agents and (C) there shall be excluded in determining Consolidated EBITDA for any period the
Disposed EBITDA of any Person, property, business or asset (other than an Unrestricted
Subsidiary) sold, transferred, abandoned or otherwise disposed of, closed or classified as
discontinued operations by the Borrower or any Restricted Subsidiary during such period
(each such Person, property, business or asset so sold or disposed of, a
Sold Entity or
Business
), and the Acquired EBITDA of any Restricted Subsidiary that is converted into
an Unrestricted Subsidiary during such period (each, a
Converted Unrestricted
Subsidiary
) based on the actual Disposed EBITDA of such Sold Entity or Business or
Converted Restricted Subsidiary for such period (including the portion thereof occurring
prior to such sale, transfer or disposition or conversion).
Consolidated EBITDA to Consolidated Interest Expense Ratio
shall mean, as of any
date of determination, the ratio of (a) Consolidated EBITDA for the relevant Test Period to (b)
Consolidated Interest Expense for such Test Period.
Consolidated Interest Expense
shall mean, for any period, the sum of (i) the cash
interest expense (including that attributable to Capital Leases in accordance with GAAP), net of
cash interest income, of the Borrower and the Restricted Subsidiaries on a consolidated basis in
accordance with GAAP with respect to all outstanding Indebtedness of the Borrower and the
Restricted Subsidiaries, including all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers acceptance financing and net costs under Hedge Agreements
(other than currency swap agreements, currency future or option contracts and other similar
agreements) and (ii) any cash payments made during such period in respect of obligations referred
to in clause (b) below relating to Funded Debt that were amortized or accrued in a
-9-
previous period (other than any such obligations resulting from the discounting of
Indebtedness in connection with the application of purchase accounting in connection with the
Transaction or any Permitted Acquisition), but excluding, however, (a) amortization of deferred
financing costs and any other amounts of non-cash interest, (b) the accretion or accrual of
discounted liabilities during such period, and (c) all non-recurring cash interest expense
consisting of liquidated damages for failure to timely comply with registration rights obligations
and financing fees, all as calculated on a consolidated basis in accordance with GAAP and
excluding, for the avoidance of doubt, any interest in respect of items excluded from Indebtedness
in the proviso to the definition thereof,
provided
that (a) except as provided in
clause (b) below, there shall be excluded from Consolidated Interest Expense for any period the
cash interest expense (or cash interest income) of all Unrestricted Subsidiaries for such period to
the extent otherwise included in Consolidated Interest Expense, (b) there shall be included in
determining Consolidated Interest Expense for any period the cash interest expense (or income) of
any Acquired Entity or Business acquired during such period and of any Converted Restricted
Subsidiary converted during such period, in each case based on the cash interest expense (or
income) of such Acquired Entity or Business or Converted Restricted Subsidiary for such period
(including the portion thereof occurring prior to such acquisition or conversion) assuming any
Indebtedness incurred or repaid in connection with any such acquisition or conversion had been
incurred or prepaid on the first day of such period, and (c) there shall be excluded from
determining Consolidated Interest Expense for any period the cash interest expense (or income) of
any Sold Entity or Business disposed of during such period, based on the cash interest expense (or
income) relating to any Indebtedness relieved, retired or repaid in connection with any such
disposition of such Sold Entity or Business for such period (including the portion thereof
occurring prior to such disposal) assuming such debt relieved, retired or repaid in connection with
such disposition had been relieved, retired or repaid on the first day of such period.
Notwithstanding anything to the contrary contained herein, for purposes of determining Consolidated
Interest Expense for any period ending prior to the first anniversary of the Closing Date,
Consolidated Interest Expense shall be an amount equal to actual Consolidated Interest Expense from
the Closing Date through the date of determination multiplied by a fraction the numerator of which
is 365 and the denominator of which is the number of days from the Closing Date through the date of
determination.
Consolidated Lease Expense
shall mean, for any period, all rental expenses of the
Borrower and the Restricted Subsidiaries during such period under operating leases for real or
personal property (including in connection with Permitted Sale Leasebacks), excluding real estate
taxes, insurance costs and common area maintenance charges and net of sublease income, other than
(a) obligations under vehicle leases entered into in the ordinary course of business, (b) all such
rental expenses associated with assets acquired pursuant to a Permitted Acquisition to the extent
that such rental expenses relate to operating leases in effect at the time of (and immediately
prior to) such acquisition and (c) Capital Lease Obligations, all as determined on a consolidated
basis in accordance with GAAP,
provided
that there shall be excluded from Consolidated
Lease Expense for any period the rental expenses of all Unrestricted Subsidiaries for such period
to the extent otherwise included in Consolidated Lease Expense.
Consolidated Net Income
shall mean, for any period, the net income (loss) of the
Borrower and the Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, excluding, without duplication, (a) extraordinary items for such period,
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(b) the cumulative effect of a change in accounting principles during such period to the
extent included in Consolidated Net Income, (c) in the case of any period that includes a period
ending prior to or during the fiscal year ending December 31, 2007, Transaction Expenses, (d) any
fees and expenses incurred during such period, or any amortization thereof for such period, in
connection with any acquisition, investment, recapitalization, asset disposition, issuance or
repayment of debt, issuance of equity securities, refinancing transaction or amendment or other
modification of any debt instrument (in each case, including any such transaction consummated prior
to the Closing Date and any such transaction undertaken but not completed) and any charges or
non-recurring merger costs incurred during such period as a result of any such transaction, (e) any
income (loss) for such period attributable to the early extinguishment of Indebtedness and (f)
accruals and reserves that are established that are so required to be established or adjusted as a
result of the Transactions in accordance with GAAP or changes as a result of adoption of or
modification of accounting policies, in each case, within twelve months after the Closing Date.
There shall be excluded from Consolidated Net Income for any period the purchase accounting effects
of adjustments to inventory, property and equipment, software and other intangible assets and
deferred revenue in component amounts required or permitted by GAAP and related authoritative
pronouncements (including the effects of such adjustments pushed down to the Borrower and the
Restricted Subsidiaries), as a result of the Transactions, any acquisition whether consummated
before or after the Closing Date, any Permitted Acquisition or other Investment, or the
amortization or write-off of any amounts thereof.
Consolidated Total Assets
shall mean, as of any date of determination, the amount
that would, in conformity with GAAP, be set forth opposite the caption total assets (or any like
caption) on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries at such
date.
Consolidated Total Debt
shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of the Borrower and the Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Transaction or any Permitted Acquisition), consisting of
Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by
promissory notes or similar instruments,
minus
(b) the aggregate amount of cash and cash
equivalents held in accounts on the consolidated balance sheet of the Borrower and the Restricted
Subsidiaries as at such date to the extent the use thereof for application to payment of
Indebtedness is not prohibited by law or any contract to which the Borrower or any of the
Restricted Subsidiaries is a party.
Consolidated Total Debt to Consolidated EBITDA Ratio
shall mean, as of any date of
determination, the ratio of (a) Consolidated Total Debt as of the last day of the relevant Test
Period to (b) Consolidated EBITDA for such Test Period.
Consolidated Working Capital
shall mean, at any date, the excess of (a) the sum of
all amounts (other than cash and Permitted Investments) that would, in conformity with GAAP, be set
forth opposite the caption total current assets (or any like caption) on a consolidated balance
sheet of the Company and the Restricted Subsidiaries at such date excluding the current portion of
current and deferred income taxes plus any LIFO reserve over (b) the sum of all
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amounts that would, in conformity with GAAP, be set forth opposite the caption total current
liabilities (or any like caption) on a consolidated balance sheet of the Company and the
Restricted Subsidiaries on such date, including deferred revenue but excluding, without
duplication, (i) the current portion of any Funded Debt, (ii) all Indebtedness consisting of Loans
and Letter of Credit Exposure to the extent otherwise included therein, (iii) the current portion
of interest and (iv) the current portion of current and deferred income taxes.
Continuing Director
shall mean, at any date, an individual (a) who is a member of
the board of directors of the Borrower on the date hereof, (b) who, as at such date, has been a
member of such board of directors for at least the twelve preceding months, (c) who has been
nominated to be a member of such board of directors, directly or indirectly, by a Sponsor or
Persons nominated by a Sponsor or (d) who has been nominated to be a member of such board of
directors by a majority of the other Continuing Directors then in office.
Contract Consideration
shall have the meaning provided in the definition of Excess
Cash Flow.
Contractual Obligation
means, as applied to any Person, any provision of any
security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking,
agreement or other instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject.
Converted Restricted Subsidiary
shall have the meaning provided in the definition of
the term Consolidated EBITDA.
Converted Unrestricted Subsidiary
shall have the meaning provided in the definition
of the term Consolidated EBITDA.
Cost
shall mean, with respect to Inventory, the weighted average cost thereof, as
determined in the same manner and consistent with the most recent Inventory Appraisal which has
been received and approved by Collateral Agent in its reasonable discretion.
Credit Documents
shall mean this Agreement, the Security Documents, and any
promissory notes issued by the Borrower hereunder.
Credit Event
shall mean and include the making (but not the conversion or
continuation) of a Loan.
Credit Party
shall mean each of the Borrower, the Guarantors and each other
Subsidiary of the Borrower that is a party to a Credit Document.
Cure Amount
shall have the meaning provided in
Section 12
.
Cure Right
shall have the meaning provided in
Section 12
.
Currency Agreement
means any foreign exchange contract, currency swap agreement,
futures contract, option contract, synthetic cap or other similar agreement or arrangement, each
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of which is for the purpose of hedging the foreign currency risk associated with Borrowers
and its Subsidiaries operations and not for speculative purposes.
Debt Incurrence Prepayment Event
shall mean any issuance or incurrence by the
Borrower or any of the Restricted Subsidiaries of any Indebtedness (including any issuance by the
Borrower of Permitted Additional Debt to the extent the Net Cash Proceeds are not used for a
Permitted Acquisition but excluding any other Indebtedness permitted to be issued or incurred under
Section 10.1
other than
Section 10.1(o)
).
Default
shall mean any event, act or condition that with notice or lapse of time, or
both, would constitute an Event of Default.
Defaulting Lender
shall mean any Lender with respect to which a Lender Default is in
effect.
Deferred Net Cash Proceeds
shall have the meaning provided such term in the
definition of Net Cash Proceeds.
Designated Non-Cash Consideration
shall mean the fair market value of non-cash
consideration received by the Borrower or a Restricted Subsidiary in connection with a Disposition
pursuant to
Section 10.4(b)
and
Section 10.4(c)
that is designated as Designated
Non-Cash Consideration pursuant to a certificate of an Authorized Officer of the Borrower, setting
forth the basis of such valuation (which amount will be reduced by the fair market value of the
portion of the non-cash consideration converted to cash within 180 days following the consummation
of the applicable Disposition).
Disposed EBITDA
shall mean, with respect to any Sold Entity or Business or any
Converted Unrestricted Subsidiary for any period, the amount for such period of Consolidated EBITDA
of such Sold Entity or Business or Converted Unrestricted Subsidiary (determined as if references
to the Borrower and the Restricted Subsidiaries in the definition of Consolidated EBITDA were
references to such Sold Entity or Business or Converted Unrestricted Subsidiary and its
Subsidiaries), all as determined on a consolidated basis for such Sold Entity or Business.
Disposition
shall have the meaning provided in
Section 10.4(b)
.
Dividends
or
dividends
shall have the meaning provided in
Section
10.6
.
Dollar Equivalent
shall mean, on any date of determination, (a) with respect to any
amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any
Foreign Currency, the equivalent in Dollars of such amount, determined by the Administrative Agent
pursuant using the applicable Exchange Rate.
Dollars
and
$
shall mean dollars in lawful currency of the United States
of America.
Domestic Subsidiary
shall mean each Subsidiary of the Borrower that is organized
under the laws of the United States, any state or territory thereof, or the District of Columbia.
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Environmental Claims
shall mean any and all actions, suits, orders, decrees,
demands, demand letters, claims, liens, notices of noncompliance, violation or potential
responsibility or investigation (other than internal reports prepared by the Borrower or any of the
Subsidiaries (a) in the ordinary course of such Persons business or (b) as required in connection
with a financing transaction or an acquisition or disposition of real estate) or proceedings
relating in any way to any Environmental Law or any permit issued, or any approval given, under any
such Environmental Law (hereinafter,
Claims
), including, without limitation, (i) any and
all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief relating to the presence, release or threatened release of
Hazardous Materials or arising from alleged injury or threat of injury to health or safety (to the
extent relating to human exposure to Hazardous Materials), or the environment including, without
limitation, ambient air, surface water, groundwater, land surface and subsurface strata and natural
resources such as wetlands.
Environmental Law
shall mean any applicable Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect
and in each case as amended, and any binding judicial or administrative interpretation thereof,
including any binding judicial or administrative order, consent decree or judgment, relating to the
protection of environment, including, without limitation, ambient air, surface water, groundwater,
land surface and subsurface strata and natural resources such as wetlands, or human health or
safety (to the extent relating to human exposure to Hazardous Materials), or Hazardous Materials.
Equity Contribution
shall have the meaning provided in the preamble to this
Agreement.
Equity Investments
shall mean the Equity Contribution and the Rollover Equity.
ERISA
shall mean the Employee Retirement Income Security Act of 1974, as amended
from time to time. Section references to ERISA are to ERISA as in effect at the date of this
Agreement and any subsequent provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.
ERISA Affiliate
shall mean each person (as defined in Section 3(9) of ERISA) that
together with the Borrower or a Subsidiary would be deemed to be a single employer within the
meaning of Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
Event of Default
shall have the meaning provided in
Section 11
.
Excess Cash Flow
shall mean, for any period, an amount equal to the excess of
(a) the sum, without duplication, of
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(i)
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Consolidated Net Income for such period,
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(ii)
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an amount equal to the amount of all non-cash
charges to the extent deducted in arriving at such Consolidated Net
Income,
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(iii)
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decreases in Consolidated Working Capital and
long-term account receivables for such period, and
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(iv)
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an amount equal to the aggregate net non-cash
loss on Dispositions by the Borrower and the Restricted Subsidiaries
during such period (other than Dispositions in the ordinary course of
business) to the extent deducted in arriving at such Consolidated Net
Income, over
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(b) the sum, without duplication, of
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(i)
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an amount equal to the amount of all non-cash
credits included in arriving at such Consolidated Net Income and cash
charges included in clauses (a) through (f) of the definition of
Consolidated Net Income (other than cash charges in respect of
Transaction Expenses paid on or about the Closing Date to the extent
financed with the proceeds of Indebtedness incurred on the Closing Date
or the Equity Investments),
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(ii)
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without duplication of amounts deducted
pursuant to clause (xi) below in prior years, the amount of capital
expenditures made in cash during such period, except to the extent that
such capital expenditures were financed with the proceeds of
Indebtedness of the Borrower or the Restricted Subsidiaries,
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(iii)
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the aggregate amount of all principal payments
of Indebtedness of the Borrower and the Restricted Subsidiaries
(including (A) the principal component of payments in respect of
Capitalized Leases and (B) the amount of any mandatory prepayment of
Term Loans pursuant to Section 5.2(a) to the extent required due to a
Disposition that resulted in an increase to Consolidated Net Income and
not in excess of the amount of such increase but excluding (x) all
other prepayments of Term Loans and (y) all prepayments of Revolving
Credit Loans and Swing Line Loans) made during such period (other than
in respect of any revolving credit facility to the extent there is not
an equivalent permanent reduction in commitments thereunder), except to
the extent financed with the proceeds of other Indebtedness of the
Borrower or the Restricted Subsidiaries,
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(iv)
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an amount equal to the aggregate net non-cash
gain on Dispositions by the Borrower and the Restricted Subsidiaries
during such period (other than Dispositions in the ordinary course of
business) to the extent included in arriving at such Consolidated Net
Income,
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(v)
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increases in Consolidated Working Capital for
such period and long-term account receivables for such period,
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(vi)
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cash payments by the Borrower and the
Restricted Subsidiaries during such period in respect of long-term
liabilities of the Borrower and the Restricted Subsidiaries other than
Indebtedness,
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(vii)
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without duplication of amounts deducted
pursuant to clause (xi) below in prior fiscal years, the aggregate
amount of cash consideration paid by the Borrower and the Restricted
Subsidiaries in connection with Investments (including acquisitions)
made during such period pursuant to Section 10.5 to the extent that
such Investments were financed with internally generated cash flow of
the Borrower and the Restricted Subsidiaries,
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(viii)
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the amount of dividends paid during such period to the extent such
dividends were financed with internally generated cash flow of the
Borrower and the Restricted Subsidiaries,
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(ix)
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the aggregate amount of expenditures actually
made by the Borrower and the Restricted Subsidiaries in cash during
such period (including expenditures for the payment of financing fees)
to the extent that such expenditures are not expensed during such
period,
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(x)
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the aggregate amount of any premium, make-whole
or penalty payments actually paid in cash by the Borrower and the
Restricted Subsidiaries during such period that are required to be made
in connection with any prepayment of Indebtedness,
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(xi)
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without duplication of amounts deducted from
Excess Cash Flow in prior periods, the aggregate consideration required
to be paid in cash by the Borrower or any of the Restricted
Subsidiaries pursuant to binding contracts (the
Contract
Consideration
) entered into prior to or during such period
relating to Permitted Acquisitions, Investments in the nature of joint
ventures or capital expenditures to be consummated or made during the
period of four consecutive fiscal quarters of the Borrower following
the end of such period,
provided
that to the extent the
aggregate amount of internally generated cash actually utilized to
finance such Permitted Acquisitions, Investment in the nature of joint
ventures or capital expenditures during such period of four consecutive
fiscal quarters is less than the Contract Consideration, the amount of
such shortfall shall be added to the calculation of Excess Cash Flow at
the end of such period of four consecutive fiscal quarters, and
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(xii)
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the amount of cash taxes paid in such period
to the extent they exceed the amount of tax expense deducted in
determining Consolidated Net Income for such period.
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Exchange Rate
shall mean on any day with respect to any Foreign Currency, the rate
at which such Foreign Currency may be exchanged into Dollars, as set forth at approximately
11:00 a.m. (London time) on such day on the Reuters World Currency Page for such Foreign Currency;
in the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate
shall be determined by reference to such other publicly available service for displaying exchange
rates as may be agreed upon by the Administrative Agent and the Borrower, or, in the absence of
such agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of
exchange of the Administrative Agent in the market where its foreign currency exchange operations
in respect of such Foreign Currency are then being conducted, at or about 10:00 a.m. (New York City
time) on such date for the purchase of Dollars for delivery two Business Days later.
Excluded Subsidiary
means (a) each Subsidiary listed on
Schedule 1.1(d)
hereto, (b) any Subsidiary that is not a wholly-owned Subsidiary, (c) any Subsidiary that is
prohibited by any applicable Requirement of Law from guaranteeing the Obligations, (d) any Domestic
Subsidiary that is a Subsidiary of a Foreign Subsidiary, (e) any Subsidiary acquired pursuant to a
Permitted Acquisition financed with secured Indebtedness incurred pursuant to
Section
10.1(j)
or
Section 10.1(k)
and each Restricted Subsidiary thereof that guarantees such
Indebtedness to the extent and so long as the financing documentation relating to such Permitted
Acquisition to which such Restricted Subsidiary is a party prohibits such Restricted Subsidiary
from guaranteeing, or granting a Lien on any of its assets to secure, the Obligations;
provided
that after such time that such prohibitions on guarantees or granting of Liens
lapses or terminates, such Restricted Subsidiary shall no longer be an Excluded Subsidiary, (f) any
other Subsidiary with respect to which, in the reasonable judgment of the Administrative Agent
(confirmed in writing by notice to the Borrower), the cost or other consequences (including any
adverse tax consequences) of providing a Guarantee shall be excessive in view of the benefits to be
obtained by the Lenders therefrom, and (g) each Unrestricted Subsidiary.
Excluded Taxes
shall mean, with respect to the Administrative Agent, the Collateral
Agent, or any Lender (a) (i) net income taxes and franchise taxes (imposed in lieu of net income
taxes) and capital taxes imposed on the Administrative Agent, or any Lender and (ii) any taxes
imposed on the Administrative Agent, or any Lender as a result of any current or former connection
between the Administrative Agent, or such Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Administrative Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or having been a party to or
having enforced this Agreement or any other Credit Document) and (b) (i) any withholding tax that
is imposed by a jurisdiction in which the Borrower is located or organized on amounts payable to
such Lender under the law in effect at the time such Lender becomes a party to this Agreement (or,
in the case of a Participant, on the date such Participant became a Participant hereunder);
provided
that
this clause (b)(i) shall not apply to the extent that (x) the
indemnity payments or additional amounts any Lender (or Participant) would be entitled to receive
(without regard to this clause (b)(i)) do not exceed the
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indemnity payment or additional amounts that the person making the assignment, participation
or transfer to such Lender (or Participant) would have been entitled to receive in the absence of
such assignment, participation or transfer or (y) any Tax is imposed on a Lender in connection with
an interest or participation in any Loan or other obligation that such Lender was required to
acquire pursuant to
Section 14.8(a)
or that such Lender acquired pursuant to
Section
14.7
(it being understood and agreed, for the avoidance of doubt, that any withholding tax
imposed on a Lender as a result of a Change in Law occurring after the time such Lender became a
party to this Agreement (or designates a new lending office) shall not be an Excluded Tax) or (ii)
any Tax to the extent attributable to such Lenders failure to comply with
Section 5.4(d)
or
Section 5.4(e)
.
Federal Funds Effective Rate
shall mean, for any day, the weighted average of the
per annum
rates on overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day,
the Federal Funds Effective Rate for such day shall be the average rate charged to the
Administrative Agent on such day on such transactions as determined by the Administrative Agent.
Fee Letter
shall mean that certain confidential fee letter dated as of December 1,
2006 by and among Goldman Sachs Credit Partners L.P., Lehman Brothers Inc., Lehman Commercial Paper
Inc., Lehman Brothers Commercial Bank and the Borrower.
Fees
shall mean all amounts payable pursuant to, or referred to in,
Section
4.1
.
Financial Officer
shall mean the Chief Financial Officer, principal accounting
officer, Treasurer, or Controller or any other senior financial officer of the Borrower designated
in writing to the Administrative Agent by any of the foregoing and reasonably acceptable to the
Administrative Agent.
Foreign Asset Sale
shall have the meaning provided in
Section 5.2(g)
.
Foreign Currencies
shall mean any currency other than Dollars.
Foreign Plan
shall mean any employee benefit plan, program, policy, arrangement or
agreement maintained or contributed to by the Borrower or any of its Subsidiaries with respect to
employees employed outside the United States.
Foreign Subsidiary
shall mean each Subsidiary of the Borrower that is not a Domestic
Subsidiary.
Funded Debt
shall mean all indebtedness of the Borrower and the Restricted
Subsidiaries for borrowed money that matures more than one year from the date of its creation or
matures within one year from such date that is renewable or extendable, at the option of the
Borrower or any Restricted Subsidiary, to a date more than one year from such date or arises under
a revolving credit or similar agreement that obligates the lender or lenders to extend credit
during a period of more than one year from such date, including all amounts of Funded Debt
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required to be paid or prepaid within one year from the date of its creation and, in the case
of the Borrower, Indebtedness in respect of the Loans.
GAAP
shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time;
provided
,
however
, that if the Borrower
notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof
to eliminate the effect of any change occurring after the Closing Date in GAAP or in the
application thereof on the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance herewith.
Governmental Authority
shall mean any nation, sovereign or government, any state,
province, territory or other political subdivision thereof, and any entity or authority exercising
executive, legislative, judicial, regulatory or administrative functions of or pertaining to
government, including a central bank or stock exchange.
Guarantee
shall mean (a) the Guarantee, made by each Guarantor in favor of the
Administrative Agent for the benefit of the Secured Parties, substantially in the form of
Exhibit C
, and (b) any other guarantee of the Obligations made by a Restricted Subsidiary
in form and substance reasonably acceptable to the Administrative Agent, in each case as the same
may be amended, supplemented or otherwise modified from time to time.
Guarantee Obligations
shall mean, as to any Person, any obligation of such Person
guaranteeing or intended to guarantee any Indebtedness of any other Person (the
primary
obligor
) in any manner, whether directly or indirectly, including any obligation of such
Person, whether or not contingent, (a) to purchase any such Indebtedness or any property
constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such Indebtedness or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of
any such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness or
(d) otherwise to assure or hold harmless the owner of such Indebtedness against loss in respect
thereof;
provided
,
however
, that the term
Guarantee Obligations
shall not
include endorsements of instruments for deposit or collection in the ordinary course of business or
customary and reasonable indemnity obligations in effect on the Closing Date or entered into in
connection with any acquisition or disposition of assets permitted under this Agreement (other than
such obligations with respect to Indebtedness). The amount of any Guarantee Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of
which such Guarantee Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to perform thereunder)
as determined by such Person in good faith.
Guarantors
shall mean the Subsidiary Guarantors.
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Hazardous Materials
shall mean (a) any petroleum or petroleum products, radioactive
materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment
that contain dielectric fluid containing regulated levels of polychlorinated biphenyls, and radon
gas; (b) any chemicals, materials or substances defined as or included in the definition of
hazardous substances, hazardous waste, hazardous materials, extremely hazardous waste,
restricted hazardous waste, toxic substances, toxic pollutants, contaminants, or
pollutants, or words of similar import, under any applicable Environmental Law; and (c) any other
chemical, material or substance, which is prohibited, limited or regulated by any Environmental
Law.
Hedge Agreement
means an Interest Rate Agreement or a Currency Agreement entered
into in order to satisfy the requirements of this Agreement or otherwise in the ordinary course of
Borrowers or any of its Subsidiaries businesses.
Historical Financial Statements
shall mean as of the Closing Date, the audited
financial statements of the Borrower and its Subsidiaries, for the 2005 and 2006 fiscal years,
consisting of balance sheets and the related consolidated statements of income, stockholders
equity and cash flows for such fiscal years.
Increased Amount Date
shall have the meaning provided in
Section 2.14
.
Indebtedness
of any Person shall mean (a) all indebtedness of such Person for
borrowed money, (b) the deferred purchase price of assets or services that in accordance with GAAP
would be included as liabilities in the balance sheet of such Person, (c) the face amount of all
letters of credit issued for the account of such Person and, without duplication, all drafts drawn
thereunder, (d) all Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed, (e) all Capitalized Lease
Obligations of such Person, (f) all obligations of such Person under interest rate swap, cap or
collar agreements, interest rate future or option contracts, currency swap agreements, currency
future or option contracts, commodity price protection agreements or other commodity price hedging
agreements and other similar agreements and (g) without duplication, all Guarantee Obligations of
such Person,
provided
that Indebtedness shall not include (i) trade payables and accrued
expenses, in each case payable directly or through a bank clearing arrangement and arising in the
ordinary course of business, (ii) deferred or prepaid revenue, (iii) purchase price holdbacks in
respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed
obligations of the respective seller and (iv) all intercompany Indebtedness having a term not
exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary
course of business.
Indemnified Taxes
shall mean all Taxes (other than Excluded Taxes) and Other Taxes.
Intercreditor Agreement
means an intercreditor agreement substantially in the form
of
Exhibit O
, as it may be amended, restated, amended and restated, supplemented or
otherwise modified from time to time.
Interest Period
shall mean, with respect to any Term Loan, the interest period
applicable thereto, as determined pursuant to
Section 2.9
.
-20-
Interest Rate Agreement
means any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedging agreement or other similar
agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure
associated with Borrowers and its Subsidiaries operations and not for speculative purposes.
Investment
shall mean, for any Person: (a) the acquisition (whether for cash,
property, services or securities or otherwise) of Stock, Stock Equivalents, bonds, notes,
debentures, partnership or other ownership interests or other securities of any other Person
(including any short sale or any sale of any securities at a time when such securities are not
owned by the Person entering into such sale); (b) the making of any deposit with, or advance, loan
or other extension of credit to, any other Person (including the purchase of property from another
Person subject to an understanding or agreement, contingent or otherwise, to resell such property
to such Person), but excluding any such advance, loan or extension of credit having a term not
exceeding 364 days arising in the ordinary course of business; or (c) the entering into of any
guarantee of, or other contingent obligation with respect to, Indebtedness.
Investors
shall mean the Sponsors, the Management Investors and each other investor
providing a portion of the Equity Investments on the Closing Date.
Joinder Agreement
shall mean an agreement substantially in the form of
Exhibit M
.
Lender
shall have the meaning provided in the preamble to this Agreement.
Lender Default
shall mean, (a) a Lender having notified the Administrative Agent
and/or the Borrower that it does not intend to comply with the obligations under
Section
2.1
or (b) a Lender being deemed insolvent or becoming the subject of a bankruptcy or
insolvency proceeding.
Level I Status
shall mean, on any date, the Consolidated Total Debt to Consolidated
EBITDA Ratio is greater than or equal to 3.50 to 1.00 as of such date.
Level II Status
shall mean, on any date, the circumstance that the Consolidated
Total Debt to Consolidated EBITDA Ratio is less than 3.50 to 1.00 as of such date.
LIBOR Loan
shall mean any Loan bearing interest at a rate determined by reference to
the LIBOR Rate.
LIBOR Rate
shall mean, in the case of any LIBOR Loan, with respect to each day
during each Interest Period pertaining to such LIBOR Loan, (a) the rate of interest determined on
the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing
on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00
a.m. (London time) two Business Days prior to the beginning of such Interest Period multiplied by
(b) the Statutory Reserve Rate. In the event that any such rate does not appear on the applicable
Page of the Telerate Service (or otherwise on such service), the
LIBOR Rate
for the
purposes of this paragraph shall be determined by reference to such other publicly available
service for displaying LIBOR rates as may be agreed upon by the Administrative Agent and the
Borrower or, in the absence of such agreement, the
LIBOR Rate
for the purposes of this
paragraph shall instead be the rate
per annum
notified to the Administrative Agent by the
-21-
Reference Lender as the rate at which the Reference Lender is offered Dollar deposits at or
about 11:00 a.m. (London time) two Business Days prior to the beginning of such Interest Period in
the interbank LIBOR market where the LIBOR and foreign currency and exchange operations in respect
of its LIBOR Loans are then being conducted for delivery on the first day of such Interest Period
for the number of days comprised therein and in an amount comparable to the amount of its LIBOR
Loan, as the case may be, to be outstanding during such Interest Period.
Lien
shall mean any mortgage, pledge, security interest, hypothecation, assignment,
lien (statutory or other) or similar encumbrance (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease in the nature
thereof).
Loan
shall mean any Term Loan, or New Term Loan made by any Lender.
Management Investors
shall mean the directors, management officers and employees of
the Borrower and its Subsidiaries who are investors in the Borrower (or any direct or indirect
parent thereof) on the Closing Date.
Material Adverse Change
shall mean any event or circumstance which has resulted or
is reasonably likely to result in a material adverse change in the business, assets, operations,
properties or financial condition of the Borrower and its Subsidiaries, taken as a whole or that
would materially adversely affect the ability of the Borrower and the other Credit Parties, taken
as a whole, to perform their respective payment obligations under this Agreement or any of the
other Credit Documents.
Material Adverse Effect
shall mean a circumstance or condition affecting the
business, assets, operations, properties or financial condition of the Borrower and the
Subsidiaries, taken as a whole, that would materially adversely affect (a) the business, assets,
operations, properties, or financial condition of the Borrower and its Subsidiaries, taken as a
whole, (b) the ability of the Borrower and the other Credit Parties, taken as a whole, to perform
their respective payment obligations under this Agreement or any of the other Credit Documents or
(c) the rights and remedies of the Administrative Agent , Collateral Agent and the Lenders under
this Agreement or any of the other Credit Documents.
Material Subsidiary
shall mean, at any date of determination, each Restricted
Subsidiary of the Borrower (a) whose total assets at the last day of the Test Period ending on the
last day of the most recent fiscal period for which
Section 9.1
Financials have been
delivered were equal to or greater than 5% of the consolidated total assets of the Borrower and the
Restricted Subsidiaries at such date or (b) whose gross revenues for such Test Period were equal to
or greater than 5% of the consolidated gross revenues of the Borrower and the Restricted
Subsidiaries for such period, in each case determined in accordance with GAAP.
Merger
shall have the meaning provided in the preamble to this Agreement.
Merger Agreement
shall have the meaning provided in the preamble to this Agreement.
Merger Sub
shall have the meaning provided in the preamble to this Agreement.
-22-
Minimum Borrowing Amount
shall mean $1,000,000 with respect to the Term Loans.
Minimum Equity Contribution Amount
shall have the meaning provided in the recitals
hereto.
Minimum Equity Investment Amount
shall have the meaning provided in the recitals
hereto.
Moodys
shall mean Moodys Investors Service, Inc. or any successor by merger or
consolidation to its business.
Mortgage
shall mean a Mortgage, Assignment of Leases and Rents, Security Agreement
and Financing Statement or other security document entered into by the owner of a Mortgaged
Property and the Collateral Agent for the benefit of the Secured Parties in respect of that
Mortgaged Property, substantially in the form of
Exhibit D
, as the same may be amended,
supplemented or otherwise modified from time to time.
Mortgaged Property
shall mean, initially, each parcel of real estate and the
improvements thereto owned by a Credit Party and identified on
Schedule 1.1(b)
, and
includes each other parcel of real property and improvements thereto with respect to which a
Mortgage is granted pursuant to
Section 9.17
.
Net Cash Proceeds
shall mean, with respect to any Prepayment Event, (a) the gross
cash proceeds (including payments from time to time in respect of installment obligations, if
applicable) received by or on behalf of the Borrower or any of the Restricted Subsidiaries in
respect of such Prepayment Event or issuance, as the case may be, less (b) the sum of:
(i) the amount, if any, of all taxes paid or estimated to be payable by the Borrower or
any of the Restricted Subsidiaries in connection with such Prepayment Event,
(ii) the amount of any reasonable reserve established in accordance with GAAP against
any liabilities (other than any taxes deducted pursuant to clause (i) above) (x) associated
with the assets that are the subject of such Prepayment Event and (y) retained by the
Borrower or any of the Restricted Subsidiaries,
provided
that the amount of any
subsequent reduction of such reserve (other than in connection with a payment in respect of
any such liability) shall be deemed to be Net Cash Proceeds of such a Prepayment Event
occurring on the date of such reduction,
(iii) the amount of any Indebtedness secured by a Lien on the assets that are the
subject of such Prepayment Event to the extent that the instrument creating or evidencing
such Indebtedness requires that such Indebtedness be repaid upon consummation of such
Prepayment Event,
(iv) in the case of any Asset Sale Prepayment Event, Casualty Event or Permitted Sale
Leaseback, the amount of any proceeds of such Prepayment Event that the Borrower or any
Subsidiary has reinvested (or intends to reinvest within the Reinvestment Period or has
entered into a binding commitment prior to the last day of the
-23-
Reinvestment Period to reinvest) in the business of the Borrower or any of the
Restricted Subsidiaries (subject to
Section 10.12
),
provided
that
any portion of such proceeds that has not been so reinvested within such Reinvestment Period
(with respect to such Prepayment Event, the
Deferred Net Cash Proceeds
) shall,
unless the Borrower or a Subsidiary has entered into a binding commitment prior to the last
day of such Reinvestment Period to reinvest such proceeds, (x) be deemed to be Net Cash
Proceeds of an Asset Sale Prepayment Event, Casualty Event or Permitted Sale Leaseback
occurring on the last day of such Reinvestment Period or 180 days after the date such
Borrower or such Subsidiary has entered into such binding commitment, as applicable, and (y)
be applied to the repayment of Term Loans in accordance with
Section 5.2(a)(i)
; and
(v) reasonable and customary fees.
New Loan Commitments
shall have the meaning provided in
Section 2.14
.
New Revolving Credit Commitments
shall have the meaning provided in the Revolving
Loan Credit Agreement.
New Term Loan Commitments
shall have the meaning provided in
Section 2.14
.
New Term Loan Lender
shall have the meaning provided in
Section 2.14
.
New Term Loans
shall have the meaning provided in
Section 2.14
.
New Term Loan Maturity Date
shall mean the date on which a New Term Loan matures.
New Term Loan Repayment Amount
shall have the meaning provided in
Section
2.5(c)
.
Non-Cash Charges
shall mean (a) losses on asset sales (other than asset sales in the
ordinary course of business), disposals or abandonments, (b) any impairment charge or asset
write-off related to intangible assets (including good-will), long-lived assets, and investments in
debt and equity securities pursuant to GAAP, (c) all losses from investments recorded using the
equity method, (d) stock-based awards compensation expense, and (e) other non-cash charges
(
provided
that if any non-cash charges referred to in this clause (e) represent an accrual
or reserve for potential cash items in any future period, the cash payment in respect thereof in
such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding
amortization of a prepaid cash item that was paid in a prior period).
Non-Consenting Lender
shall have the meaning provided in
Section 14.7(b)
.
Non-Core Assets
shall mean the assets described on Schedule 1.1(e).
Non-Defaulting Lender
shall mean and include each Lender other than a Defaulting
Lender.
-24-
Non-U.S. Lender
shall mean any Lender that is not, for United States federal income
tax purposes, (a) a citizen or resident of the United States, (b) a corporation or partnership or
entity treated as a corporation or partnership created or organized in or under the laws of the
United States, or any political subdivision thereof, (c) an estate whose income is subject to U.S.
federal income taxation regardless of its source or (d) a trust if a court within the United States
is able to exercise primary supervision over the administration of such trust and one or more
United States persons have the authority to control all substantial decisions of such trust or a
trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a United States person.
Non-U.S. Participant
shall mean any Participant that if it were a Lender would
qualify as a Non-U.S. Lender.
Notice of Borrowing
shall mean each notice of a Borrowing of Term Loans pursuant to
Section 2.3(a)
.
Notice of Conversion or Continuation
shall have the meaning provided in
Section
2.6
.
Obligations
shall have the meaning assigned to such term in the Security Documents.
Organizational Documents
means (a) with respect to any corporation, its certificate
or articles of incorporation or organization, as amended, and its by-laws, as amended, (b) with
respect to any limited partnership, its certificate of limited partnership (if any), as amended,
and its partnership agreement, as amended, (c) with respect to any general partnership, its
partnership agreement, as amended, and (d) with respect to any limited liability company, its
articles of organization (if any), as amended, and its operating agreement, as amended.
Other Taxes
shall mean any and all present or future stamp, documentary or any other
excise, property or similar taxes (including interest, fines, penalties, additions to tax and
related expenses with regard thereto) arising directly from any payment made or required to be made
under this Agreement or from the execution or delivery of, registration or enforcement of,
consummation or administration of, or otherwise with respect to, this Agreement or any other Credit
Document.
Participant
shall have the meaning provided in
Section 14.6(c)
.
Patriot Act
shall have the meaning provided in
Section 14.18
.
PBGC
shall mean the Pension Benefit Guaranty Corporation established pursuant to
Section 4002 of ERISA, or any successor thereto.
Perfection Certificate
shall mean a certificate of the Borrower in the form of
Exhibit E
or any other form approved by the Administrative Agent.
Permitted Acquisition
shall mean the acquisition, by merger or otherwise, by the
Borrower or any of the Restricted Subsidiaries of assets or Stock or Stock Equivalents, so long as
(a) such acquisition and all transactions related thereto shall be consummated in accordance with
applicable law; (b) such acquisition shall result in the issuer of such Stock or Stock Equivalents
-25-
becoming a Restricted Subsidiary and a Subsidiary Guarantor, to the extent required by
Section 9.11
; (c) such acquisition shall result in the Administrative Agent, for the
benefit of the Secured Parties, being granted a security interest in any Stock, Stock Equivalent or
any assets so acquired, to the extent required by
Sections 9.11, 9.12
and/or
9.17
;
(d) after giving effect to such acquisition, no Default or Event of Default shall have occurred and
be continuing; and (e) the Borrower shall be in compliance, on a Pro Forma Basis after giving
effect to such acquisition (including any Indebtedness assumed or permitted to exist or incurred
pursuant to
Sections 10.1(j)
and
10.1(k)
, respectively, and any related Pro Forma
Adjustment), with the covenants set forth in
Section 10.9
as such covenant is recomputed as
at the last day of the most recently ended Test Period under such Section as if such acquisition
had occurred on the first day of such Test Period.
Permitted Additional Debt
shall mean senior unsecured or subordinated Indebtedness,
issued by the Borrower or a Subsidiary Guarantor, (a) the terms of which (i) do not provide for any
scheduled repayment, mandatory redemption or sinking fund obligation prior to the date that is 90
days following the final maturity of the Term Loans (as in effect on the Closing Date) (other than
customary offers to purchase upon a change of control, asset sale or event of loss and customary
acceleration rights after an event of default) and (ii) to the extent subordinated provide for
customary subordination to the Obligations under the Credit Documents, (b) the covenants, events of
default, guarantees and other terms of which (other than interest rate and redemption premiums),
taken as a whole, are not more restrictive to the Borrower and the Subsidiaries than those in this
Agreement;
provided
that
a certificate of an Authorized Officer of the Borrower is
delivered to the Administrative Agents at least five Business Days (or such shorter period as the
Administrative Agents may reasonably agree) prior to the incurrence of such Indebtedness, together
with a reasonably detailed description of the material terms and conditions of such Indebtedness or
drafts of the documentation relating thereto, stating that the Borrower has determined in good
faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence
that such terms and conditions satisfy the foregoing requirement unless the Administrative Agents
notify the Borrower within such period that it disagrees with such determination (including a
reasonable description of the basis upon which it disagrees), and (c) of which no Subsidiary of the
Borrower (other than a Guarantor) is an obligor.
Permitted Investments
shall mean:
(a) securities issued or unconditionally guaranteed by the United States government or
any agency or instrumentality thereof, in each case having maturities of not more than 12
months from the date of acquisition thereof;
(b) securities issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof or any political
subdivision of any such state or any public instrumentality thereof having maturities of not
more than 12 months from the date of acquisition thereof and, at the time of acquisition,
having an investment grade rating generally obtainable from either S&P or Moodys (or, if at
any time neither S&P nor Moodys shall be rating such obligations, then from another
nationally recognized rating service);
-26-
(c) commercial paper issued by any Lender or any bank holding company owning any
Lender;
(d) commercial paper maturing no more than 12 months after the date of creation thereof
and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or
Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(e) domestic and LIBOR certificates of deposit or bankers acceptances maturing no more
than two years after the date of acquisition thereof issued by any Lender or any other bank
having combined capital and surplus of not less than $250,000,000 in the case of domestic
banks;
(f) repurchase agreements with a term of not more than 30 days for underlying
securities of the type described in clauses (a), (b) and (e) above entered into with any
bank meeting the qualifications specified in clause (e) above or securities dealers of
recognized national standing;
(g) marketable short-term money market and similar funds (x) either having assets in
excess of $250,000,000 or (y) having a rating of at least A-1 or P-1 from either S&P or
Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(h) shares of investment companies that are registered under the Investment Company Act
of 1940 and substantially all the investments of which are one or more of the types of
securities described in clauses (a) through (g) above; and
(i) in the case of Investments by any Restricted Foreign Subsidiary or Investments made
in a country outside the United States of America, Permitted Investments shall also include
((i) direct obligations of the sovereign nation (or any agency thereof) in which such
Restricted Foreign Subsidiary is organized and is conducting business or where such
Investment is made, or in obligations fully and unconditionally guaranteed by such sovereign
nation (or any agency thereof), in each case maturing within a two years after such date and
having, at the time of the acquisition thereof, a rating equivalent to at least A-1 from S&P
and at least P-1 from Moodys, (ii) investments of the type and maturity described in
clauses (a) through (h) above of foreign obligors, which Investments or obligors (or the
parents of such obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies, (iii) shares of money market mutual or similar funds
which invest exclusively in assets otherwise satisfying the requirements of this definition
(including this proviso) and (iv) other short-term investments utilized by Foreign
Restricted Subsidiaries in accordance with normal investment practices for cash management
in investments analogous to the foregoing investments in clauses (a) through (i).
Permitted Liens
shall mean:
-27-
(a) Liens for taxes, assessments or governmental charges or claims not yet due or which
are being contested in good faith and by appropriate proceedings for which appropriate
reserves have been established in accordance with GAAP;
(b) Liens in respect of property or assets of the Borrower or any of the Subsidiaries
imposed by law, such as carriers, warehousemens and mechanics Liens and other similar
Liens arising in the ordinary course of business, in each case so long as such Liens arise
in the ordinary course of business and do not individually or in the aggregate have a
Material Adverse Effect;
(c) Liens arising from judgments or decrees in circumstances not constituting an Event
of Default under
Section 11.11
;
(d) Liens incurred or deposits made in connection with workers compensation,
unemployment insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations incurred in the ordinary
course of business or otherwise constituting Investments permitted by
Section 10.5
;
(e) ground leases in respect of real property on which facilities owned or leased by
the Borrower or any of its Subsidiaries are located;
(f) easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not interfering in any material respect with the
business of the Borrower and its Subsidiaries, taken as a whole;
(g) any interest or title of a lessor or secured by a lessors interest under any lease
permitted by this Agreement;
(h) Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(i) Liens on goods the purchase price of which is financed by a documentary letter of
credit issued for the account of the Borrower or any of its Subsidiaries,
provided
that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect
of such letter of credit to the extent permitted under
Section 10.1
;
(j) leases or subleases granted to others not interfering in any material respect with
the business of the Borrower and its Subsidiaries, taken as a whole;
(k) Liens arising from precautionary Uniform Commercial Code financing statement or
similar filings made in respect of operating leases entered into by the Borrower or any of
its Subsidiaries; and
(l) Liens created in the ordinary course of business in favor of banks and other
financial institutions over credit balances of any bank accounts of the Borrower and the
Restricted Subsidiaries held at such banks or financial institutions, as the case may be,
-28-
to facilitate the operation of cash pooling and/or interest set-off arrangements in
respect of such bank accounts in the ordinary course of business.
Permitted Sale Leaseback
shall mean any Sale Leaseback consummated by the Borrower
or any of the Restricted Subsidiaries after the Closing Date,
provided
that
any
such Sale Leaseback not between the Borrower and any Guarantor or any Guarantor and another
Guarantor is consummated for fair value as determined at the time of consummation in good faith by
the Borrower or such Restricted Subsidiary and, in the case of any Sale Leaseback (or series of
related Sales Leasebacks) the aggregate proceeds of which exceed $25,000,000 the board of directors
of the Borrower or such Restricted Subsidiary (which such determination may take into account any
retained interest or other Investment of the Borrower or such Restricted Subsidiary in connection
with, and any other material economic terms of, such Sale Leaseback).
Person
shall mean any individual, partnership, joint venture, firm, corporation,
limited liability company, association, trust or other enterprise or any Governmental Authority.
Plan
shall mean any multiemployer or single-employer plan, as defined in Section
4001 of ERISA and subject to Title IV of ERISA, that is or was within any of the preceding six plan
years maintained or contributed to by (or to which there is or was an obligation to contribute or
to make payments to) the Borrower, a Subsidiary or an ERISA Affiliate.
Platform
shall have the meaning provided in
Section 14.17(b)
.
Pledge Agreement
shall mean (a) the Pledge Agreement, entered into by the relevant
pledgors party thereto and the Collateral Agent for the benefit of the Lenders and other Secured
Parties, substantially in the form of
Exhibit F
, on the Closing Date and (b) any other
pledge agreement delivered pursuant to
Section 9.12
, in each case, as the same may be
amended, supplemented or otherwise modified from time to time.
Post-Acquisition Period
means, with respect to any Permitted Acquisition, the period
beginning on the date such Permitted Acquisition is consummated and ending on the last day of the
fourth full consecutive fiscal quarter immediately following the date on which such Permitted
Acquisition is consummated.
Prepayment Event
shall mean any Asset Sale Prepayment Event, Casualty Event, Debt
Incurrence Prepayment Event or any Permitted Sale Leaseback
Prime Rate
means the rate of interest quoted in the
Wall Street Journal
, Money Rates
Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least
75% of the nations thirty (30) largest banks), as in effect from time to time. The Prime Rate is
a reference rate and does not necessarily represent the lowest or best rate actually charged to any
customer. The Administrative Agent or any other Lender may make commercial loans or other loans at
rates of interest at, above or below the Prime Rate.
Pro Forma Adjustment
shall mean, for any Test Period that includes all or any part
of a fiscal quarter included in any Post-Acquisition Period, with respect to the Acquired EBITDA of
the applicable Acquired Entity or Business or the Consolidated EBITDA of the Borrower, the pro
forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the
-29 -
case may be, projected by the Borrower in good faith as a result of (a) actions taken during
such Post-Acquisition Period for the purposes of realizing reasonably identifiable and factually
supportable cost savings or (b) any additional costs incurred during such Post-Acquisition Period,
in each case in connection with the combination of the operations of such Acquired Entity or
Business with the operations of the Borrower and the Restricted Subsidiaries;
provided
that, so long as such actions are taken during such Post-Acquisition Period or such costs are
incurred during such Post-Acquisition Period, as applicable, it may be assumed, for purposes of
projecting such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA,
as the case may be, that such cost savings will be realizable during the entirety of such Test
Period, or such additional costs, as applicable, will be incurred during the entirety of such Test
Period;
provided
further
that any such pro forma increase or decrease to such
Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without duplication for
cost savings or additional costs already included in such Acquired EBITDA or such Consolidated
EBITDA, as the case may be, for such Test Period.
Pro Forma Adjustment Certificate
shall mean any certificate of an Authorized Officer
of the Borrower delivered pursuant to
Section 9.1(h)
or
Section 9.1(d)
.
Pro Forma Basis
,
Pro Forma Compliance
and
Pro Forma Effect
shall
mean, with respect to compliance with any test or covenant hereunder, that (A) to the extent
applicable, the Pro Forma Adjustment shall have been made and (B) all Specified Transactions and
the following transactions in connection therewith shall be deemed to have occurred as of the first
day of the applicable period of measurement in such test or covenant: (a) income statement items
(whether positive or negative) attributable to the property or Person subject to such Specified
Transaction, (i) in the case of a sale, transfer or other disposition of all or substantially all
Stock and Stock Equivalents in any Subsidiary of the Borrower or any division, product line, or
facility used for operations of the Borrower or any of its Subsidiaries, shall be excluded, and
(ii) in the case of a Permitted Acquisition or Investment described in the definition of
Specified Transaction, shall be included, (b) any retirement of Indebtedness, and (c) any
Indebtedness incurred or assumed by the Borrower or any of the Restricted Subsidiaries in
connection therewith and if such Indebtedness has a floating or formula rate, shall have an implied
rate of interest for the applicable period for purposes of this definition determined by utilizing
the rate which is or would be in effect with respect to such Indebtedness as at the relevant date
of determination;
provided
that, without limiting the application of the Pro Forma
Adjustment pursuant to (A) above, the foregoing pro forma adjustments may be applied to any such
test or covenant solely to the extent that such adjustments are consistent with the definition of
Consolidated EBITDA and give effect to events (including operating expense reductions) that are (i)
(x) directly attributable to such transaction, (y) expected to have a continuing impact on the
Borrower and the Restricted Subsidiaries and (z) factually supportable or (ii) otherwise consistent
with the definition of Pro Forma Adjustment.
Real Estate
shall have the meaning provided in
Section 9.1(i)
.
Reference Lender
shall mean JPMorgan Chase Bank, N.A.
Register
shall have the meaning provided in
Section 14.6(b)(iv
).
-30-
Regulation D
shall mean Regulation D of the Board as from time to time in effect and
any successor to all or a portion thereof establishing reserve requirements.
Regulation T
shall mean Regulation T of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
Regulation U
shall mean Regulation U of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
Regulation X
shall mean Regulation X of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
Reinvestment Period
shall mean 15 months following the date of an Asset Sale
Prepayment Event or Casualty Event.
Related Parties
shall mean, with respect to any specified Person, such Persons
Affiliates and the directors, officers, employees, agents, trustees, advisors of such Person and
any Person that possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of such Person, whether through the ability to exercise voting power, by
contract or otherwise.
Repayment Amount
shall mean the Term Loan Repayment Amount or the New Term Loan
Repayment Amount with respect to any Series, as applicable.
Repayment Date
shall mean a Term Loan Repayment Date or a New Term Loan Repayment
Date, as applicable.
Report
shall mean reports prepared in good faith by an Agent or another Person
showing the results of appraisals, field examinations or audits pertaining to the Borrowers assets
from information furnished by or on behalf of the Borrower, after an Agent has exercised its rights
of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the
applicable Agent.
Reportable Event
shall mean an event described in Section 4043 of ERISA and the
regulations thereunder.
Required Lenders
shall mean, at any date, Non Defaulting Lenders having or holding a
majority of the outstanding principal amount of the Term Loans in the aggregate at such date.
Requirement of Law
shall mean, as to any Person, the Certificate of Incorporation
and by-laws or other organizational or governing documents of such Person, and any law, treaty,
rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or assets or to which
such Person or any of its property or assets is subject.
Restricted Foreign Subsidiary
shall mean a Foreign Subsidiary that is a Restricted
Subsidiary.
-31-
Restricted Subsidiary
shall mean any Subsidiary of the Borrower other than an
Unrestricted Subsidiary.
Revolving Loan Credit Agreement
shall mean that certain revolving loan credit
agreement dated as of the Closing Date, by and among the Borrower, The CIT Group/Business Credit,
Inc. as administrative agent and collateral agent, Goldman Sachs Credit Partners L.P. and Lehman
Brothers Inc., as the co-lead arrangers and joint bookrunners, and Goldman Sachs Credit Partners
L.P., as the syndication agent.
Rollover Equity
shall have the meaning provided in the recitals hereto.
Sale Leaseback
shall mean any transaction or series of related transactions pursuant
to which the Borrower or any of the Restricted Subsidiaries (a) sells, transfers or otherwise
disposes of any property, real or personal, whether now owned or hereafter acquired, and (b) as
part of such transaction, thereafter rents or leases such property or other property that it
intends to use for substantially the same purpose or purposes as the property being sold,
transferred or disposed.
S&P
shall mean Standard & Poors Ratings Services or any successor by merger or
consolidation to its business.
SEC
shall mean the Securities and Exchange Commission or any successor thereto.
Section 9.1 Financials
shall mean the financial statements delivered, or required to
be delivered, pursuant to Section 9.1(a) or (b) together with the accompanying officers
certificate delivered, or required to be delivered, pursuant to
Section 9.1(e)
.
Secured Parties
shall have the meaning assigned to such term in the applicable
Security Documents.
Security Agreement
shall mean the Security Agreement entered into by the Borrower,
the other grantors party thereto and the Collateral Agent for the benefit of the Lenders,
substantially in the form of
Exhibit G
, as the same may be amended, supplemented or
otherwise modified from time to time.
Security Documents
shall mean, collectively, (a) the Guarantee, (b) the Security
Agreement, (c) the Intercreditor Agreement, (d) each Mortgage , (e) the Pledge Agreement and (f)
each other security agreement or other instrument or document executed and delivered pursuant to
Section 9.11, 9.12
or
9.17
or pursuant to any of the Security Documents to secure
any of the Obligations.
Series
shall have the meaning as provided in Section 2.14
Sold Entity or Business
shall have the meaning provided in the definition of the
term Consolidated EBITDA.
Solvent
shall mean, with respect to the Borrower, that as of the Closing Date, both
(a) (i) the sum of the Borrowers debt (including contingent liabilities) does not exceed the
present
-32-
fair saleable value of the Borrowers present assets; (ii) the Borrowers capital is not
unreasonably small in relation to its business as contemplated on the Closing Date; and (iii) the
Borrower has not incurred and does not intend to incur, or believe that it will incur, debts
including current obligations beyond its ability to pay such debts as they become due (whether at
maturity or otherwise); and (b) such Person is solvent within the meaning given that term and
similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes
of this definition, 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).
Specified Subsidiary
shall mean, at any date of determination (a) any Material
Subsidiary or (b) any Unrestricted Subsidiary (i) whose total assets at the last day of the Test
Period ending on the last day of the most recent fiscal period for which
Section 9.1
Financials have been delivered were equal to or greater than 15% of the consolidated total assets
of the Borrower and the Subsidiaries at such date, (ii) whose gross revenues for such Test Period
were equal to or greater than 15% of the consolidated gross revenues of the Borrower and the
Subsidiaries for such period, in each case determined in accordance with GAAP and (c) each other
Subsidiary that, when such Subsidiarys total assets or gross revenues are aggregated with the
total assets or gross revenues, as applicable, of each other Subsidiary that is the subject of an
Event of Default described in
Section 11.5
would constitute a Specified Subsidiary under
clause (a) or (b) above.
Specified Transaction
shall mean, with respect to any period, any Investment, sale,
transfer or other disposition of assets, incurrence or repayment of Indebtedness, Dividend,
Subsidiary designation, New Term Loan Commitment or other event that by the terms of this Agreement
requires
Pro Forma Compliance
with a test or covenant hereunder or requires such test or
covenant to be calculated on a
Pro Forma Basis
.
Sponsor
shall mean GS Capital Partners V Fund, L.P. and its respective Affiliates.
Status
shall mean, as to the Borrower as of any date, the existence of Level I
Status or Level II Status, as the case may be on such date. Changes in Status resulting from
changes in the Consolidated Total Debt to Consolidated EBITDA Ratio shall become effective (the
date of such effectiveness, the
Effective Date
) as of the first day following the last
day of the most recent fiscal year or period for which (a) Section 9.1 Financials are delivered to
the Lenders under
Section 9.1
and (b) an officers certificate is delivered by the Borrower
to the Lenders setting forth, with respect to such
Section 9.1
Financials, the
then-applicable Status, and shall remain in effect until the next change to be effected pursuant to
this definition,
provided
that (i) if the Borrower shall have made any payments in respect
of interest or commitment fees during the period (the
Interim Period
) from and including
the Effective Date to but excluding the day any change in Status is determined as provided above,
then the amount of the next such payment due on or after such day shall be increased or decreased
by an amount equal to any underpayment or overpayment so made by the Borrower during such Interim
Period and (ii) each determination of the Consolidated Total Debt to Consolidated EBITDA Ratio
pursuant to this definition shall be
-33-
made with respect to the Test Period ending at the end of the fiscal period covered by the
relevant financial statements.
Statutory Reserve Rate
shall mean for any day as applied to any LIBOR Loan, a
fraction (expressed as a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve percentages that are in effect
on that day (including any marginal, special, emergency or supplemental reserves), expressed as a
decimal, as prescribed by the Board and to which the Administrative Agent is subject, for
eurocurrency funding (currently referred to as
Eurocurrency Liabilities
in Regulation D
of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D.
LIBOR Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any comparable regulation.
The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
Stock
shall mean shares of capital stock or shares in the capital, as the case may
be (whether denominated as common stock or preferred stock or ordinary shares or preferred shares,
as the case may be), beneficial, partnership or membership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, partnership, limited liability
company or equivalent entity, whether voting or non-voting.
Stock Equivalents
shall mean 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 Indebtedness
shall mean Indebtedness of the Borrower or any Guarantor
that is by its terms subordinated in right of payment to the obligations of the Borrower and such
Guarantor, as applicable, under this Agreement.
Subsidiary
of any Person shall mean and include (a) any corporation more than 50% of
whose Stock of any class or classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether or not at the time Stock of
any class or classes of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or indirectly through
Subsidiaries and (b) any partnership, association, joint venture or other entity in which such
Person directly or indirectly through Subsidiaries has more than a 50% equity interest at the time.
Unless otherwise expressly provided, all references herein to a Subsidiary shall mean a
Subsidiary of the Borrower.
Subsidiary Guarantors
shall mean (a) each Domestic Subsidiary (other than an
Excluded Subsidiary) existing on the Closing Date and (b) each Domestic Subsidiary that becomes a
party to the Guarantee after the Closing Date pursuant to
Section 9.11
or otherwise.
Successor Borrower
shall have the meaning provided in
Section 10.3(a)
.
-34-
Syndication Agent
shall mean Goldman Sachs Credit Partners L.P., together with its
affiliates, as the syndication agent for the Lenders under this Agreement and the other Credit
Documents.
Taxes
shall mean any and all present or future taxes, duties, levies, imposts,
assessments, deductions, withholdings or other similar charges imposed by any Governmental
Authority whether computed on a separate, consolidated, unitary, combined or other basis and any
and all liabilities (including interest, fines, penalties or additions to tax) with respect to the
foregoing.
Term Loan Commitment
shall mean (a) in the case of each Lender that is a Lender on
the date hereof, the amount set forth opposite such Lenders name on
Schedule 1.1(c)
as
such Lenders Term Loan Commitment and (b) in the case of any Lender that becomes a Lender after
the date hereof, the amount specified as such Lenders Commitment in the Assignment and
Acceptance pursuant to which such Lender assumed a portion of the Total Term Loan Commitment, in
each case as the same may be changed from time to time pursuant to the terms hereof. The aggregate
amount of the Term Loan Commitments as of the Closing Date is $575,000,000.
Term Loans
shall have the meaning provided in Section 2.1. To the extent any New
Term Loans are made hereunder, Term Loans shall, to the extent appropriate, include such New Term
Loans.
Term Loan Maturity Date
shall mean the date that is seven (7) years after the
Closing Date, or, if such date is not a Business Day, the next preceding Business Day
Term Loan Repayment Amount
shall have the meaning provided in
Section 2.5(b)
.
Term Loan Repayment Date
shall have the meaning provided in
Section 2.5(b)
.
Test Period
shall mean, for any determination under this Agreement, the four
consecutive fiscal quarters of the Borrower then last ended.
Total Commitment
shall mean the Total Term Loan Commitment.
Total Credit Exposure
shall mean, at any date, the sum of (a) the Total Term Loan
Commitment at such date and (b) the outstanding principal amount of all Term Loans at such date.
Total Term Loan Commitment
shall mean the sum of the Term Loan Commitments and New
Term Loan Commitments, if applicable, of all the Lenders.
Transaction Expenses
shall mean any fees or expenses incurred or paid by the
Borrower or any of its Subsidiaries in connection with the Transactions, this Agreement and the
other Credit Documents and the transactions contemplated hereby and thereby.
Transactions
shall mean, collectively, the transactions contemplated by this
Agreement, the Revolving Loan Credit Agreement, the Merger and the Equity Investments.
-35-
Transferee
shall have the meaning provided in
Section 14.6(e)
.
Trigger Date
shall mean the date on which Section 9.1 Financials are delivered to
the Lenders under
Section 9.1
for the fiscal quarter ending on June 30, 2007.
Type
shall mean as to any Term Loan, its nature as an ABR Loan or a LIBOR Loan.
Unfunded Current Liability
of any Plan shall mean the amount, if any, by which the
present value of the accrued benefits under the Plan as of the close of its most recent plan year,
determined in accordance with Statement of Financial Accounting Standards No. 87 as in effect on
the date hereof, based upon the actuarial assumptions that would be used by the Plans actuary in a
termination of the Plan, exceeds the fair market value of the assets allocable thereto.
Unrestricted Subsidiary
shall mean (a) any Subsidiary of the Borrower that is formed
or acquired after the Closing Date,
provided
that at such time (or promptly thereafter) the
Borrower designates such Subsidiary an Unrestricted Subsidiary in a written notice to the
Administrative Agent, (b) any Restricted Subsidiary subsequently re-designated as an Unrestricted
Subsidiary by the Borrower in a written notice to the Administrative Agent,
provided
that
in the case of (a) and (b), (x) such designation or re-designation shall be deemed to be an
Investment on the date of such re-designation in an Unrestricted Subsidiary in an amount equal to
the sum of (i) the Borrowers direct or indirect equity ownership percentage of the net worth of
such designated or re-designated Restricted Subsidiary immediately prior to such designated or
re-designation (such net worth to be calculated without regard to any guarantee provided by such
designated or re-designated Restricted Subsidiary) and (ii) the aggregate principal amount of any
Indebtedness owed by such designated or re-designated Restricted Subsidiary to the Borrower or any
other Restricted Subsidiary immediately prior to such designated or re-designation, all calculated,
except as set forth in the parenthetical to clause (i), on a consolidated basis in accordance with
GAAP and (y) no Default or Event of Default would result from such designation or re-designation
and (c) each Subsidiary of an Unrestricted Subsidiary;
provided
,
however
, that at
the time of any written designation or re-designation by the Borrower to the Administrative Agent
that any Unrestricted Subsidiary shall no longer constitute an Unrestricted Subsidiary, such
Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary to the extent no Default or
Event of Default would result from such designation or re-designation. On or promptly after the
date of its formation, acquisition, designation or re-designation, as applicable, each Unrestricted
Subsidiary (other than an Unrestricted Subsidiary that is a Foreign Subsidiary) shall have entered
into a tax sharing agreement containing terms that, in the reasonable judgment of the
Administrative Agent, provide for an appropriate allocation of tax liabilities and benefits. An
Unrestricted Subsidiary which has been re-designated as a Restricted Subsidiary may not be
subsequently re-designated as an Unrestricted Subsidiary.
Voting Stock
shall mean, with respect to any Person, such Persons Stock or Stock
Equivalents having the right to vote for the election of directors of such Person under ordinary
circumstances.
1.2
Other Interpretive Provisions
. With reference to this Agreement and each other Credit Document, unless otherwise specified
herein or in such other Credit Document:
-36-
(a) The meanings of defined terms are equally applicable to the singular and plural
forms of the defined terms.
(b) The words herein, hereto, hereof and hereunder and words of similar import
when used in any Credit Document shall refer to such Credit Document as a whole and not to
any particular provision thereof.
(c) Article, Section, Exhibit and Schedule references are to the Credit Document in
which such reference appears.
(d) The term including is by way of example and not limitation.
(e) The term documents includes any and all instruments, documents, agreements,
certificates, notices, reports, financial statements and other writings, however evidenced,
whether in physical or electronic form.
(f) In the computation of periods of time from a specified date to a later specified
date, the word from means from and including; the words to and until each mean to
but excluding; and the word through means to and including.
(g) Section headings herein and in the other Credit Documents are included for
convenience of reference only and shall not affect the interpretation of this Agreement or
any other Credit Document.
1.3
Accounting Terms; Exchange Rates
. (a) 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.
(b) Notwithstanding anything to the contrary herein, for purposes of determining compliance
with any test or covenant contained in this Agreement with respect to any period during which any
Specified Transaction occurs, the Consolidated Total Debt to Consolidated EBITDA and the
Consolidated EBITDA to Consolidated Interest Expense Ratio shall be calculated with respect to
such period and such Specified Transaction on a Pro Forma Basis.
For purposes of determining compliance under Sections 10.4, 10.5 (other than with respect to
determining the amount of any Indebtedness), 10.6 and 10.9 with respect to any amount in a Foreign
Currency, such amount shall be deemed to equal the Dollar Equivalent thereof based on the average
Exchange Rate for a Foreign Currency for the most recent twelve-month period immediately prior to
the date of determination determined in a manner consistent with that used in calculating
Consolidated EBITDA for the related period. For purposes of determining
compliance with Sections 10.1, 10.2 and 10.5, with respect to any amount of Indebtedness in a
Foreign Currency, compliance will be determined at the time of incurrence or advancing thereof
using the Dollar Equivalent thereof at the Exchange Rate in effect at the time of such incurrence
or advancement.
1.4
Rounding
. Any financial ratios required to be maintained by the Borrower pursuant
to this Agreement (or required to be satisfied in order for a specific action to be
-37-
permitted under
this Agreement) shall be calculated by dividing the appropriate component by the other component,
carrying the result to one place more than the number of places by which such ratio is expressed
herein and rounding the result up or down to the nearest number (with a rounding-up if there is no
nearest number).
1.5
References to Agreements, Laws, Etc
. Unless otherwise expressly provided herein,
(a) references to Organizational Documents, agreements (including the Credit Documents) and other
Contractual Obligations shall be deemed to include all subsequent amendments, restatements,
amendment and restatements, extensions, supplements and other modifications thereto, but only to
the extent that such amendments, restatements, amendment and restatements, extensions, supplements
and other modifications are permitted by any Credit Document; and (b) references to any Applicable
Law shall include all statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting such applicable law.
SECTION 2.
Amount and Terms of Credit
2.1
Commitments
. Subject to and upon the terms and conditions herein set
forth, each Lender having a Term Loan Commitment severally agrees to make a loan or loans (each a
Term Loan
) on the Closing Date to the Borrower in Dollars, which Term Loans shall not
exceed for any such Lender the Term Loan Commitment of such Lender and in the aggregate shall not
exceed $575,000,000.
Such Term Loans (i) shall be made on the Closing Date in accordance with the preceding paragraph,
(ii) may at the option of the Borrower be incurred and maintained as, and/or converted into, ABR
Loans or LIBOR Loans,
provided
that all such Term Loans made by each of the Lenders
pursuant to the same Borrowing shall, unless otherwise specifically provided herein, consist
entirely of Term Loans of the same Type, (iii) may be repaid or prepaid in accordance with the
provisions hereof, but once repaid or prepaid, may not be reborrowed, (iv) shall not exceed for any
such Lender its Term Loan Commitment and (v) shall not exceed in the aggregate the total of all
Term Loan Commitments. On the Term Loan Maturity Date, all then unpaid Term Loans shall be repaid
in full.
2.2
Minimum Amount of Each Borrowing; Maximum Number of Borrowings
. The aggregate principal amount of each Borrowing of Term Loans shall be in a multiple of
$1,000,000 and, shall not be less than the Minimum Borrowing Amount with respect thereto. More
than one Borrowing may be incurred on any date,
provided
that at no time shall there be
outstanding more than six (6) Borrowings of LIBOR Loans under this Agreement.
2.3
Notice of Borrowing
. (a) The Borrower shall give the Administrative Agent
at the Administrative Agents Office (i) prior to 12:00 Noon (New York City time) at least three
Business Days prior written notice (or telephonic notice promptly confirmed in writing no later
than 1:00 p.m. (New York City time)) of the Borrowing of Term Loans if all or any of such Term
Loans are to be initially LIBOR Loans, and (ii) prior written notice (or telephonic notice
promptly confirmed in writing no later than 1:00 p.m. (New York City time)) prior to 10:00 a.m.
(New York City time) on the date of the Borrowing of Term Loans if all such Term Loans are to be
ABR Loans. Such Notice of Borrowing shall specify (i) the aggregate principal amount of the Term
Loans to be made, (ii) the date of the Borrowing (which shall be
-38-
the Closing Date) and (iii)
whether the Term Loans shall consist of ABR Loans and/or LIBOR Loans and, if the Term Loans are
to include LIBOR Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall promptly give each Lender written notice (or telephonic notice
promptly confirmed in writing) of the proposed Borrowing of Term Loans, of such Lenders
proportionate share thereof and of the other matters covered by the related Notice of Borrowing.
(b) [Intentionally Omitted].
(c) [Intentionally Omitted].
(d) [Intentionally Omitted]
(e) [Intentionally Omitted].
(f) Without in any way limiting the obligation of the Borrower to confirm in writing any
notice it may give hereunder by telephone, the Administrative Agent may act prior to receipt of
written confirmation without liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from an Authorized Officer of the Borrower. In each
such case, the Borrower hereby waives the right to dispute the Administrative Agents record of
the terms of any such telephonic notice.
2.4
Disbursement of Funds
. (a) No later than 12:00 Noon (New York City time)
on the date specified in each Notice of Borrowing each Lender will make available its
pro rata
portion, if any, of each Borrowing requested to be made on such date in the manner provided
below.
(b) Each Lender shall make available all amounts it is to fund to the Borrower under any
Borrowing for its applicable Commitments, and in immediately available funds to the
Administrative Agent at the Administrative Agents Office and the Administrative Agent will make
available to the Borrower, by depositing to an account designated by the Borrower
to the Administrative Agent the aggregate of the amounts so made available in Dollars.
Unless the Administrative Agent shall have been notified by any Lender prior to the date of any
such Borrowing that such Lender does not intend to make available to the Administrative Agent its
portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may
assume that such Lender has made such amount available to the Administrative Agent on such date
of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Administrative Agent
by such Lender and the Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If
such Lender does not pay such corresponding amount forthwith upon the Administrative Agents
demand therefor the Administrative Agent shall promptly notify the Borrower and the Borrower
shall immediately pay such corresponding amount to the Administrative Agent. The Administrative
Agent shall also be entitled to recover from such Lender or the Borrower interest on such
corresponding amount in respect of each day from the date such corresponding amount was made
available by the
-39-
Administrative Agent to the Borrower to the date such corresponding amount is
recovered by the Administrative Agent, at a rate
per annum
equal to (i) if paid by such Lender,
the Federal Funds Effective Rate or (ii) if paid by the Borrower, the then-applicable rate of
interest or fees, calculated in accordance with
Section 2.8
, for the respective Loans.
(c) Nothing in this
Section 2.4
shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights that the Borrower may
have against any Lender as a result of any default by such Lender hereunder (it being understood,
however, that no Lender shall be responsible for the failure of any other Lender to fulfill its
commitments hereunder).
2.5
Repayment of Loans; Evidence of Debt
. (a) The Borrower shall repay to the
Administrative Agent in Dollars, for the benefit of the applicable Lenders, on the Term Loan
Maturity Date, the then-unpaid Term Loans made to the Borrower.
(b) The Borrower shall repay to the Administrative Agent, in Dollars, for the benefit of the
Lenders of Term Loans, on each date set forth below (each, a
Term Loan Repayment Date
),
the principal amount of the Term Loans equal to (x) the outstanding principal amount of Term
Loans immediately after closing on the Closing Date multiplied by (y) the percentage set forth
below opposite such Repayment Date (each, a
Term Loan Repayment Amount
):
|
|
|
|
|
Repayment Date
|
|
Term Loan Repayment Amount
|
March 31, 2007
|
|
|
0.25
|
%
|
June 30, 2007
|
|
|
0.25
|
%
|
September 30, 2007
|
|
|
0.25
|
%
|
December 31, 2007
|
|
|
0.25
|
%
|
March 31, 2008
|
|
|
0.25
|
%
|
June 30, 2008
|
|
|
0.25
|
%
|
September 30, 2008
|
|
|
0.25
|
%
|
December 31, 2008
|
|
|
0.25
|
%
|
March 31, 2009
|
|
|
0.25
|
%
|
June 30, 2009
|
|
|
0.25
|
%
|
September 30, 2009
|
|
|
0.25
|
%
|
December 31, 2009
|
|
|
0.25
|
%
|
March 31, 2010
|
|
|
0.25
|
%
|
June 30, 2010
|
|
|
0.25
|
%
|
September 30, 2010
|
|
|
0.25
|
%
|
December 31, 2010
|
|
|
0.25
|
%
|
March 31, 2011
|
|
|
0.25
|
%
|
June 30, 2011
|
|
|
0.25
|
%
|
September 30, 2011
|
|
|
0.25
|
%
|
December 31, 2011
|
|
|
0.25
|
%
|
March 31, 2012
|
|
|
0.25
|
%
|
June 30, 2012
|
|
|
0.25
|
%
|
September 30, 2012
|
|
|
0.25
|
%
|
-40-
|
|
|
|
|
Repayment Date
|
|
Term Loan Repayment Amount
|
December 31, 2012
|
|
|
0.25
|
%
|
March 31, 2013
|
|
|
0.25
|
%
|
June 30, 2013
|
|
|
0.25
|
%
|
September 30, 2013
|
|
|
0.25
|
%
|
December 31, 2013
|
|
|
0.25
|
%
|
Term Loan Maturity Date
|
|
|
93.00
|
%
|
(c) In the event that any New Term Loans are made, such New Term Loans shall, subject to
Section 2.14(d)
, be repaid by the borrower thereof in the amounts (each, a
New Term
Loan Repayment Amount
) and on the dates (each a
New Repayment Date
) set forth in
the applicable Joinder Agreement.
(d) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to the appropriate lending office of such Lender
resulting from each Loan made by such lending office of such Lender from time to time, including
the amounts of principal and interest payable and paid to such lending office of such Lender from
time to time under this Agreement.
(e) The Administrative Agent shall maintain the Register pursuant to
Section
14.6(b)
, and a sub account for each Lender, in which Register and subaccounts (taken
together) shall be recorded (i) the amount of each Term Loan made hereunder, the Type of each
Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower
and each Lenders share thereof.
(f) The entries made in the Register and accounts and subaccounts maintained pursuant to
paragraphs (d) and (e) of this
Section 2.5
shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations of the
Borrower therein recorded;
provided
,
however
, that the failure of any Lender
or the Administrative Agent to maintain such account, such Register or such subaccount, as
applicable, or any error therein, shall not in any manner affect the obligation of the Borrower
to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance
with the terms of this Agreement.
2.6
Conversions and Continuations
. (a) The Borrower shall have the option on
any Business Day to convert all or a portion equal to at least the Minimum Borrowing Amount of
the outstanding principal amount of Term Loans made to the Borrower (as applicable) of one Type
into a Borrowing or Borrowings of another Type and the Borrower shall have the option on any
Business Day to continue the outstanding principal amount of any LIBOR Loans as LIBOR Loans for
an additional Interest Period on the last Business Day of the existing Interest Period,
provided
that (i) no partial conversion of LIBOR Loans shall reduce the outstanding
principal amount of LIBOR Loans made pursuant to a single Borrowing to less than the Minimum
Borrowing Amount, (ii) ABR Loans may not be converted into LIBOR Loans if a Default or Event of
Default is in existence on the date of the conversion and the Administrative Agent has or the
Required Lenders have determined in its or their sole discretion not to permit such conversion,
(iii) LIBOR Loans may not be continued as LIBOR
-41-
Loans for an additional Interest Period if an
Event of Default is in existence on the date of the proposed continuation and the Administrative
Agent has or the Required Lenders have determined in its or their sole discretion not to permit
such continuation and (iv) Borrowings resulting from conversions pursuant to this
Section
2.6
shall be limited in number as provided in
Section 2.2
. Each such conversion or
continuation shall be effected by the Borrower by giving the Administrative Agent at the
Administrative Agents Office prior to 1:00 p.m. (New York City time) at least three Business
Days prior written notice or written notice prior to 10:00 a.m. (New York City time) on the same
Business Day in the case of a conversion into ABR Loans (or, in each case, telephonic notice
promptly confirmed in writing no later than 1:00 p.m. (New York City time)) (each, a
Notice
of Conversion or Continuation
) specifying the Term Loans to be so converted or continued,
the Type of Term Loans to be converted or continued into and, if such Term Loans are to be
converted into or continued as LIBOR Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall give each Lender notice as promptly as practicable of
any such proposed conversion or continuation affecting any of its Term Loans.
(b) If any Default or Event of Default is in existence at the time of any proposed
continuation of any LIBOR Loans and the Administrative Agent has or the Required Lenders have
determined in its or their sole discretion not to permit such continuation, such LIBOR Loans
shall be automatically converted on the last day of the current Interest Period into ABR Loans.
If upon the expiration of any Interest Period in respect of LIBOR Loans, the Borrower has failed
to elect a new Interest Period to be applicable thereto as provided in paragraph (a) above, the
Borrower shall be deemed to have elected to continue such Borrowing of LIBOR Loans into a
Borrowing of ABR Loans, effective as of the expiration date of such current Interest Period.
2.7
Pro Rata
Borrowings
. Each Borrowing of Term Loans under this Agreement shall be granted by the Lenders
pro rata
on the basis of their then-applicable Term Loan Commitments. Each Borrowing of New Term Loans
under this Agreement shall be granted by the Lenders
pro rata
on the basis of their then applicable
New Term Loan Commitments. It is understood that (a) no Lender shall be responsible for any
default by any other Lender in its obligation to make Loans hereunder and that each Lender shall be
obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any
other Lender to fulfill its commitments hereunder and (b) other than as expressly provided herein
with respect to a Defaulting Lender, failure by a Lender to perform any of its obligations under
any of the Credit Documents shall not release any Person from performance of its obligation under
any Credit Document.
2.8
Interest
. (a) The unpaid principal amount of each ABR Loan shall bear
interest from the date of the Borrowing thereof until maturity (whether by acceleration or
otherwise) at a rate
per annum
that shall at all times be the Applicable ABR Margin plus the ABR
in effect from time to time.
(b) The unpaid principal amount of each LIBOR Loan shall bear interest from the date of the
Borrowing thereof until maturity thereof (whether by acceleration or otherwise) at a rate
per
annum
that shall at all times be the Applicable LIBOR Margin in effect from time to time plus the
relevant LIBOR Rate.
-42-
(c) If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable
thereon shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest (including post-petition interest in any
proceeding under the Bankruptcy Code or other applicable bankruptcy laws) at a rate
per annum
that is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto
plus
2% or (y) in the case of any overdue interest, to the extent permitted by applicable
law, the rate described in
Section 2.8(a)
plus
2% from and including the date of
such non-payment to but excluding the date on which such amount is paid in full (after as well as
before judgment). Payment or acceptance of the increased rates of interest provided for in this
Section 2.8 is not a permitted alternative to timely payment and shall not constitute a waiver of
any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative
Agent or any Lender.
(d) Interest on each Loan shall accrue from and including the date of any Borrowing to but
excluding the date of any repayment thereof and shall be payable (i) in respect of each ABR Loan,
quarterly in arrears on the last day of each March, June, September and December, (ii) in respect
of each LIBOR Loan, on the last day of each Interest Period applicable thereto and, in the case
of an Interest Period in excess of three months, on each date occurring at three-month intervals
after the first day of such Interest Period, (iii) in respect of each Loan (except, other than in
the case of prepayments, any ABR Loan), on any prepayment date (on the amount prepaid), at
maturity (whether by acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance with
Section
5.5
.
(f) The Administrative Agent, upon determining the interest rate for any Borrowing of LIBOR
Loans, shall promptly notify the Borrower and the relevant Lenders thereof. Each such
determination shall, absent clearly demonstrable error, be final and conclusive and binding on
all parties hereto.
2.9
Interest Periods
. At the time the Borrower gives a Notice of Borrowing or Notice
of Conversion or Continuation in respect of the making of, or conversion into or continuation as, a
Borrowing of LIBOR Loans (in the case of the initial Interest Period applicable thereto) or prior
to 10:00 a.m. (New York City time) on the third Business Day prior to the expiration of an Interest
Period applicable to a Borrowing of LIBOR Loans, the Borrower shall have the right to elect by
giving the Administrative Agent written notice (or telephonic notice promptly confirmed in writing
no later than 1:00 p.m. (New York City time)) the Interest Period applicable to such Borrowing,
which Interest Period shall, at the option of the Borrower be a one, two, three, six or if
available to all the Lenders as determined by the Lenders in good faith based on prevailing market
conditions, a nine or twelve month period.
Notwithstanding anything to the contrary contained above:
(a) the initial Interest Period for any Borrowing of LIBOR Loans shall commence on the date
of such Borrowing (including the date of any conversion from a Borrowing of
-43-
ABR Loans) and each
Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on
which the next preceding Interest Period expires;
(b) if any Interest Period relating to a Borrowing of LIBOR Loans begins on the last
Business Day of a calendar month or begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of the calendar month at the end of such Interest Period;
(c) if any Interest Period would otherwise expire on a day that is not a Business Day, such
Interest Period shall expire on the next succeeding Business Day,
provided
that if any
Interest Period would otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day; and
(d) the Borrower shall not be entitled to elect any Interest Period in respect of any LIBOR
Loan if such Interest Period would extend beyond the applicable maturity date of such Loan.
2.10
Increased Costs, Illegality, etc
. (a) In the event that (x) in the case
of clause (i) below, the Administrative Agent or (y) in the case of clauses (ii) and (iii) below,
any Lender shall have reasonably
determined (which determination shall, absent clearly demonstrable error, be final and
conclusive and binding upon all parties hereto):
(i) on any date for determining the LIBOR Rate for any Interest Period that (x) deposits in
the principal amounts of the Loans comprising such LIBOR Borrowing are not generally available in
the relevant market or (y) by reason of any changes arising on or after the Closing Date affecting
the interbank LIBOR market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of LIBOR Rate; or
(ii) at any time, that such Lender shall incur increased costs or reductions in the amounts
received or receivable hereunder with respect to any LIBOR Loans (other than any such increase or
reduction attributable to Taxes) because of (x) any change since the date hereof in any applicable
law, governmental rule, regulation, guideline or order (or in the interpretation or administration
thereof and including the introduction of any new law or governmental rule, regulation, guideline
or order), such as, for example, without limitation, a change in official reserve requirements,
and/or (y) other circumstances affecting the interbank LIBOR market or the position of such Lender
in such market; or
(iii) at any time, that the making or continuance of any LIBOR Loan has become unlawful by
compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or
order (or would conflict with any such governmental rule, regulation, guideline or order not having
the force of law even though the failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the date hereof that materially and
adversely affects the interbank LIBOR market;
-44-
then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i)
above) shall within a reasonable time thereafter give notice (if by telephone, confirmed in
writing) to the Borrower and to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the
case of clause (i) above, LIBOR Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to
such notice by the Administrative Agent no longer exist (which notice the Administrative Agent
agrees to give at such time when such circumstances no longer exist), and any Notice of Borrowing
or Notice of Conversion given by the Borrower with respect to LIBOR Loans that have not yet been
incurred shall be deemed rescinded by the Borrower (y) in the case of clause (ii) above, the
Borrower shall pay to such Lender, promptly after receipt of written demand therefor such
additional amounts (in the form of an increased rate of, or a different method of calculating,
interest or otherwise as such Lender in its reasonable discretion shall determine) as shall be
required to compensate such Lender for such increased costs or reductions in amounts receivable
hereunder (it being agreed that a written notice as to the additional amounts owed to such Lender,
showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by
such Lender shall, absent clearly demonstrable error, be final and conclusive and binding upon all
parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in
Section 2.10(b)
as promptly as possible and, in any event, within the
time period required by law.
(b) At any time that any LIBOR Loan is affected by the circumstances described in
Section 2.10(a)(ii)
or
(iii)
, the Borrower may (and in the case of a LIBOR Loan
affected pursuant to
Section 2.10(a)(iii)
shall) either (x) if the affected LIBOR Loan is
then being made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative Agent
telephonic notice thereof on the same date that the Borrower was notified by a Lender pursuant to
Section 2.10(a)(ii)
or
(iii)
(confirmed promptly in writing no later than 10:00
a.m. (New York City time) on the next day) or (y) if the affected LIBOR Loan is then outstanding,
upon at least three Business Days notice to the Administrative Agent, require the affected
Lender to convert each such LIBOR Loan into an ABR Loan,
provided
that if more than one
Lender is affected at any time, then all affected Lenders must be treated in the same manner
pursuant to this
Section 2.10(b)
.
(c) If, after the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, the National Association of Insurance
Commissioners, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by a Lender or its parent with any request or directive
made or adopted after the date hereof regarding capital adequacy (whether or not having the force
of law) of any such authority, association, central bank or comparable agency, has or would have
the effect of reducing the rate of return on such Lenders or its parents or its Affiliates
capital or assets as a consequence of such Lenders commitments or obligations hereunder to a
level below that which such Lender or its parent or its Affiliate could have achieved but for
such adoption, effectiveness, change or compliance (taking into consideration such Lenders or
its parents policies with respect to capital adequacy), then from time to time, promptly after
demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such
Lender such additional amount or amounts as will compensate
-45-
such Lender or its parent for such
reduction, it being understood and agreed, however, that a Lender shall not be entitled to such
compensation as a result of such Lenders compliance with, or pursuant to any request or
directive to comply with, any such law, rule or regulation as in effect on the date hereof. Each
Lender, upon determining in good faith that any additional amounts will be payable pursuant to
this
Section 2.10(c)
, will give prompt written notice thereof to the Borrower which
notice shall set forth in reasonable detail the basis of the calculation of such additional
amounts, although the failure to give any such notice shall not, subject to
Section 2.13
,
release or diminish the Borrowers obligations to pay additional amounts pursuant to this
Section 2.10(c)
upon receipt of such notice.
(d) It is understood that to the extent duplicative of
Section 5.4
, this
Section
2.10
shall not apply to Taxes.
2.11
Compensation
. If (a) any payment of principal of any LIBOR Loan is made by the
Borrower to or for the account of a Lender other than on the last day of the Interest Period for
such LIBOR Loan as a result of a payment or conversion pursuant to
Section 2.5, 2.6, 2.10, 5.1,
5.2
or
14.7
, as a result of acceleration of the maturity of the Loans pursuant to
Section 11
or for any other reason, (b) any Borrowing of LIBOR Loans is not made as a
result of a withdrawn Notice of Borrowing, (c) any ABR Loan is not converted into a LIBOR Loan as a
result of a withdrawn Notice of
Conversion or Continuation, (d) any LIBOR Loan is not continued as an LIBOR Loan, as the case
may be, as a result of a withdrawn Notice of Conversion or Continuation or (e) any prepayment of
principal of any LIBOR Loan is not made as a result of a withdrawn notice of prepayment pursuant to
Section 5.1 or 5.2
, the Borrower shall, after receipt of a written request by such Lender
(which request shall set forth in reasonable detail the basis for requesting such amount), pay to
the Administrative Agent for the account of such Lender any amounts required to compensate such
Lender for any additional losses, costs or expenses that such Lender may reasonably incur as a
result of such payment, failure to convert, failure to continue or failure to prepay, including any
loss, cost or expense (excluding loss of anticipated profits) actually incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain
such LIBOR Loan.
2.12
Change of Lending Office
. Each Lender agrees that, upon the occurrence of any
event giving rise to the operation of
Section 2.10(a)(ii)
,
2.10(a)(iii)
,
2.10(b)
, or
5.4
with respect to such Lender, it will, if requested by the Borrower
use reasonable efforts (subject to overall policy considerations of such Lender) to designate
another lending office for any Loans affected by such event,
provided
that such designation
is made on such terms that such Lender and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to
the operation of any such Section. Nothing in this
Section 2.12
shall affect or postpone
any of the obligations of the Borrower or the right of any Lender provided in
Section 2.10
,
3.5
or
5.4
.
2.13
Notice of Certain Costs
. Notwithstanding anything in this Agreement to the
contrary, to the extent any notice required by
Section 2.10, 2.11
, or
5.4
is given
by any Lender more than 180 days after such Lender has knowledge (or should have had knowledge) of
the occurrence of the event giving rise to the additional cost, reduction in amounts, loss, tax or
other additional amounts described in such Sections, such Lender shall not be entitled to
compensation under
Section 2.10
,
2.11
, or
5.4
, as the case may be, for any
such amounts incurred or accruing
-46-
prior to the 181st day prior to the giving of such notice to the
Borrower;
provided
that if the event giving rise to such additional cost, reduction in
amounts, loss, tax or other additional amounts has a retroactive effect, then the 180 day period
referred to above shall be extended to include the period of retroactive effect thereof
.
2.14
Incremental Facilities
. (a) Borrower may by written notice to
Administrative Agent elect to request the establishment of one or more increases in Term Loan
Commitments (the
New Term Loan Commitments
), by an aggregate amount not in excess of
the difference between $100,000,000 and the sum of all New Term Loan Commitments and New
Revolving Credit Commitments obtained prior to such date and not less than $10,000,000
individually (or such lesser amount which shall be approved by Administrative Agent or such
lesser amount that shall constitute the difference between $100,000,000 and the sum of all New
Revolving Credit Commitments and New Term Loan Commitments obtained prior to such date). Each
such
notice shall specify the date (each, an
Increased Amount Date
) on which the
Borrower proposes that the New Term Loan Commitments shall be effective, which shall be a date
not less than ten Business Days after the date on which such notice is delivered to
Administrative Agent;
provided
that any Lender offered or approached to provide all or a
portion of the New Term Loan Commitments may elect or decline, in its sole discretion, to provide
a New Term Loan Commitments. Such New Term Loan Commitments shall become effective, as of such
Increased Amount Date;
provided
that (i) no Default or Event of Default shall exist on
such Increased Amount Date before or after giving effect to such New Term Loan Commitments, as
applicable; (ii) both before and after giving effect to the making of any Series of New Term
Loans, each of the conditions set forth in
Section 7
shall be satisfied; (iii) Borrower
and its Subsidiaries shall be in Pro Forma Compliance with each of the covenants set forth in
Section 10.9
as of the last day of the most recently ended fiscal quarter after giving
effect to such New Term Loan Commitments and any Specified Transaction to be consummated in
connection therewith; (iv) the New Term Loan Commitments shall be effected pursuant to one or
more Joinder Agreements executed and delivered by the Borrower and Administrative Agent, and each
of which shall be recorded in the Register and shall be subject to the requirements set forth in
Section 5.4(d)
and
(e)
; (v) Borrower shall make any payments required pursuant to
Section 2.11
in connection with the New Term Loan Commitments, as applicable; and (vi)
Borrower shall deliver or cause to be delivered any legal opinions or other documents reasonably
requested by Administrative Agent in connection with any such transaction. Any New Term Loans
made on an Increased Amount Date shall be designated, a separate series (a
Series
) of
New Term Loans for all purposes of this Agreement.
(b) [Intentionally Omitted]
(c) On any Increased Amount Date on which any New Term Loan Commitments of any Series are
effective, subject to the satisfaction of the foregoing terms and conditions, (i) each Lender
with a New Term Loan Commitment (each, a
New Term Loan Lender
) of any Series shall make
a Loan to the Borrower (a
New Term Loan
) in an amount equal to its New Term Loan
Commitment of such Series, and (ii) each New Term Loan Lender of any Series shall become a Lender
hereunder with respect to the New Term Loan Commitment of such Series and the New Term Loans of
such Series made pursuant thereto.
-47-
(d) The terms and provisions of the New Term Loans and New Term Loan Commitments of any
Series shall be, except as otherwise set forth herein or in the applicable Joinder Agreement,
identical to the existing Term Loans;
provided
that (i) the applicable New Term Loan
Maturity Date of each Series shall be no earlier than the final maturity of the Term Loans
outstanding on the Increased Amount Date with respect to such New Term Loans and the mandatory
prepayment and other payment rights (other than scheduled amortization) of the New Term Loans and
the existing Term Loans shall be identical, (ii) the weighted average life to maturity of all New
Term Loans of any Series shall be no shorter than the weighted average life to maturity of the
Term Loans outstanding on the Increased Amount Date, (iii) the rate of interest and the
amortization schedule applicable to the New Term Loans of each Series shall be determined by the
Borrower and the applicable new Lenders and shall be set forth in each applicable Joinder
Agreement;
provided
that such Borrower shall be the Borrower or a Subsidiary Guarantor
and (iv) all other terms applicable to the New Term Loans of each Series
that differ from the existing Term Loans shall be reasonably acceptable to the
Administrative Agent (as evidenced by its execution of the applicable Joinder Agreement).
(e) Each Joinder Agreement may, without the consent of any other Lenders, effect such
amendments to this Agreement and the other Credit Documents as may be necessary or appropriate,
in the opinion of the Administrative Agent, to effect the provision of this
Section 2.14
.
SECTION 3.
[Intentionally Omitted]
SECTION 4.
Fees; Commitments
4.1
Fees
. (a) The Borrower agrees to pay to the Collateral Agent, for its
own account, fees in the amounts and at the times set forth in the Fee Letter.
4.2
[Intentionally Omitted]
.
4.3
Mandatory Termination of Commitments
. (a) (i) The Term Loan Commitments
shall terminate at 5:00 p.m. (New York City time) on the Closing Date.
(b) The New Term Loan Commitments for any Series shall terminate at 5:00 p.m. (New York
City time) on the Increased Amount Date for such Series.
SECTION 5.
Payments
5.1
Voluntary Prepayments
. The Borrower shall have the right to prepay Term Loans, in
each case, without premium or penalty, in whole or in part from time to time on the following terms
and conditions: (a) the Borrower shall give the Administrative Agent and at the Administrative
Agents Office written notice (or telephonic notice promptly confirmed in writing no later than
1:00 p.m. (New York City time)) of its intent to make such prepayment, the amount of such
prepayment and (in the case of LIBOR Loans) the specific Borrowing(s) pursuant to which made, which
notice shall be given by the Borrower no later than (i) in the case of a LIBOR Loans, 12:00 noon
(New York City time) three Business Days prior to or (ii) in the case of ABR Loans, 12:00 noon (New
York City time) on, the date of such prepayment and shall promptly be transmitted by the
Administrative Agent to each of the Lenders; (b) each partial
-48-
prepayment of any Borrowing of Term
Loans shall be in a multiple of $100,000 and in an aggregate principal amount of at least
$1,000,000,
provided
that no partial prepayment of LIBOR Loans made pursuant to a
single Borrowing shall reduce the outstanding LIBOR Loans made pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount for LIBOR Loans and (c) any prepayment of LIBOR Loans
pursuant to this
Section 5.1
on any day other than the last day of an Interest Period
applicable thereto shall be subject to compliance by the Borrower with the applicable provisions of
Section 2.11
. Each prepayment in respect of any Term Loans pursuant to this
Section
5.1
shall be (a) applied to Term Loans in such manner as the Borrower may determine and (b)
applied to reduce Repayment Amounts, and/or any New Term Loan Repayment Amounts, as the case may
be, in such order as the Borrower may determine. At the Borrowers election in connection with any
prepayment pursuant to this
Section 5.1
, such prepayment shall not be applied to any Term
Loan of a Defaulting Lender.
5.2
Mandatory Prepayments
. (a)
Term Loan Prepayments
. (i) On each
occasion that a Prepayment Event occurs, the Borrower shall, within one Business Day after the
occurrence of a Debt Incurrence Prepayment Event and within five Business Days after the occurrence
of any other Prepayment Event (or, in the case of Deferred Net Cash Proceeds, within five Business
Days after the Reinvestment Period relating to such Prepayment Event or 180 days thereafter, as
applicable), prepay, in accordance with paragraph (c) below, the principal amount of Term Loans in
an amount equal to 100% of the Net Cash Proceeds from such Prepayment Event. If the Stock or Stock
Equivalents of any Credit Party is sold or any Credit Party is sold as a going concern on any date,
the sale proceeds shall be allocated as follows: (x) that portion of the sale proceeds equal to
the aggregate value of Accounts and Cost of Inventory (in each case, as defined in the
Revolving Loan Credit Agreement) shall be allocated to the Revolving Credit Collateral (as defined
in the Intercreditor Agreement) of the Credit Parties so sold and shall be deemed to be proceeds
thereof and (y) the balance of sale proceeds shall be allocated to the Collateral of the Credit
Parties so sold and shall be deemed to be proceeds thereof and applied pursuant to the foregoing
sentence.
(ii) Not later than the date that is ninety days after the last day of any fiscal year
(commencing with and including the fiscal year ending December 31, 2007), the Borrower shall
prepay, in accordance with paragraph (c) below, the principal of Term Loans in an amount equal to
(x) 50% of Excess Cash Flow for such fiscal year,
provided
that
(A) the percentage
in this
Section 5.2(a)(ii)
shall be reduced to 25% if the Borrowers ratio of Consolidated
Total Debt on the date of prepayment (prior to giving effect thereto) to Consolidated EBITDA for
the most recent Test Period ended prior to such prepayment date is no greater than 4.00 to 1.00 but
greater than 3.00 to 1.00 and (B) no payment of any Term Loans shall be required under this
Section 5.2(a)(ii)
if the Borrowers ratio of Consolidated Total Debt on the date of
prepayment (prior to giving effect thereto) to Consolidated EBITDA for the most recent Test Period
ended prior to such prepayment date is no greater than 3.00 to 1.00), minus (y) the principal
amount of Term Loans voluntarily prepaid pursuant to
Section 5.1
during such fiscal year.
(b)
[Intentionally Omitted]
(c)
Application to Repayment Amounts
. Each prepayment of Term Loans required by
Section 5.2(a)(i)
or
(ii)
shall be applied to the next four Repayment Amounts in
chronological order and further applied on a pro rata basis to the remaining Repayment
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Amounts. With respect to each such prepayment, the Borrower will, not later than the date
specified in
Section 5.2(a)
for making such prepayment, give the Administrative Agent
telephonic notice (promptly confirmed in writing no later than 1:00 p.m. (New York City time))
requesting that the Administrative Agent provide notice of such prepayment Term Loan Lender.
(d)
Application to Term Loans
. With respect to prepayment of Term Loans required by
Section 5.2(a)
, the Borrower may designate the Types of Loans that are to be prepaid and
the specific Borrowing(s) pursuant to which made. In the absence of a designation by the
Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the
above, make such designation in its reasonable discretion with a view, but no obligation, to
minimize breakage costs owing under
Section 2.11
.
(e)
LIBOR Interest Periods
. In lieu of making any payment pursuant to this
Section 5.2
in respect of any LIBOR Loan other than on the last day of the Interest
Period therefor so long as no Event of Default shall have occurred and be continuing, the
Borrower at its option may deposit with the Administrative Agent an amount equal to the amount of
the LIBOR Loan to be prepaid and such LIBOR Loan shall be repaid on the last day of the Interest
Period therefor in the required amount. Such deposit shall be held by the Administrative Agent
in a corporate time deposit account established on terms reasonably satisfactory to the
Administrative Agent, earning interest at the then-customary rate for accounts of such type.
Such deposit shall constitute cash collateral for the Obligations,
provided
that
the Borrower may at any time direct that such deposit be applied to make the applicable payment
required pursuant to this
Section 5.2
.
(f)
Minimum Amount
. No prepayment shall be required pursuant to
Section
5.2(a)(i)
unless and until the amount at any time of Net Cash Proceeds from Prepayment Events
required to be applied at or prior to such time pursuant to such Section and not yet applied at or
prior to such time to prepay Term Loans pursuant to such Section exceeds (i) $5,000,000 for a
single Prepayment Event or (ii) $10,000,000 in the aggregate for all such Prepayment Events.
(g)
Foreign Asset Sales
. Notwithstanding any other provisions of this
Section
5.2
, (i) to the extent that any of or all the Net Cash Proceeds of a Casualty Event or any
asset sale by a Restricted Foreign Subsidiary giving rise to an Asset Sale Prepayment Event (a
Foreign Asset Sale
) or Excess Cash Flow are prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such Net Cash Proceeds or Excess Cash
Flow so affected will not be required to be applied to repay Term Loans at the times provided in
this
Section 5.2
but may be retained by the applicable Restricted Foreign Subsidiary so
long, but only so long, as the applicable local law will not permit repatriation to the United
States (the Borrower hereby agreeing to cause the applicable Restricted Foreign Subsidiary to
promptly take all actions required by the applicable local law to permit such repatriation), and
once such repatriation of any of such affected Net Cash Proceeds or Excess Cash Flow is permitted
under the applicable local law, such repatriation will be immediately effected and such repatriated
Net Cash Proceeds or Excess Cash Flow will be promptly (and in any event not later than two
Business Days after such repatriation) applied (net of additional taxes payable or reserved against
as a result thereof) to the repayment of the Term Loans pursuant to this
Section 5.2
and
(ii) to the extent that the Borrower has determined in good faith that repatriation of any of
or all
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the Net Cash Proceeds of any Foreign Asset Sale or Excess Cash Flow would have an adverse
tax or accounting consequence with respect to such Net Cash Proceeds or Excess Cash Flow, the Net
Cash Proceeds or Excess Cash Flow so affected may be retained by the applicable Restricted Foreign
Subsidiary,
provided
that, in the case of this clause (ii), on or before the date on which
any Net Cash Proceeds or Excess Cash Flow so retained would otherwise have been required to be
applied to reinvestments or prepayments pursuant to
Section 5.2(a)
, (x) the Borrower
applies an amount equal to such Net Cash Proceeds or Excess Cash Flow to such reinvestments or
prepayments as if such Net Cash Proceeds or Excess Cash Flow had been received by the Borrower
rather than such Restricted Foreign Subsidiary, less the amount of additional taxes that would have
been payable or reserved against if such Net Cash Proceeds or Excess Cash Flow had been repatriated
(or, if less, the Net Cash Proceeds or Excess Cash Flow that would be calculated if received by
such Foreign Subsidiary) or (y) such Net Cash Proceeds or Excess Cash Flow are applied to the
repayment of Indebtedness of a Restricted Foreign Subsidiary.
5.3
Method and Place of Payment
. (a) Except as otherwise specifically provided
herein, all payments under this Agreement shall be made by the Borrower, without set-off,
counterclaim or deduction of any kind, to the Administrative Agent for the ratable account of the
Lenders entitled thereto, not later than 12:00 Noon (New York City time) on the date when due and
shall be made in immediately available funds at the Administrative Agents Office or at such
other office as the Administrative Agent shall specify for such purpose by notice to the
Borrower, it being understood that written or facsimile notice by the Borrower to the
Administrative Agent to make a payment from the funds in the Borrowers account at the
Administrative Agents Office shall constitute the making of such payment to the extent of such
funds held in such account. All repayments or prepayments of Loans (whether of principal,
interest or otherwise) hereunder shall be made in Dollars. The Administrative Agent will
thereafter cause to be distributed on the same day (if payment was actually received by the
Administrative Agent prior to 2:00 p.m. (New York City time) on such day) like funds relating to
the payment of principal or interest or Fees ratably to the Lenders entitled thereto.
(b) Any payments under this Agreement that are made later than 2:00 p.m. (New York City
time) shall be deemed to have been made on the next succeeding Business Day. Whenever any
payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such extension at the applicable rate in
effect immediately prior to such extension.
5.4
Net Payments
. (a) Any and all payments made by or on behalf of the
Borrower or any Guarantor under this Agreement or any other Credit Document shall be made free
and clear of, and without deduction or withholding for or on account of, any Indemnified Taxes;
provided
that if the Borrower or any Guarantor shall be required by law to deduct or
withhold any Indemnified Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions and withholdings (including deductions
or withholdings applicable to additional sums payable under this
Section 5.4
) the
Administrative Agent, the Collateral Agent, or any Lender, as the case may be, receives an amount
equal to the sum it would have received had no such deductions or withholdings been made, (ii)
the Borrower or any Guarantor shall make such deductions or withholdings and (iii)
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the Borrower
or any Guarantor shall pay the full amount deducted or withheld to the relevant Governmental
Authority in accordance with applicable law. Whenever any Indemnified Taxes are payable by the
Borrower, as promptly as possible thereafter, the Borrower shall send to the Administrative Agent
for its own account or for the account of such Lender, as the case may be, a certified copy of an
original official receipt (or other evidence acceptable to such Lender, acting reasonably)
received by the Borrower showing payment thereof.
(b) The Borrower shall pay and shall indemnify and hold harmless the Administrative Agent,
the Collateral Agent, and each Lender with regard to any Other Taxes (whether or not such Other
Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority).
(c) The Borrower shall indemnify and hold harmless the Administrative Agent, the Collateral
Agent, and each Lender within 15 Business Days after written demand therefor, for the full amount
of any Indemnified Taxes imposed on, or paid by, the Administrative Agent, the Collateral Agent,
or such Lender as the case may be, on or with respect to any payment by or on account of any
obligation of Borrower or any Guarantor under this Agreement or under any other Credit Document
(including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this
Section 5.4
) and any reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment or liability
delivered to the Borrower by a Lender or by the Administrative Agent or the Collateral Agent on
its own behalf or on behalf of a Lender shall be conclusive absent manifest error.
(d) Each Non-U.S. Lender making or acquiring a Loan to the Borrower shall:
(i) deliver to the Borrower and the Administrative Agent two copies of either (x) in the case
of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of portfolio interest, United States Internal Revenue
Service Form W-8BEN (together with a certificate representing that such Non-U.S. Lender is not a
bank for purposes of
Section 881(c)
of the Code, is not a 10-percent shareholder (within
the meaning of
Section 871(h)(3)(B)
of the Code) of the Borrower and is not a controlled
foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4)
of the
Code)), (y) Internal Revenue Service Form W-8BEN or Form W-8ECI, or (z) Internal Revenue Service
Form W-8IMY (together with the forms and certificates described in clauses (x) and (y), as
appropriate), in each case properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the
Borrower under this Agreement; and
(ii) deliver to the Borrower and the Administrative Agent two further copies of any such form
or certification (or any applicable successor form) on or before the date that
any such form or certification expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously delivered by it to the Borrower;
unless in any such case any Change in Law or other event has occurred prior to the date on which
any such delivery would otherwise be required that renders any such form inapplicable or
-52-
would
prevent such Lender from duly completing and delivering any such form with respect to it and such
Lender so advises the Borrower and the Administrative Agent. Each Person that shall become a
Participant pursuant to
Section 14.6
or a Lender pursuant to
Section 14.6
shall,
upon the effectiveness of the related transfer, be required to provide all the forms and statements
required pursuant to this
Section 5.4(d)
,
provided
that in the case of a
Participant such Participant shall furnish all such required forms and statements to the Lender
from which the related participation shall have been purchased.
(e) Each Lender that is entitled to an exemption from or reduction of non-U.S. withholding
tax under the laws of the jurisdiction in which any Borrower or Guarantor is organized, or any
treaty to which such jurisdiction is a party, with respect to payments under this Agreement or
any other Credit Document by such Borrower or Guarantor shall deliver to such Borrower or
Guarantor (with a copy to the Administrative Agent), as applicable, at the time or times
prescribed by applicable law and reasonably requested by such Borrower or Guarantor, as
applicable, such properly completed and executed documentation prescribed by applicable law as
will permit such payments to be made without such withholding or at such reduced rate,
provided
that such Lender is legally entitled to complete, execute and deliver such
documentation, such documentation is necessary in order for such exemption or reduction to apply
and in such Lenders reasonable judgment the completion, execution or submission would not
materially prejudice the legal position of the Lender. In addition, each Lender shall deliver
such other documentation prescribed by applicable law and reasonably requested by the Borrower or
the Administrative Agent (including an IRS Form W-8 or W-9) as will enable the Borrower or the
Administrative Agent to determine whether such Lender is subject to United States backup
withholding or information reporting requirements.
(f) If the Borrower determines in good faith that a reasonable basis exists for contesting
any taxes for which indemnification has been demanded hereunder, the relevant Lender, the
Administrative Agent or the Collateral Agent, as applicable, shall cooperate with the Borrower in
a reasonable challenge of such taxes at the Borrowers expense if so requested by the Borrower.
If any Lender, the Administrative Agent or the Collateral Agent, as applicable, receives a refund
of a tax for which a payment has been made by the Borrower pursuant to this Agreement, which
refund in the good faith judgment of such Lender, the Administrative Agent or the Collateral
Agent, as the case may be, is attributable to such payment made by the Borrower, then the Lender,
the Administrative Agent or the Collateral Agent, as the case may be, shall reimburse the
Borrower for such amount (together with any interest received thereon) as the Lender,
Administrative Agent or the Collateral Agent, as the case may be, determines to be the proportion
of the refund as will leave it, after such reimbursement, in no better or worse position (taking
into account expenses or any taxes imposed on the refund) than it would have been in if the
payment had not been required. A Lender, the Administrative Agent or the Collateral Agent shall
claim any refund that it determines is available to it, unless it concludes in its reasonable
discretion that it would be adversely affected by making such a claim. The Borrower, upon the
request of the Lender, the
Administrative Agent or the Collateral Agent, as applicable, agrees to repay the amount paid
over to the Borrower to the Lender, the Administrative Agent or the Collateral Agent, as
applicable, in the event the Lender, the Administrative Agent or the Collateral Agent, as
applicable, is required to repay the refund to the Governmental Authority. Neither the Lender,
the Administrative Agent nor the Collateral Agent shall be obliged to disclose any information
-53-
regarding its tax affairs or computations to the Borrower in connection with this paragraph (f)
or any other provision of this
Section 5.4
.
(g) The agreements in this
Section 5.4
shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
5.5
Computations of Interest and Fees
. (a) Interest on LIBOR Loans and, except
as provided in the next succeeding sentence, ABR Loans shall be calculated on the basis of a
360-day year for the actual days elapsed. Interest on ABR Loans in respect of which the rate of
interest is calculated on the basis of the Prime Rate and interest on overdue interest shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days
elapsed.
(b) Fees shall be calculated on the basis of a 365- (or 366-, as the case may be) day year
for the actual days elapsed.
5.6
Limit on Rate of Interest
.
(a)
No Payment shall exceed Lawful Rate
. Notwithstanding any other term of this
Agreement, the Borrower shall not be obliged to pay any interest or other amounts under or in
connection with this Agreement in excess of the amount or rate permitted under or consistent with
any applicable law, rule or regulation.
(b)
Payment at Highest Lawful Rate
. If the Borrower is not obliged to make a
payment which it would otherwise be required to make, as a result of
Section 5.6(a)
, the
Borrower shall make such payment to the maximum extent permitted by or consistent with applicable
laws, rules and regulations.
(c)
Adjustment if any Payment exceeds Lawful Rate
. If any provision of this
Agreement or any of the other Credit Documents would obligate the Borrower to make any payment of
interest or other amount payable to any Lender in an amount or calculated at a rate which would
be prohibited by any applicable law, rule or regulation, then notwithstanding such provision,
such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum
amount or rate of interest, as the case may be, as would not be so prohibited by law, such
adjustment to be effected, to the extent necessary, by reducing the amount or rate of interest
required to be paid by the Borrower to the affected Lender under
Section 2.8
.
Notwithstanding the foregoing, and after giving effect to all adjustments contemplated thereby, if
any Lender shall have received from the Borrower an amount in excess of the maximum
permitted by any applicable law, rule or regulation, then the Borrower shall be entitled, by notice
in writing to the Administrative Agent to obtain reimbursement from that Lender in an amount equal
to such excess, and pending such reimbursement, such amount shall be deemed to be an amount payable
by that Lender to the Borrower.
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SECTION 6.
Conditions Precedent to Initial Borrowing
The initial Borrowing under this Agreement is subject to the satisfaction of the following
conditions precedent, except as otherwise agreed between the Borrower and the Administrative Agent.
6.1
Credit Documents
. The Administrative Agent shall have received:
(a) this Agreement, executed and delivered by a duly authorized officer of the Borrower
and each Lender;
(b) the Guarantee, executed and delivered by a duly authorized officer of each
Guarantor;
(c) the Pledge Agreement, executed and delivered by a duly authorized officer of each
pledgor party thereto;
(d) the Security Agreement, executed and delivered by a duly authorized officer of each
grantor party thereto;
(e) a Mortgage in respect of each Mortgaged Property to be Mortgaged on the Closing
Date; and
(f) the Intercreditor Agreement, executed and delivered by a duly authorized officer of
each Credit Party, the Collateral Agent and The CIT Group/Business Credit Inc., as
collateral agent under the Revolving Loan Credit Agreement.
6.2
Collateral
. (a) All outstanding equity interests in whatever form of the
Borrower and each Restricted Subsidiary (except those to be provided pursuant to
Section
9.17(c)
) directly owned by or on behalf of any Credit Party and required to be pledged
pursuant to the Pledge Agreement shall have been pledged pursuant thereto (except that the
Borrower and its Restricted Subsidiaries shall not be required to pledge more than 65% of the
outstanding voting equity interests of any Foreign Subsidiary) and the Collateral Agent shall
have received all certificates representing securities pledged under the Pledge Agreement to the
extent certificated, accompanied by instruments of transfer and undated stock powers endorsed in
blank (except those to be delivered pursuant to
Section 9.17(c)
).
(b) All documents and instruments, including Uniform Commercial Code or other applicable
personal property and fixture security financing statements, required by law or
reasonably requested by the Collateral Agent, as applicable, to be filed, registered or
recorded to create the Liens intended to be created by the Security Agreement and perfect such
Liens to the extent required by, and with the priority required by, the Security Agreement shall
have been filed, registered or recorded or delivered to the Collateral Agent for filing,
registration or recording (except those to be filed, registered, recorded or delivered pursuant
to
Section 9.17(c)
).
(c) The Collateral Agent shall have received, in respect of each Mortgaged Property owned by
the Borrower or a Subsidiary Guarantor (except those to be provided
-55-
pursuant to Section 9.17(c)):
a policy or policies of title insurance issued by a nationally recognized title insurance
company insuring the Lien of each Mortgage as a valid Lien on the Mortgaged Property described
therein, free of any other Liens except as expressly permitted by
Section 10.2
or the
Collateral Agent, together with such endorsements, coinsurance and reinsurance as the Collateral
Agent may reasonably request.
(d) The Borrower shall deliver to the Collateral Agent a completed Perfection Certificate,
executed and delivered by an Authorized Officer of the Borrower, together with all attachments
contemplated thereby.
6.3
Legal Opinions
. The Administrative Agent shall have received the executed legal
opinions of (a) Simpson Thacher & Bartlett LLP, special New York counsel to the Borrower,
substantially in the form of
Exhibit I-1
and (b) local counsel to the Borrower in certain
jurisdictions as may be reasonably requested by the Administrative Agent, substantially in the
form(s) of
Exhibit I-2
. The Borrower, the other Credit Parties and the Administrative
Agent hereby instruct such counsel to deliver such legal opinions.
6.4
[Intentionally Omitted]
6.5
Equity Investments; Existing Indebtedness
. (a) Equity Contribution in an amount
equal to not less than the Minimum Equity Contribution Amount shall have been made, and Equity
Investments in an amount equal to not less than the Minimum Equity Investment Amount shall have
been made and (b) after giving effect to the Transactions, the Borrower and its Subsidiaries shall
have no outstanding Indebtedness other than (A) the loans and other extensions of credit under the
Revolving Credit Loans and the Term Loans and (B) other Indebtedness listed on Schedule 10.1.
6.6
Closing Certificates
. The Administrative Agent shall have received a certificate
of each Credit Party, dated the Closing Date, substantially in the form of
Exhibit J
, with
appropriate insertions, executed by the President or any Vice President and the Secretary or any
Assistant Secretary of such Credit Party, and attaching the documents referred to in
Section
6.7
.
6.7
Organizational Documents; Incumbency
. The Administrative Agent shall have
received a copy of (a) each Organizational Document of each Credit Party certified, to the extent
applicable, as of a recent date by the applicable Governmental Authority, (b) signature and
incumbency certificates of the Authorized Officers of each Credit Party executing the Credit
Documents to which it is a party; (c) resolutions of the Board of Directors or similar governing
body of each Credit Party (A) approving and authorizing the execution, delivery and performance of
Credit Documents to which it is a party and (B) in the case of the Borrower, the extensions of
credit contemplated hereunder, certified as of the Closing Date by its secretary or an assistant
secretary as being in full force and effect without modification or amendment and (d) a good
standing certificate from the applicable Governmental Authority of each Credit Partys jurisdiction
of incorporation, organization or formation.
6.8
Fees
. The Co-Lead Arrangers and the Collateral Agent shall have received the fees
to be received on the Closing Date set forth in the Fee Letter. The Lenders shall have received the
fees in the amounts previously agreed in writing by the Agents and such Lenders to be
-56-
received on
the Closing Date and all expenses (including the reasonable fees, disbursements and other charges
of counsel) for which invoices have been presented prior to the Closing Date shall have been paid.
6.9
Representations and Warranties
. On the Closing Date, the representations and
warranties made by the Credit Parties in
Section 8.2
,
Section 8.5
and
Section
8.7
, as they relate to the Credit Parties at such time, shall be true and correct in all
material respects.
6.10
Related Agreements
. Administrative Agent shall have received a fully executed or
conformed copy of the Merger Agreement which shall be in full force and effect.
6.11
Solvency Certificate
. On the Closing Date, Administrative Agent shall have
received a certificate from an Authorized Officer of the Borrower, with appropriate attachments and
demonstrating that after giving effect to the consummation of the Transactions, the Borrower on a
consolidated basis with its Subsidiaries is Solvent.
6.12
Historical Financial Statements
. Lenders shall have received the Historical
Financial Statements.
6.13
Merger
. Concurrently with the initial Credit Event made hereunder, the Merger shall have been
consummated in accordance with the terms of the Merger Agreement, without giving effect to any
amendments or waivers thereto that are materially adverse to the Lenders without the reasonable
consent of the Agents.
6.14
Insurance
. Certificates of insurance evidencing the existence of insurance to be
maintained by the Borrower pursuant to
Section 9.3
and, if applicable, the designation of
the Collateral Agent as an additional insured and loss payee as its interest may appear thereunder,
or solely as the additional insured, as the case may be, thereunder (
provided
that if such
endorsement as additional insured cannot be delivered by the Closing Date, the Administrative Agent
may consent to such endorsement being delivered at such later date as it deems appropriate in the
circumstances).
6.15
Pro Forma Financial Statements
. The Administrative Agent shall have received a
pro forma consolidated balance sheet of Borrower as of December 31, 2006 and a pro forma statement
of income for the twelve month period ending on such balance sheet date, in each case, after giving
effect to the Transactions, together with a certificate of an Authorized Officer of Borrower to the
effect that such balance sheets accurately present the pro forma financial position of Borrower and
its Subsidiaries (but, in any event, excluding the effects of purchase accounting).
6.16
[Intentionally Omitted]
6.17
[Intentionally Omitted]
6.18
Leverage
. The Borrower shall have delivered evidence to the reasonable
satisfaction of the Administrative Agent demonstrating that the ratio of (a) Consolidated Total
Debt of the Borrower and its Subsidiaries as of the Closing Date after giving effect to the initial
Loans and to the other Transactions, to (b) Consolidated EBITDA of the Borrower for the twelve
-57-
(12)
month period ending December 31, 2006, determined on a pro forma basis after giving effect to the
after giving effect to the initial Loans and to the other Transactions, shall be not greater than
4.40:1.00.
6.19
[Intentionally Omitted]
6.20
Legal and Organizational Structure
. McJunkin Appalachian Oil Field Supply Company, a Delaware corporation, shall be a
wholly-owned Subsidiary of the Borrower and a Guarantor.
SECTION 7.
Conditions Precedent to All Credit Events
The agreement of each Lender to make any Loan requested to be made by it on any date is
subject to the satisfaction of the following conditions precedent:
7.1
No Default; Representations and Warranties
. At the time of each Credit Event and
also after giving effect thereto (other than any Credit Event on the Closing Date) (a) no Default
or Event of Default shall have occurred and be continuing, and (b) all representations and
warranties made by any Credit Party contained herein or in the other Credit Documents shall be true
and correct in all material respects with the same effect as though such representations and
warranties had been made on and as of the date of such Credit Event (except where such
representations and warranties expressly relate to an earlier date, in which case such
representations and warranties shall have been true and correct in all material respects as of such
earlier date).
7.2
Notice of Borrowing
Prior to the making of each Term Loan, the Administrative
Agent shall have received a Notice of Borrowing (whether in writing or by telephone) meeting the
requirements of
Section 2.3
.
The acceptance of the benefits of each Credit Event shall constitute a representation and warranty
by each Credit Party to each of the Lenders that all the applicable conditions specified above
exist as of that time.
SECTION 8.
Representations, Warranties and Agreements
In order to induce the Lenders to enter into this Agreement, to make the Loans as provided for
herein, the Borrower (with respect to itself and its Subsidiaries) makes the following
representations and warranties to, and agreements with, the Lenders, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans and the issuance of the
Letters of Credit:
8.1
Corporate Status
. The Borrower and each Material Subsidiary (a) is a duly
organized and validly existing corporation or other entity in good standing under the laws of the
jurisdiction of its organization and has the corporate or other organizational power and authority
to own its property and assets and to transact the business in which it is engaged and (b) has duly
qualified and is authorized to do business and is in good standing in all jurisdictions where it is
required to be so qualified, except where the failure to be so qualified could not reasonably be
expected to result in a Material Adverse Effect.
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8.2
Corporate Power and Authority
. Each Credit Party has the corporate or other organizational power and authority to execute,
deliver and carry out the terms and provisions of the Credit Documents to which it is a party and
has taken all necessary corporate or other organizational action to authorize the execution,
delivery and performance of the Credit Documents to which it is a party. Each Credit Party has
duly executed and delivered each Credit Document to which it is a party and each such Credit
Document constitutes the legal, valid and binding obligation of such Credit Party enforceable in
accordance with its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors rights generally and subject to general principles
of equity. Each Credit Party is in compliance with all laws, orders, writs and injunctions except
to the extent that failure to do so could not reasonably be expected to have a Material Adverse
Effect.
8.3
No Violation
. Neither the execution, delivery or performance by any Credit Party
of the Credit Documents to which it is a party nor compliance with the terms and provisions thereof
nor the consummation of the Merger and the other transactions contemplated hereby or thereby will
(a) contravene any applicable provision of any material law, statute, rule, regulation, order,
writ, injunction or decree of any court or governmental instrumentality, (b) result in any breach
of any of the terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose) any Lien upon any
of the property or assets of such Credit Party or any of the Restricted Subsidiaries (other than
Liens created under the Credit Documents) pursuant to, the terms of any material indenture, loan
agreement, lease agreement, mortgage, deed of trust, agreement or other material instrument to
which such Credit Party or any of the Restricted Subsidiaries is a party or by which it or any of
its property or assets is bound or (c) violate any provision of the certificate of incorporation,
by-laws or other constitutional documents of such Credit Party or any of the Restricted
Subsidiaries.
8.4
Litigation
. There are no actions, suits or proceedings (including Environmental
Claims) pending or, to the knowledge of the Borrower, threatened with respect to the Borrower or
any of its Subsidiaries that could reasonably be expected to result in a Material Adverse Effect or
a Material Adverse Change.
8.5
Margin Regulations
. Neither Borrower nor any of its Subsidiaries is engaged
principally, as one or more of its important activities, in the business of extending credit for
the purpose of purchasing any margin stock as defined in Regulation U. Neither the making of any
Loan hereunder nor the use of the proceeds thereof will violate the provisions of Regulation T, U
or X of the Board.
8.6
Governmental Approvals
. The execution, delivery and performance of the Merger
Agreement or any Credit Document does not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except for (i) such as have been
obtained or made and are in full force and effect, (ii) filings and recordings in respect of the
Liens created pursuant to
the Security Documents and (iii) such licenses, approvals, authorizations or consents the
failure to obtain or make could not reasonably be expected to have a Material Adverse Effect.
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8.7
Investment Company Act
. No Credit Party is an investment company, or a company
controlled by an investment company, within the meaning of the Investment Company Act of 1940,
as amended.
8.8
True and Complete Disclosure
. (a) None of the factual information and data
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower, any
of the Subsidiaries or any of their respective authorized representatives in writing to the
Administrative Agent and/or any Lender on or before the Closing Date (including (i) the
Confidential Information Memorandum and (ii) all information contained in the Credit Documents)
for purposes of or in connection with this Agreement or any transaction contemplated herein
contained any untrue statement or omitted to state any material fact necessary to make such
information and data (taken as a whole) not misleading at such time in light of the circumstances
under which such information or data was furnished, it being understood and agreed that for
purposes of this
Section 8.8(a)
, such factual information and data shall not include
projections and pro forma financial information.
(b) The projections and pro forma financial information contained in the information and
data referred to in paragraph (a) above were based on good faith estimates and assumptions
believed by such Persons to be reasonable at the time made, it being recognized by the Lenders
that such projections as to future events 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.
8.9
Financial Condition; Financial Statements
. The (a) unaudited historical
consolidated financial information of the Borrower as set forth in the Confidential Information
Memorandum, and (b) the Historical Financial Statements, in each case present or will, when
provided, present fairly in all material respects the combined financial position of the Borrower
and its Subsidiaries at the respective dates of said information, statements and results of
operations for the respective periods covered thereby. The financial statements referred to in
clause (b) of this
Section 8.9
have been prepared in accordance with GAAP, consistently
applied (except to the extent provided in the notes to said financial statements), and the audit
reports accompanying such financial statements are not subject to any qualification as to the scope
of the audit or the status of the Borrower as a going concern. There has been no Material Adverse
Change since December 31, 2006.
8.10
Tax Returns and Payments
. The Borrower and each of the Subsidiaries has filed
all federal income tax returns and all other material tax returns, domestic and foreign, required
to be filed by it and has paid all income and other material Taxes payable by it that have become
due, other than those (a) not yet
delinquent or (b) contested in good faith as to which adequate reserves have been provided in
accordance with GAAP and which could not reasonably be expected to result in a Material Adverse
Effect. The Borrower and each of the Subsidiaries have paid, or have provided adequate reserves
(in the good faith judgment of the management of the Borrower) in accordance with GAAP for the
payment of, all material federal, state, provincial and foreign income taxes applicable for all
prior fiscal years and for the current fiscal year to the Closing Date.
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8.11
Compliance with ERISA
. (a) Each Plan is in compliance with ERISA, the
Code and any applicable Requirement of Law; no Reportable Event has occurred (or is reasonably
likely to occur) with respect to any Plan; no Plan is insolvent or in reorganization (or is
reasonably likely to be insolvent or in reorganization), and no written notice of any such
insolvency or reorganization has been given to the Borrower, any Subsidiary or any ERISA
Affiliate; no Plan (other than a multiemployer plan) has an accumulated or waived funding
deficiency (or is reasonably likely to have such a deficiency); none of the Borrower, any
Subsidiary or any ERISA Affiliate has incurred (or is reasonably likely expected to incur) any
liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code or has been notified in
writing that it will incur any liability under any of the foregoing Sections with respect to any
Plan; no proceedings have been instituted (or are reasonably likely to be instituted) to
terminate or to reorganize any Plan or to appoint a trustee to administer any Plan, and no
written notice of any such proceedings has been given to the Borrower, any Subsidiary or any
ERISA Affiliate; and no lien imposed under the Code or ERISA on the assets of the Borrower or any
Subsidiary or any ERISA Affiliate exists (or is reasonably likely to exist) nor has the Borrower,
any Subsidiary or any ERISA Affiliate been notified in writing that such a lien will be imposed
on the assets of the Borrower, any Subsidiary or any ERISA Affiliate on account of any Plan,
except to the extent that a breach of any of the representations, warranties or agreements in
this
Section 8.11
would not result, individually or in the aggregate, in an amount of
liability that would be reasonably likely to have a Material Adverse Effect. No Plan (other than
a multiemployer plan) has an Unfunded Current Liability that would, individually or when taken
together with any other liabilities referenced in this
Section 8.11
, be reasonably likely
to have a Material Adverse Effect. With respect to Plans that are multiemployer plans (as
defined in Section 3(37) of ERISA), the representations and warranties in this
Section
8.11(a)
, other than any made with respect to (i) liability under Section 4201 or 4204 of
ERISA or (ii) liability for termination or reorganization of such Plans under ERISA, are made to
the best knowledge of the Borrower.
(b) All Foreign Plans are in compliance with, and have been established, administered and
operated in accordance with, the terms of such Foreign Plans and applicable law, except for any
failure to so comply, establish, administer or operate the Foreign Plans as would not reasonably
be expected to have a Material Adverse Effect. All contributions or other payments which are due
with respect to each Foreign Plan have been made in full and there are no funding deficiencies
thereunder, except to the extent any such events would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
8.12
Subsidiaries
.
Schedule 8.12
lists each Subsidiary of the Borrower (and the direct and indirect
ownership interest of the Borrower therein), in each case existing on the Closing Date. To the
knowledge of the Borrower, after due inquiry, each Material Subsidiary as of the Closing Date has
been so designated on
Schedule 8.12
.
8.13
Intellectual Property
. The Borrower and each of the Restricted Subsidiaries have
obtained all intellectual property, free from burdensome restrictions, that are necessary for the
operation of their respective businesses as currently conducted and as proposed to be conducted,
except where the failure to obtain any such rights could not reasonably be expected to have a
Material Adverse Effect.
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8.14
Environmental Laws
. (a) Except as could not reasonably be expected to
have a Material Adverse Effect: (i) the Borrower and each of the Subsidiaries and all Real
Estate are, and have been, in compliance with, and possess all permits, licenses and
registrations required pursuant to, all Environmental Laws; (ii) neither the Borrower, nor any of
the Subsidiaries is subject to any Environmental Claim or any other liability under any
Environmental Law; (iii) the Borrower and its Subsidiaries are not conducting, or required to
conduct, any investigation, removal, remedial or other corrective action pursuant to any
Environmental Law at any location, including any Real Estate currently owned or leased by the
Borrower or any of its Subsidiaries, and any real property to which the Borrower or any of its
Subsidiaries may have sent Hazardous Materials; and (iv) no underground storage tank or related
piping, or any impoundment or other disposal area containing Hazardous Materials is located at,
on or under any Real Estate currently owned or leased by the Borrower or any of its Subsidiaries.
(b) Neither the Borrower, nor any of the Subsidiaries has treated, stored, transported,
released or disposed or arranged for disposal or transport for disposal of Hazardous Materials
at, on, under or from any currently or formerly owned or leased Real Estate or facility in a
manner that could reasonably be expected to have a Material Adverse Effect.
8.15
Properties
. (a) The Borrower and each of the Subsidiaries have good and
marketable title to or leasehold interest in all properties that are necessary for the operation of
their respective businesses as currently conducted and as proposed to be conducted, free and clear
of all Liens (other than any Liens permitted by this Agreement or the Revolving Loan Credit
Agreement) and except where the failure to have such good title could not reasonably be expected to
have a Material Adverse Effect and (b) no Mortgage encumbers improved Real Estate that is located
in an area that has been identified by the Secretary of Housing and Urban Development as an area
having special flood hazards within the meaning of the National Flood Insurance Act of 1968 unless
flood insurance available under such Act has been obtained in accordance with
Section 9.3.
8.16
Solvency
. On the Closing Date (after giving effect to the Transactions), immediately following the
making of each Loan and after giving effect to the application of the proceeds of such Loans, the
Borrower on a consolidated basis with its Subsidiaries will be Solvent.
SECTION 9.
Affirmative Covenants
The Borrower hereby covenants and agrees that on the Closing Date and thereafter, until the
Commitments have terminated and the Loans, together with interest, Fees and all other Obligations
incurred hereunder, are paid in full:
9.1
Information Covenants
. The Borrower will furnish to the Administrative Agent:
(a)
Annual Financial Statements
. As soon as available and in any event on or
before the date on which such financial statements are required to be filed with the SEC
(or, if such financial statements are not required to be filed with the SEC, on or before
the date that is 105 days after the end of each such fiscal year), (i) the consolidated
balance
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sheet of the Borrower and the Restricted Subsidiaries as at the end of such fiscal
year, and the related consolidated statement of operations and consolidated statement of
cash flows for such fiscal year, setting forth comparative consolidated figures for the
preceding fiscal year, and certified by independent certified public accountants of
recognized national standing whose opinion shall not be qualified as to the scope of audit
or as to the status of the Borrower or any of the Material Subsidiaries (or group of
Subsidiaries that together would constitute a Material Subsidiary) as a going concern,
together in any event with a certificate of such accounting firm stating that in the course
of its regular audit of the business of the Borrower and the Material Subsidiaries, which
audit was conducted in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge of any Default or Event of Default relating to
Sections 10.9
,
10.10
or
10.11
that has occurred and is continuing or,
if in the opinion of such accounting firm such a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof and (ii) with respect to the fiscal
year ending December 31, 2007 only, the unaudited balance sheet of McJunkin Appalachian Oil
Field Supply Company as at the end of such fiscal year, and the related income statement for
such fiscal year, each of which shall be certified by a Financial Officer of the Borrower.
(b)
Quarterly Financial Statements
. As soon as available and in any event on
or before the date on which such financial statements are required to be filed with the SEC
with respect to each of the first three quarterly accounting periods in each fiscal year of
the Borrower (or, if such financial statements are not required to be filed with the SEC, on
or before the date that is forty-five (45) days after the end of each such quarterly
accounting period), (i) the consolidated balance sheet of (A) the Borrower and the
Restricted Subsidiaries and (B) the Borrower and its Subsidiaries, in each case as at the
end of such quarterly period and the related consolidated statement of operations for such
quarterly accounting period and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period, and the related consolidated statement of cash flows
for the elapsed portion of the fiscal year ended with the last day of such quarterly period,
and setting forth comparative consolidated figures for the related periods in the prior
fiscal year or, in the case of such consolidated balance sheet, for the last day of the
prior fiscal year, all of which shall be certified by a Financial Officer of the Borrower,
subject to changes resulting from audit and normal year-end audit adjustments and (ii) with
respect to the 2007 fiscal year only, the balance sheet of McJunkin Appalachian Oil Field
Supply Company as at the end of such quarterly period and the related income statement for
such quarterly accounting period and for the elapsed portion of the fiscal year ended with
the last day of such quarterly period, all of which shall be certified by a Financial
Officer of the Borrower, subject to changes resulting from audit and normal year-end audit
adjustments.
(c)
Monthly Financial Statements
. As soon as available and in any event on or
before the date that is thirty (30) days after the end of each fiscal month of Borrower, the
consolidated balance sheet of (i) the Borrower and the Restricted Subsidiaries and (ii) the
Borrower and its Subsidiaries, in each case as at the end of such fiscal month and the
related consolidated statement of operations for such fiscal month and for the elapsed
portion of the fiscal year ended with
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the last day of such fiscal month, and the related
consolidated statement of cash flows for the elapsed portion of the fiscal year ended with
the last day of such fiscal month, and setting forth comparative consolidated figures for
the related periods in the prior fiscal year or, in the case of such consolidated balance
sheet, for the last day of the prior fiscal year, all of which shall be certified by a
Financial Officer of the Borrower, subject to changes resulting from audit and normal
year-end audit adjustments.
(d)
Budgets
. Not more than sixty (60) days after the commencement of each
fiscal year of the Borrower, a budget of the Borrower in reasonable detail for such fiscal
year as customarily prepared by management of the Borrower for their internal use consistent
in scope with the financial statements provided pursuant to
Section 9.1(a)
, setting
forth the principal assumptions upon which such budgets are based.
(e)
Officers Certificates
. At the time of the delivery of the financial
statements provided for in
Sections 9.1(a)
and
(b)
, a certificate of an
Authorized Officer of the Borrower to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and extent thereof,
which certificate shall set forth (i) the calculations required to establish whether the
Borrower and the Subsidiaries were in compliance with the provisions of
Sections
10.9
and
10.10
as at the end of such fiscal year or period, as the case may be,
(ii) a specification of any change in the identity of the Restricted Subsidiaries and
Unrestricted Subsidiaries as at the end of such fiscal year or period, as the case may be,
from the Restricted Subsidiaries and Unrestricted Subsidiaries, respectively, provided to
the Lenders on the Closing Date or the most recent fiscal year or period, as the case may
be, (iii) the amount of any Pro Forma Adjustment not previously set forth in a Pro Forma
Adjustment Certificate or any change in the amount of a Pro Forma Adjustment set forth in
any Pro Forma Adjustment Certificate previously provided and, in either case, in reasonable
detail, the calculations and basis therefor. At the time of the delivery of the financial
statements provided for in
Section 9.1(a)
, (i) a certificate of an Authorized Officer of the Borrower
setting forth in reasonable detail the Applicable Amount as at the end of the fiscal year to
which such financial statements relate and (ii) a certificate of an Authorized Officer of
the Borrower setting forth the information required pursuant to
Section 1(a)
of the
Perfection Certificate or confirming that there has been no change in such information since
the Closing Date or the date of the most recent certificate delivered pursuant to this
subsection (e)(ii), as the case may be.
(f)
[Intentionally Omitted]
(g)
[Intentionally Omitted]
(h)
Notice of Default or Litigation
. Promptly after an Authorized Officer of
the Borrower or any of the Subsidiaries obtains knowledge thereof, notice of (i) the
occurrence of any event that constitutes a Default or Event of Default, which notice shall
specify the nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto and (ii) any litigation or governmental proceeding
pending against the Borrower or any of the Subsidiaries that could reasonably be expected to
result in a Material Adverse Effect or a Material Adverse Change.
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(i)
Environmental Matters
. The Borrower will promptly advise the
Administrative Agent in writing after obtaining knowledge of any one or more of the
following environmental matters, unless such environmental matters could not, individually
or when aggregated with all other such matters, be reasonably expected to result in a
Material Adverse Effect:
(i) Any pending or threatened Environmental Claim against any Credit Party or
any current or former Real Estate;
(ii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that (x) could reasonably be expected to result in noncompliance
by any Credit Party with any applicable Environmental Law or (y) could reasonably be
anticipated to form the basis of an Environmental Claim against any Credit Party or
any current or former Real Estate;
(iii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that could reasonably be anticipated to cause such Real Estate to
be subject to any restrictions on the ownership, occupancy, use or transferability
of such Real Estate under any Environmental Law; and
(iv) The conduct or need to conduct of any investigation, or any removal,
remedial or other corrective action in response to the actual or alleged presence,
release or threatened release of any Hazardous Material on, at, under or from any
current or former Real Estate or otherwise related to Environmental Law.
All such notices shall describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and the response thereto. The term
Real Estate shall mean land, buildings and improvements owned or leased by any Credit
Party, but excluding all operating fixtures and equipment, whether or not incorporated into
improvements.
(j)
Other Information
. Promptly upon filing thereof, copies of any filings
(including on Form 10-K, 10-Q or 8-K) or registration statements with, and reports to, the
SEC or any analogous Governmental Authority in any relevant jurisdiction by the Borrower or
any of the Subsidiaries (other than amendments to any registration statement (to the extent
such registration statement, in the form it becomes effective, is delivered to the Lenders
and the Administrative Agent), exhibits to any registration statement and, if applicable,
any registration statements on Form S-8) and copies of all financial statements, proxy
statements, notices and reports that the Borrower or any of the Subsidiaries shall send to
the holders of any publicly issued debt of the Borrower and/or any of the Subsidiaries in
their capacity as such holders (in each case to the extent not theretofore delivered to the
Lenders and the Administrative Agent pursuant to this Agreement) and, with reasonable
promptness, such other information (financial or otherwise) as the Administrative Agent on
its own behalf or on behalf of any Lender (acting through the Administrative Agent) may
reasonably request in writing from time to time.
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(k)
Pro Forma Adjustment Certificate
. Not later than any date on which
financial statements are delivered with respect to any Test Period in which a Pro Forma
Adjustment is made as a result of the consummation of the acquisition of any Acquired Entity
or Business by the Borrower or any Restricted Subsidiary for which there shall be a Pro
Forma Adjustment, a certificate of an Authorized Officer of the Borrower setting forth the
amount of such Pro Forma Adjustment and, in reasonable detail, the calculations and basis
therefor.
(l)
Information Regarding Collateral
. Not later than sixty (60) days following
the occurrence of any change referred to in
subclauses
(
i
) through
(
iv
) below, written notice of any change (i) in the legal name of any Credit Party,
(ii) in the jurisdiction of organization or location of any Credit Party for purposes of the
Uniform Commercial Code, (iii) in the identity or type of organization of any Credit Party
or (iv) in the Federal Taxpayer Identification Number or organizational identification
number of any Credit Party. The Borrower shall also promptly provide the Collateral Agent
with certified Organizational Documents reflecting any of the changes described in the first
sentence of this
clause (1)
.
Notwithstanding the foregoing, the obligations in paragraphs (a) and (b) of this
Section
9.1
may be satisfied with respect to financial information of the Borrower and the Restricted
Subsidiaries by furnishing (A) the applicable financial statements of any direct or indirect parent
of the Borrower or (B) the Borrowers (or any direct or indirect parent thereofs), as applicable,
Form 10-K or 10-Q, as applicable, filed with the SEC;
provided
that
, with respect
to each of clauses (A) and (B) above, to the extent such information relates to a parent of the
Borrower, such information is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to such parent, on the one hand, and the
information relating to the Borrower and the Restricted Subsidiaries on a standalone basis, on the
other hand.
9.2
Books, Records and Inspections
. The Borrower will, and will cause each of the
Subsidiaries to, permit officers and designated representatives of the Administrative Agents or the
Required Lenders to visit and inspect any of the properties or assets of the Borrower and any such
Subsidiary in whomsoevers possession to the extent that it is within such partys control to
permit such inspection, and to examine the books and records of the Borrower and any such
Subsidiary and discuss the affairs, finances and accounts of the Borrower and of any such
Subsidiary with, and be advised as to the same by, its and their officers and independent
accountants, all at such reasonable times and intervals and to such reasonable extent as the
Administrative Agents or the Required Lenders may desire;
provided
that
, excluding
any such visits and inspections during the continuation of an Event of Default, only the
Administrative Agent (or any of their respective representatives or independent contractors) on
behalf of the Required Lenders may exercise rights of the Administrative Agent and the Lenders
under this
Section 9.2
and the Administrative Agent shall not exercise such rights more
often than two times during any calendar year absent the existence of an Event of Default and only
one such time shall be at the Borrowers expense; provided further that when an Event of Default
exists, the Administrative Agent (or any of its representatives or independent contractors) or any
representative of the Required Lenders may do any of the foregoing at the expense of the Borrower
at any time during normal business hours and upon reasonable advance notice. The
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Administrative Agent and the Required Lenders shall give the Borrower the opportunity to
participate in any discussions with the Borrowers independent public accountants.
9.3
Maintenance of Insurance
. The Borrower will, and will cause each of the Material
Subsidiaries to, at all times maintain in full force and effect, with insurance companies that the
Borrower believes (in the good faith judgment of the management of the Borrower) are financially
sound and responsible at the time the relevant coverage is placed or renewed, insurance in at least
such amounts (after giving effect to any self-insurance which the Borrower believes (in the good
faith judgment of management of the Borrower) is reasonable and prudent in light of the size and
nature of its business) and against at least such risks (and with such risk retentions) as the
Borrower believes (in the good faith judgment of management of the Borrower) is reasonable and
prudent in light of the size and nature of its business; and will furnish to the Administrative
Agent (for deliver to the Lenders), upon written request from the Administrative Agent, information
presented in reasonable detail as to the insurance so carried. Each such policy of insurance shall
(i) name Collateral Agent, on behalf of Secured Parties as an additional insured thereunder as its
interests may appear and (ii) in the case of each casualty insurance policy, contain a loss payable
clause or endorsement reasonably satisfactory in form and substance to Collateral Agent, that names
Collateral Agent, on behalf of Lenders as the loss payee thereunder and provides for at least
thirty days prior written notice to Collateral Agent of any modification or cancellation of such
policy.
9.4
Payment of Taxes
. Each Credit Party will pay and discharge, and will cause each
of the Subsidiaries to pay and discharge, all material taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits, or upon any properties belonging to it,
prior to the date on which material penalties attach thereto, and all lawful material claims that,
if unpaid, could reasonably be expected to become a material Lien upon any properties of each
Credit Party or any of the Restricted Subsidiaries,
provided
that no Credit Party, nor any
of the Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim that
is being contested in good faith and by proper proceedings if it has maintained adequate reserves
(in the good faith judgment of the management of the Borrower) with respect thereto in accordance
with GAAP and the failure to pay could not reasonably be expected to result in a Material Adverse
Effect.
9.5
Consolidated Corporate Franchises
. The Borrower will do, and will cause each
Material Subsidiary to do, or cause to be done, all things necessary to preserve and keep in full
force and effect its existence, corporate rights and authority, except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse Effect;
provided
,
however
, that the Borrower and its Subsidiaries may consummate any
transaction permitted under
Section 10.3
,
10.4
or
10.5
.
9.6
Compliance with Statutes, Regulations, etc
. The Borrower will, and will cause
each Subsidiary to, comply with all applicable laws, rules, regulations and orders applicable to it
or its property, including all governmental approvals or authorizations required to conduct its
business, and to maintain all such governmental approvals or authorizations in full force and
effect, in each case except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
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9.7
ERISA
. Promptly after the Borrower or any Subsidiary or any ERISA Affiliate knows
or has reason to know of the occurrence of any of the following events that, individually or in the
aggregate (including in the aggregate such events previously disclosed or exempt from disclosure
hereunder, to the extent the liability therefor remains outstanding), would be reasonably likely to
have a Material Adverse Effect, the Borrower will deliver to each of the Lenders a certificate of
an Authorized Officer or any other senior officer of the Borrower setting forth details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is
required or proposes to take, together with any notices (required, proposed or otherwise) given to
or filed with or by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant (other than notices relating to an individual participants benefits) or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that an accumulated
funding deficiency has been incurred or an application is to be made to the Secretary of the
Treasury for a waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under
Section 412
of the
Code with respect to a Plan; that a Plan having an Unfunded Current Liability has been or is to be
terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA (including the
giving of written notice thereof); that a Plan has an Unfunded Current Liability that has or will
result in a lien under ERISA or the Code; that proceedings will be or have been instituted to
terminate a Plan having an Unfunded Current Liability (including the giving of written notice
thereof); that a proceeding has been instituted against the Borrower, a Subsidiary or an ERISA
Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the
PBGC has notified the Borrower, any Subsidiary or any ERISA Affiliate of its intention to appoint a
trustee to administer any Plan; that the Borrower, any Subsidiary or any ERISA Affiliate has failed
to make a required installment or other payment pursuant to Section 412 of the Code with respect to
a Plan; or that the Borrower, any Subsidiary or any ERISA Affiliate has incurred or will incur (or
has been notified in writing that it will incur) any liability (including any contingent or
secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code.
9.8
Maintenance of Properties
. The Borrower will, and will cause each of the
Restricted Subsidiaries to, keep and maintain all property material to the conduct of its business
in good working order and condition, ordinary wear and tear excepted, except to the extent that the
failure to do so could reasonably be expected to have a Material Adverse Effect.
9.9
Transactions with Affiliates
. The Borrower will conduct, and cause each of the
Restricted Subsidiaries to conduct, all transactions with any of its Affiliates (other than the
Borrower or the Restricted Subsidiaries) on terms that are substantially as favorable to the
Borrower or such Restricted Subsidiary as it would obtain in a comparable arms-length transaction
with a Person that is not an Affiliate,
provided
that the foregoing restrictions shall not
apply to (a) the payment of customary fees to the Sponsors for management, consulting and financial
services rendered to the Borrower and the Subsidiaries and customary investment banking fees paid
to the Sponsors for services rendered to the Borrower and the Subsidiaries in connection with
divestitures, acquisitions, financings and other transactions, (b) transactions permitted by
Section 10.6
, (c) Transaction Expenses, (d) the issuance of Stock or Stock Equivalents of
the Borrower to the management of the Borrower (or any direct or indirect parent thereof) or any of
its Subsidiaries in connection with the Transactions or pursuant to
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arrangements described in clause (f) of this
Section 9.9
, (e) loans and other
transactions by the Borrower and the Restricted Subsidiaries to the extent permitted under
Section 10
, (f) employment and severance arrangements between the Borrower and the
Restricted Subsidiaries and their respective officers and employees in the ordinary course of
business, (g) payments by the Borrower (and any direct or indirect parent thereof) and the
Restricted Subsidiaries pursuant to the tax sharing agreements among the Borrower (and any such
parent) and the Restricted Subsidiaries on customary terms to the extent attributable to the
ownership or operation of the Borrower and the Restricted Subsidiaries, (h) the payment of
customary fees and reasonable out of pocket costs to, and indemnities provided on behalf of,
directors, managers, consultants, officers and employees of the Borrower and the Restricted
Subsidiaries in the ordinary course of business to the extent attributable to the ownership or
operation of the Borrower and the Restricted Subsidiaries, (i) transactions pursuant to permitted
agreements in existence on the Closing Date and set forth on
Schedule 9.9
or any amendment
thereto to the extent such an amendment is not adverse, taken as a whole, to the Lenders in any
material respect, and (j) customary payments by the Borrower and any Restricted Subsidiaries to the
Sponsors made for any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities (including in connection with acquisitions or
divestitures), which payments are approved by the majority of the members of the board of directors
or a majority of the disinterested members of the board of directors of the Borrower (or any direct
or indirect parent thereof), in good faith.
9.10
End of Fiscal Years; Fiscal Quarters
. The Borrower will, for financial reporting
purposes, cause (a) each of its, and each of its Subsidiaries, fiscal years to end on December 31
of each year and (b) each of its, and each of its Subsidiaries, fiscal quarters to end on dates
consistent with such fiscal year-end and the Borrowers past practice;
provided
,
however
, that the Borrower may, upon written notice to the Administrative Agent, change the
financial reporting convention specified above to any other financial reporting convention
reasonably acceptable to the Administrative Agent, in which case the Borrower and the
Administrative Agent will, and are hereby authorized by the Lenders to, make any adjustments to
this Agreement that are necessary in order to reflect such change in financial reporting.
9.11
Additional Guarantors and Grantors
. Except as set forth in
Section
10.1(j)
or
10.1(k)
and subject to any applicable limitations set forth in the Security
Documents, the Borrower will cause each direct or indirect Subsidiary (other than any Excluded
Subsidiary) formed or otherwise purchased or acquired after the date hereof (including pursuant to
a Permitted Acquisition) to execute a supplement to each of the Guarantee and the Security
Agreement, substantially in the form of
Annex B
or
Annex 1
, as applicable, to the
respective agreement in order to become a Guarantor under the Guarantee and a grantor under
Security Agreement or, to the extent reasonably requested by the Collateral Agent, enter into a new
Security Agreement in form and substance reasonably satisfactory to the Collateral Agent.
9.12
Pledges of Additional Stock and Evidence of Indebtedness
(a) . (a) Except as
set forth in
Section 10.1(j)
or
(k)
and subject to any applicable limitations set
forth in the Security Documents or with respect to which, in the reasonable judgment of the
Administrative Agent and the Collateral Agent (confirmed in writing by notice to the Borrower),
the cost or other consequences (including any adverse tax consequences) of doing so shall be
excessive in view of the benefits to be obtained by the Lenders therefrom, the Borrower will
pledge, and, if
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applicable, will cause each Subsidiary Guarantor to pledge, to the Collateral Agent for the
benefit of the Secured Parties, (i) all the Stock of each Domestic Subsidiary (other than any
Excluded Subsidiary) held by the Borrower or any Subsidiary Guarantor and the Stock of any
Foreign Subsidiary (other than any Excluded Subsidiary) held directly by the Borrower or any
Subsidiary Guarantor (
provided
that in no event shall more than 65% of the issued and
outstanding Stock of any such Foreign Subsidiary be so pledged), in each case, formed or
otherwise purchased or acquired after the date hereof, in each case pursuant to the Pledge
Agreement (or a supplement thereto) in form and substance reasonably satisfactory to
Administrative Agent and the Collateral Agent, (ii) all evidences of Indebtedness in excess of
$5,000,000 received by the Borrower or any of the Subsidiary Guarantors in connection with any
disposition of assets pursuant to
Section 10.4(b)
, in each case pursuant to the Pledge
Agreement (or a supplement thereto) in form and substance reasonably satisfactory to
Administrative Agent and the Collateral Agent and (iii) any promissory notes executed after the
date hereof evidencing Indebtedness of the Borrower, each Subsidiary that is owing to the
Borrower or any Subsidiary Guarantor, in each case pursuant the Pledge Agreement (or a supplement
thereto) in form and substance reasonably satisfactory to the Administrative Agent and the
Collateral Agent.
(b) The Borrower agrees that all Indebtedness in excess of $5,000,000 of the Borrower and
each Subsidiary that is owing to any Credit Party pledged pursuant to the Pledge Agreement shall
be evidenced by one or more promissory notes.
9.13
Use of Proceeds
(a) . The Borrower will use the proceeds of all Term Loans made
on the Closing Date to effect the Merger, to repay indebtedness and to pay Transaction Expenses.
9.14
[Intentionally Omitted]
.
9.15
Interest Rate Protection
. No later than 90 days following the Closing Date and
at all times thereafter until the third anniversary of the Closing Date, Borrower shall obtain and
cause to be maintained protection against fluctuations in interest rates pursuant to one or more
Interest Rate Agreements in order to ensure that no less than 50% of the aggregate principal amount
of the total Indebtedness of the Borrower and its Subsidiaries then outstanding is either (i)
subject to such Interest Rate Agreements or (ii) Indebtedness that bears interest at a fixed rate.
9.16
[Intentionally Omitted]
.
9.17
Further Assurances
(a) . (a) The Borrower will, and will cause each other
Credit Party to, execute any and all further documents, financing statements, agreements and
instruments, and take all such further actions (including the filing and recording of financing
statements and other documents), which may be required under any applicable law, or which the
Collateral Agent or the Required Lenders may reasonably request, in order to grant, preserve,
protect and perfect the validity and priority of the security interests created or intended to be
created by the Security Documents, all at the expense of the Borrower and the Restricted
Subsidiaries.
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(b) If any assets having a book value or fair market value in excess of $1,000,000 are
acquired by the Borrower or any other Credit Party after the Closing Date (other than assets
constituting Collateral under the Security Agreement that become subject to the Lien of the
Security Agreement upon acquisition thereof) that are of the nature secured by the Security
Agreement or any Mortgage, as the case may be, the Borrower will notify the Collateral Agent,
and, if requested by the Collateral Agent, the Borrower will cause such assets to be subjected to
a Lien securing the applicable Obligations and will take, and cause the other Credit Parties to
take, such actions as shall be necessary or reasonably requested by the Collateral Agent to grant
and perfect such Liens consistent with the applicable requirements of the Security Documents,
including actions described in clause (a) of this
Section 9.17
, all at the expense of the
Borrower.
(c) The Borrower agrees that it will, or will cause its relevant Subsidiaries to, complete
each of the actions described on
Schedule 9.17(c)
as soon as commercially reasonable and
by no later than the date set forth in
Schedule 9.17(c)
with respect to such action or
such later date as the Administrative Agent may reasonably agree.
SECTION 10.
Negative Covenants
The Borrower (for itself and each of its Restricted Subsidiaries) hereby covenants and agrees
that on the Closing Date (immediately after consummation of the Merger) and thereafter, until the
Commitments have terminated and the Loans, together with interest, Fees and all other Obligations
incurred hereunder, are paid in full:
10.1
Limitation on Indebtedness
. The Borrower will not, and will not permit any of
the Restricted Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness arising under the Credit Documents and the Revolving Loan Credit Agreement;
(b) Indebtedness of (i) the Borrower or any Subsidiary Guarantor owing to the Borrower or
any Restricted Subsidiary, (ii) any Subsidiary who is not a Guarantor owing to any other
Subsidiary who is not a Guarantor and (iii) subject to compliance with
Section 10.5
, any
Subsidiary who is not a Guarantor owing to the Borrower or any Subsidiary Guarantor;
(c) Indebtedness in respect of any bankers acceptance, bank guarantees, letter of credit,
warehouse receipt or similar facilities entered into in the ordinary course of business
(including in respect of workers compensation claims, health, disability or other employee
benefits or property, casualty or liability insurance or self-insurance or other Indebtedness
with respect to reimbursement-type obligations regarding workers compensation claims);
(d) subject to compliance with
Section 10.5
, Guarantee Obligations incurred by (i)
Restricted Subsidiaries in respect of Indebtedness of the Borrower or other Restricted
Subsidiaries that is permitted to be incurred under this Agreement and (ii) the Borrower in
respect of Indebtedness of the Restricted Subsidiaries that is permitted to be incurred under
this Agreement,
provided
that, except as provided in clauses (j) and (k) below, there
shall be
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no Guarantee (a) by a Restricted Subsidiary that is not a Guarantor of any Indebtedness of
the Borrower and (b) in respect of any Permitted Additional Debt, unless such Guarantee is made
by a Guarantor and, in the case of Permitted Additional Debt that is subordinated, is
subordinated;
(e) Guarantee Obligations (i) incurred in the ordinary course of business in respect of
obligations of (or to) suppliers, customers, franchisees, lessors and licensees or (ii) or
otherwise constituting Investments permitted by
Section 10.5
;
(f) (i) Indebtedness (including Indebtedness arising under Capital Leases) incurred within
270 days of the acquisition, construction or improvement of fixed or capital assets to finance
the acquisition, construction or improvement of such fixed or capital assets, (ii) Indebtedness
arising under Capital Leases entered into in connection with Permitted Sale Leasebacks and (iii)
Indebtedness arising under Capital Leases, other than Capital Leases in effect on the date hereof
and Capital Leases entered into pursuant to subclauses (i) and (ii) above, provided, that the
aggregate amount of Indebtedness incurred pursuant to this subclause (iii) shall not exceed
$20,000,000 at any time outstanding, and (iv) any modification, replacement, refinancing,
refunding, renewal or extension of any Indebtedness specified in subclause (i), (ii) or (iii)
above,
provided
that, except to the extent otherwise expressly permitted hereunder, the
principal amount thereof (including pursuant to clause (iii)) does not exceed the principal
amount thereof outstanding immediately prior to such modification, replacement, refinancing,
refunding, renewal or extension, except by an amount equal to the unpaid accrued interest and
premium thereon plus other reasonable amounts paid and fees and expenses incurred in connection
with such modification, replacement, refinancing, refunding, renewal or extension;
(g) Indebtedness outstanding on the date hereof (i) listed on
Schedule 10.1
and any
modification, replacement, refinancing, refunding, renewal or extension thereof,
provided
that, except to the extent otherwise expressly permitted hereunder, (x) the principal amount
thereof does not exceed the principal amount thereof outstanding immediately prior to such
modification, replacement, refinancing, refunding, renewal or extension, except by an amount
equal to the unpaid accrued interest and premium thereon plus other reasonable amounts paid and
fees and expenses incurred in connection with such modification, replacement, refinancing,
refunding, renewal or extension
plus
an amount equal to any existing commitment
unutilized and letters of credit undrawn thereunder and (y) the direct and contingent obligors
with respect to such Indebtedness are not changed and (ii) owing by the Borrower to any
Restricted Subsidiary or by any Restricted Subsidiary to the Borrower or any other Restricted
Subsidiary;
(h) Indebtedness in respect of Hedge Agreements;
(i) [Reserved];
(j) (i) Indebtedness of a Person or Indebtedness attaching to assets of a Person that, in
either case, becomes a Restricted Subsidiary (or is a Restricted Subsidiary that survives a
merger with such Person) or Indebtedness attaching to assets that are acquired by the Borrower or
any Restricted Subsidiary, in each case after the Closing Date as the result of a
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Permitted Acquisition, provided, that (w) such Indebtedness existed at the time such Person
became a Restricted Subsidiary or at the time such assets were acquired and, in each case, was
not created in anticipation thereof, (x) such Indebtedness is not guaranteed in any respect by
the Borrower or any Restricted Subsidiary (other than by any such Person that so becomes a
Restricted Subsidiary or is the survivor of a merger with such Person and any of its
Subsidiaries) and (y)(A) the Stock and Stock Equivalents of such Person is pledged to the
Collateral Agent to the extent required under
Section 9.12
and (B) such Person executes a
supplement to each of the Guarantee, the Security Agreement and the Pledge Agreement to the
extent required under
Section 9.11
or
9.12
, as applicable,
provided
that
the requirements of this subclause (y) and the preceding proviso shall not apply to (I) an
aggregate amount at any time outstanding of up to $150,000,000 (
less
all Indebtedness as
to which the proviso to clause (k)(i)(y) below then applies) at such time of the aggregate of
such Indebtedness (and modifications, replacements, refinancings, refundings, renewals and
extensions thereof pursuant to subclause (ii) below) and (II) any Indebtedness of the type that
could have been incurred under
Section 10.1(f)
, and (ii) any modification, replacement,
refinancing, refunding, renewal or extension of any Indebtedness specified in subclause (i)
above,
provided
that, except to the extent otherwise expressly permitted hereunder, (X)
the principal amount of any such Indebtedness does not exceed the principal amount thereof
outstanding immediately prior to such modification, replacement, refinancing, refunding, renewal
or extension except by an amount equal to the unpaid accrued interest and premium thereon
plus
other reasonable amounts paid and fees and expenses incurred in connection with such
modification, replacement, refinancing, refunding, renewal or extension
plus
an amount
equal to any existing commitment unutilized and letters of credit undrawn thereunder and (Y) the
direct and contingent obligors with respect to such Indebtedness are not changed;
(k) (i) Permitted Additional Debt of the Borrower or any Restricted Subsidiary incurred to
finance a Permitted Acquisition,
provided
that (x) if such Indebtedness is incurred by a
Restricted Subsidiary that is not a Guarantor, such Indebtedness is not guaranteed by the
Borrower or any Guarantor except as permitted by
Section 10.5(g)
and (y)(A) the Borrower
or another Credit Party pledges the Stock and Stock Equivalents of such acquired Person to the
Collateral Agent to the extent required under
Section 9.12
and (B) such acquired Person
executes a supplement to the Guarantee and the Security Agreement (or alternative guarantee and
security arrangements in relation to the Obligations reasonably acceptable to the Collateral
Agent) to the extent required under
Section 9.11
or
9.12
, as applicable,
provided
that the requirements of this subclause (y) shall not apply to an aggregate
amount at any time outstanding of up to $150,000,000 (
less
all Indebtedness as to which
clause (I) of the second proviso to clause (j)(i)(y) above then applies) at such time of the
aggregate of such Indebtedness (and modifications, replacements, refinancings, refundings,
renewals and extensions thereof pursuant to subclause (ii) below) and (ii) any modification,
replacement, refinancing, refunding, renewal or extension of any Indebtedness specified in
subclause (i) above,
provided
that, except to the extent otherwise expressly permitted
hereunder, (x) the principal amount of any such Indebtedness does not exceed the principal amount
thereof outstanding immediately prior to such modification, replacement, refinancing, refunding,
renewal or extension except by an amount equal to the unpaid accrued interest and premium thereon
plus
other reasonable amounts paid and fees and expenses incurred in connection with such
modification, replacement, refinancing, refunding, renewal or extension
plus
an amount
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equal to any existing commitment unutilized and letters of credit undrawn thereunder and (y)
the direct and contingent obligors with respect to such Indebtedness are not changed;
(l) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety bonds and
completion guarantees and similar obligations not in connection with money borrowed, in each case
provided in the ordinary course of business, including those incurred to secure health, safety
and environmental obligations in the ordinary course of business;
(m) (i) Indebtedness incurred in connection with any Permitted Sale Leaseback
(
provided
that the Net Cash Proceeds thereof are promptly applied to the prepayment of
the Term Loans to the extent required by
Section 5.2
) and (ii) any refinancing,
refunding, renewal or extension of any Indebtedness specified in subclause (i) above,
provided
that, except to the extent otherwise permitted hereunder, (x) the principal
amount of any such Indebtedness is not increased above the principal amount thereof outstanding
immediately prior to such refinancing, refunding, renewal or extension and (y) the direct and
contingent obligors with respect to such Indebtedness are not changed;
(n) (i) additional Indebtedness and (ii) any refinancing, refunding, renewal or extension of
any Indebtedness specified in subclause (i) above;
provided
that the aggregate amount of
Indebtedness incurred and remaining outstanding pursuant to this clause (n) shall not at any time
exceed $75,000,000;
provided
,
however
, not more than $25,000,000 in aggregate
principal amount of Indebtedness of the Borrower or any Subsidiary Guarantor incurred under this
clause (n) shall be secured;
(o) Indebtedness in respect of Permitted Additional Debt to the extent that the Net Cash
Proceeds therefrom are, immediately after the receipt thereof, applied to the prepayment of Term
Loans in accordance with
Section 5.2
;
(p) Indebtedness in respect of overdraft facilities, employee credit card programs and other
cash management arrangements in the ordinary course of business;
(q) unsecured Indebtedness in respect of obligations of the Borrower or any Restricted
Subsidiary to pay the deferred purchase price of goods or services or progress payments in
connection with such goods and services,
provided
that such obligations are incurred in
connection with open accounts extended by suppliers on customary trade terms (which require that
all such payments be made within 60 days after the incurrence of the related obligation) in the
ordinary course of business and not in connection with the borrowing of money or Hedge
Agreements;
(r) Indebtedness arising from agreements of the Borrower or any Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar obligations, in each case
entered into in connection with Permitted Acquisitions, other Investments and the disposition of
any business, assets, or Stock and Stock Equivalents permitted hereunder, other than Guarantee
Obligations incurred by any Person acquiring all or any portion of such business, assets or Stock
and Stock Equivalents for the purpose of financing such acquisition,
provided
that (i)
such Indebtedness is not reflected on the balance sheet of the Borrower or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial statements
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and not otherwise reflected on the balance sheet will not be deemed to be reflected on such
balance sheet for purposes of this clause (i)) and (ii) the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds, including non-cash
proceeds (the fair market value of such non-cash proceeds being measured at the time received and
without giving effect to any subsequent changes in value), actually received by the Borrower and
the Restricted Subsidiaries in connection with such disposition;
(s) Indebtedness of the Borrower or any Restricted Subsidiary consisting of (i) obligations
to pay insurance premiums or (ii) take or pay obligations contained in supply agreements, in each
case arising in the ordinary course of business and not in connection with the borrowing of money
or Hedge Agreements;
(t) Indebtedness representing deferred compensation to employees of the Borrower (or any
direct or indirect parent thereof) and the Restricted Subsidiaries incurred in the ordinary
course of business;
(u) Unsecured, subordinated Indebtedness consisting of promissory notes in an aggregate
principal amount of not more than $10,000,000 issued by the Borrower or any Guarantor to current
or former officers, managers, consultants, directors and employees (or their respective spouses,
former spouses, successors, executors, administrators, heirs, legatees or distributees) to
finance the purchase or redemption of Stock or Stock Equivalents of the Borrower (or any direct
or indirect parent thereof) permitted by
Section 10.6
;
(v) Indebtedness consisting of obligations of the Borrower or the Restricted Subsidiaries
under deferred compensation or other similar arrangements incurred by such Person in connection
with the Transactions and Permitted Acquisitions or any other Investment expressly permitted
hereunder;
(w) cash management obligations and other Indebtedness in respect of netting services,
automatic clearinghouse arrangements, overdraft protections and similar arrangements in each case
in connection with deposit accounts; and
(x) all premiums (if any), interest (including post-petition interest), fees, expenses,
charges and additional or contingent interest on obligations described in clauses (a) through (w)
above.
10.2
Limitation on Liens
. The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any property or
assets of any kind (real or personal, tangible or intangible) of the Borrower or any Restricted
Subsidiary, whether now owned or hereafter acquired, except:
(a) Liens arising under the Credit Documents;
(b) Permitted Liens;
(c) (i) Liens securing Indebtedness permitted pursuant to
Section 10.1(f)
,
provided
that (x) such Liens attach at all times only to the assets so financed except
for accessions to such property Indebtedness and the proceeds and the products thereof and (y)
that individual
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financings of equipment provided by one lender may be cross collateralized to other
financings of equipment provided by such lender, and (ii) Liens on the assets of Restricted
Subsidiaries that are not Guarantors securing Indebtedness permitted pursuant to
Section
10.1(n)
and
(p)
;
(d) Liens existing on the date hereof and listed on
Schedule 10.2
;
(e) the replacement, extension or renewal of any Lien permitted by clauses (a) through (d)
above and clause (f) of this
Section 10.2
upon or in the same assets (other than after
acquired property that is affixed or incorporated into the property covered by such Lien or
financed by Indebtedness permitted under
Section 10.1
and proceeds and products thereof)
theretofore subject to such Lien or the replacement, extension or renewal (without increase in
the amount or change in any direct or contingent obligor except to the extent otherwise permitted
hereunder) of the Indebtedness secured thereby;
(f) Liens existing on the assets of any Person that becomes a Restricted Subsidiary (or is a
Restricted Subsidiary that survives a merger with such Person), or existing on assets acquired,
pursuant to a Permitted Acquisition or other Investment to the extent the Liens on such assets
secure Indebtedness permitted by
Section 10.1(j)
or other obligations permitted by this
Agreement,
provided
that such Liens attach at all times only to the same assets that such
Liens (other than after acquired property that is affixed or incorporated into the property
covered by such Lien or financed by Indebtedness permitted under
Section 10.1
and
proceeds and products thereof) attached to, and secure only the same Indebtedness or obligations
(or any modifications, refinancings, extensions, renewals, refundings or replacements of such
Indebtedness permitted by Section 10.1) that such Liens secured, immediately prior to such
Permitted Acquisition or other Investment, as applicable;
(g) (i) Liens placed upon the Stock and Stock Equivalents of any Restricted Subsidiary
acquired pursuant to a Permitted Acquisition to secure Indebtedness incurred pursuant to
Section 10.1(k)
in connection with such Permitted Acquisition and (ii) Liens placed upon
the assets of such Restricted Subsidiary to secure a guarantee by, or Indebtedness of, such
Restricted Subsidiary of any Indebtedness of the Borrower or any other Restricted Subsidiary
incurred pursuant to
Section 10.1(k)
;
(h) Liens securing Indebtedness or other obligations of the Borrower or a Subsidiary in
favor of the Borrower or any Subsidiary that is a Guarantor and Liens securing Indebtedness or
other obligations of any Subsidiary that is not a Guarantor in favor of any Subsidiary that is
not a Guarantor;
(i) Liens (i) of a collection bank arising under
Section 4-210
of the Uniform
Commercial Code on items in the course of collection, (ii) attaching to commodity trading
accounts or other commodities brokerage accounts incurred in the ordinary course of business; and
(iii) in favor of a banking institution arising as a matter of law encumbering deposits
(including the right of set-off) and which are within the general parameters customary in the
banking industry;
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(j) Liens (i) on cash advances in favor of the seller of any property to be acquired in an
Investment permitted pursuant to
Sections 10.5
to be applied against the purchase price
for such Investment, and (ii) consisting of an agreement to sell, transfer, lease or otherwise
dispose of any property in a transaction permitted under
Section 10.4
, in each case,
solely to the extent such Investment or sale, disposition, transfer or lease, as the case may be,
would have been permitted on the date of the creation of such Lien;
(k) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for sale of goods entered into by the Borrower or any of the Restricted Subsidiaries
in the ordinary course of business permitted by this Agreement;
(l) Liens deemed to exist in connection with Investments in repurchase agreements permitted
under
Section 10.5
;
(m) Liens encumbering reasonable customary initial deposits and margin deposits and similar
Liens attaching to commodity trading accounts or other brokerage accounts incurred in the
ordinary course of business and not for speculative purposes;
(n) Liens that are contractual rights of set-off (i) relating to the establishment of
depository relations with banks not given in connection with the issuance of Indebtedness, (ii)
relating to pooled deposit or sweep accounts of the Borrower or any Restricted Subsidiary to
permit satisfaction of overdraft or similar obligations incurred in the ordinary course of
business of the Borrower and the Restricted Subsidiaries or (iii) relating to purchase orders and
other agreements entered into with customers of the Borrower or any Restricted Subsidiary in the
ordinary course of business;
(o) Liens solely on any cash earnest money deposits made by the Borrower or any of the
Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted
hereunder;
(p) Liens on insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto;
(q) subject to the terms of the Intercreditor Agreement, Liens securing obligations under
the Revolving Loan Credit Agreement; and
(r) additional Liens so long as the aggregate principal amount of the obligations so secured
does not exceed $25,000,000 at any time outstanding.
10.3
Limitation on Fundamental Changes
. Except as expressly permitted by
Section
10.4
or
10.5
, the Borrower will not, and will not permit any of the Restricted
Subsidiaries to, enter into any merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all its business units, assets or other
properties, except that:
(a) so long as no Default or Event of Default would result therefrom, any Subsidiary of
the Borrower or any other Person may be merged or consolidated with or into the Borrower,
provided
that (i) the Borrower shall be the continuing or surviving
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corporation or (ii) if the Person formed by or surviving any such merger or
consolidation is not the Borrower (such Person, the
Successor Borrower
), (A) the
Successor Borrower shall be an entity organized or existing under the laws of the United
States, any state thereof, the District of Columbia or any territory thereof, (B) the
Successor Borrower shall expressly assume all the obligations of the Borrower under this
Agreement and the other Credit Documents pursuant to a supplement hereto or thereto in form
reasonably satisfactory to the Administrative Agent, (C) each Guarantor, unless it is the
other party to such merger or consolidation, shall have by a supplement to the Guarantee
confirmed that its Guarantee shall apply to the Successor Borrowers obligations under this
Agreement, (D) each Subsidiary grantor and each Subsidiary pledgor, unless it is the other
party to such merger or consolidation, shall have by a supplement to the Security Agreement
or the Pledge Agreement, as applicable, confirmed that its obligations thereunder shall
apply to the Successor Borrowers obligations under this Agreement, (E) each mortgagor of a
Mortgaged Property, unless it is the other party to such merger or consolidation, shall have
by an amendment to or restatement of the applicable Mortgage confirmed that its obligations
thereunder shall apply to the Successor Borrowers obligations under this Agreement, and (F)
the Borrower shall have delivered to the Administrative Agent (x) an officers certificate
stating that such merger or consolidation and such supplements to this Agreement preserve
the enforceability of the Guarantee and the perfection and priority of the Liens under the
Security Documents and (y) if reasonably requested by the Administrative Agent, an opinion
of counsel to the effect that such merger or consolidation does not violate this Agreement
or any other Credit Document, and
provided
further
that if the foregoing are
satisfied, the Successor Borrower will succeed to, and be substituted for, such Borrower
under this Agreement;
(b) any Subsidiary of the Borrower or any other Person may be merged, amalgamated or
consolidated with or into any one or more Subsidiaries of the Borrower,
provided
that (i) in the case of any merger, amalgamation or consolidation involving one or more
Restricted Subsidiaries, (A) a Restricted Subsidiary shall be the continuing or surviving
corporation or (B) the Borrower shall take all steps necessary to cause the Person formed by
or surviving any such merger, amalgamation or consolidation (if other than a Restricted
Subsidiary) to become a Restricted Subsidiary, (ii) in the case of any merger, amalgamation
or consolidation involving one or more Guarantors, a Guarantor shall be the continuing or
surviving corporation or the Person formed by or surviving any such merger, amalgamation or
consolidation (if other than a Guarantor) shall execute a supplement to the Guarantee
Agreement, Pledge Agreement, the Security Agreement and any applicable Mortgage in form and
substance reasonably satisfactory to the Collateral Agent in order to become a Guarantor
and pledgor, mortgager, and grantor of Collateral for the benefit of the Secured Parties,
(iii) no Default or Event of Default would result from the consummation of such merger,
amalgamation or consolidation, (iv) the Borrower shall be in compliance, on a Pro Forma
Basis after giving effect to such merger, amalgamation or consolidation, with the covenant
set forth in
Section 10.9
, as such covenant is recomputed as at the last day of the
most recently ended Test Period under such Section as if such merger or consolidation had
occurred on the first day of such Test Period, and (v) the Borrower shall have delivered to
the Administrative Agent an officers certificate stating that such merger, amalgamation or
consolidation and such
-78-
supplements to any Security Document preserve the enforceability of the Guarantee and
the perfection and priority of the Liens under the Security Documents;
(c) any Restricted Subsidiary that is not a Guarantor may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Borrower, a Guarantor or any other Restricted Subsidiary;
(d) any Guarantor may sell, lease, transfer or otherwise dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any other Guarantor; and
(e) any Restricted Subsidiary may liquidate or dissolve if (i) the Borrower determines
in good faith that such liquidation or dissolution is in the best interests of the Borrower
and is not materially disadvantageous to the Lenders and (ii) to the extent such Restricted
Subsidiary is a Credit Party, any assets or business not otherwise disposed of or
transferred in accordance with
Section 10.4
or
10.5
, or, in the case of any
such business, discontinued, shall be transferred to, or otherwise owned or conducted by,
another Credit Party after giving effect to such liquidation or dissolution.
10.4
Limitation on Sale of Assets
. The Borrower will not, and will not permit any of
the Restricted Subsidiaries to, (i) convey, sell, lease, assign, transfer or otherwise dispose of
any of its property, business or assets (including receivables and leasehold interests), whether
now owned or hereafter acquired (other than any such sale, transfer, assignment or other
disposition resulting from any casualty or condemnation, of any assets of the Borrower or the
Restricted Subsidiaries) or (ii) sell to any Person (other than the Borrower or a Guarantor) any
shares owned by it of any Restricted Subsidiarys Stock and Stock Equivalents, except that:
(a) the Borrower and the Restricted Subsidiaries may sell, transfer or otherwise
dispose of (i) used or surplus equipment, vehicles, inventory and other assets in the
ordinary course of business and (ii) Permitted Investments;
(b) the Borrower and the Restricted Subsidiaries may sell, transfer or otherwise
dispose of other assets (other than accounts receivable) (each a
Disposition
) for
fair value,
provided
that:
(i) with respect to any Disposition pursuant to this clause (b) for a purchase
price in excess of $5,000,000, the Borrower or a Restricted Subsidiary shall receive
not less than 75% of such consideration in the form of cash or Permitted
Investments;
provided
that for the purposes of this clause (i):
(A) any liabilities (as shown on the Borrowers or such Restricted
Subsidiarys most recent balance sheet provided hereunder or in the
footnotes thereto) of the Borrower or such Restricted Subsidiary, other than
liabilities that are by their terms subordinated to the payment in cash of
the Obligations, that are assumed by the transferee with respect to the
applicable Disposition and for which the Borrower and all of the Restricted
Subsidiaries shall have been validly released by all applicable creditors in
writing,
-79-
(B) any securities received by the Borrower or such Restricted
Subsidiary from such transferee that are converted by the Borrower or such
Restricted Subsidiary into cash (to the extent of the cash received) within
180 days following the closing of the applicable Disposition, and
(C) any Designated Non-Cash Consideration received by the Borrower or
such Restricted Subsidiary in respect of such Disposition having an
aggregate fair market value, taken together with all other Designated
Non-Cash Consideration received pursuant to this
Section 10.4(b)
and
Section 10.4(c)
that is at that time outstanding, not in excess of
6% of Consolidated Total Assets at the time of the receipt of such
Designated Non-Cash Consideration, with the fair market value of each item
of Designated Non-Cash Consideration being measured at the time received and
without giving effect to subsequent changes in value,
shall in each case under this clause (i) be deemed to be cash;
(ii) any non-cash proceeds received are pledged to the Collateral Agent to the
extent required under
Section 9.12
;
(iii) with respect to any such sale, transfer or disposition (or series of
related sales, transfers or dispositions), the Borrower shall be in compliance, on a
Pro Forma Basis after giving effect to such sale, transfer or disposition, with the
covenant set forth in
Section 10.9
, as such covenant is recomputed as at the
last day of the most recently ended Test Period under such Section as if such sale,
transfer or disposition had occurred on the first day of such Test Period; and
(iv) to the extent applicable, the Net Cash Proceeds thereof to the Borrower
and the Restricted Subsidiaries are promptly applied to the prepayment and/or
commitment reductions as provided for in
Section 5.2
; and
(v) after giving effect to any such sale, transfer or disposition, no Default
or Event of Default shall have occurred and be continuing;
(c) the Borrower and the Restricted Subsidiaries may make sales of assets to the
Borrower or to any Restricted Subsidiary,
provided
that with respect to any such
sales to Restricted Subsidiaries that are not Guarantors:
(i) such sale, transfer or disposition shall be for fair value;
(ii) with respect to any Disposition pursuant to this clause (c) for a purchase
price in excess of $5,000,000, the Borrower or a Restricted Subsidiary shall receive
not less than 75% of such consideration in the form of cash or Permitted
Investments;
provided
that for the purposes of this clause (ii):
(A) any liabilities (as shown on the Borrowers or such Restricted
Subsidiarys most recent balance sheet provided hereunder or in the
footnotes thereto) of the Borrower or such Restricted Subsidiary, other
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than liabilities that are by their terms subordinated to the payment in
cash of the Obligations, that are assumed by the transferee with respect to
the applicable Disposition and for which the Borrower and all of the
Restricted Subsidiaries shall have been validly released by all applicable
creditors in writing,
(B) any securities received by the Borrower or such Restricted
Subsidiary from such transferee that are converted by the Borrower or such
Restricted Subsidiary into cash (to the extent of the cash received) within
180 days following the closing of the applicable Disposition,
(C) any Designated Non-Cash Consideration received by the Borrower or
such Restricted Subsidiary in respect of such Disposition having an
aggregate fair market value, taken together with all other Designated
Non-Cash Consideration received pursuant to this
Section 10.4(c)
and
Section 10.4(b)
that is at that time outstanding, not in excess of
6% of Consolidated Total Assets at the time of the receipt of such
Designated Non-Cash Consideration, with the fair market value of each item
of Designated Non-Cash Consideration being measured at the time received and
without giving effect to subsequent changes in value,
shall in each case under this clause (ii) be deemed to be cash; and
(iii) any non-cash proceeds received are pledged to the Collateral Agent to the
extent required under
Section 9.12
.
(d) the Borrower and any Restricted Subsidiary may effect any transaction permitted by
Section 10.3
,
10.5
or
10.6
;
(e) in addition to selling or transferring accounts receivable pursuant to the other
provisions hereof, the Borrower and the Restricted Subsidiaries may sell or discount without
recourse accounts receivable arising in the ordinary course of business in connection with
the compromise or collection thereof consistent with such Persons current credit and
collection practices;
(f) the Borrower and the Restricted Subsidiaries may lease, sublease, license or
sublicense (on a non-exclusive basis with respect to any intellectual property) real,
personal or intellectual property in the ordinary course of business;
(g) sales, transfers and other dispositions of property to the extent that (i) such
property is exchanged for credit against the purchase price of similar replacement property
or (ii) the proceeds of such Disposition are promptly applied to the purchase price of such
replacement property;
(h) sales, transfers and other dispositions of property pursuant to Permitted Sale
Leaseback transactions;
-81-
(i) sales, transfers and other dispositions of Investments in joint ventures to the
extent required by, or made pursuant to customary buy/sell arrangements between, the joint
venture parties set forth in joint venture arrangements and similar binding arrangements;
and
(j) the Disposition of Non-Core Assets.
10.5
Limitation on Investments
. The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, make any advance, loan, extensions of credit or capital contribution
to, or purchase any stock, bonds, notes, debentures or other securities of or any assets of, or
make any other Investment in, any Person, except:
(a) extensions of trade credit and asset purchases in the ordinary course of business;
(b) Permitted Investments;
(c) loans and advances to officers, directors and employees of the Borrower (or any
direct or indirect parent thereof) or any of its Subsidiaries (i) for reasonable and
customary business-related travel, entertainment, relocation and analogous ordinary business
purposes (including employee payroll advances), (ii) in connection with such Persons
purchase of Stock or Stock Equivalents of the Borrower (or any direct or indirect parent
thereof) to the extent that the amount of such loans and advances are contributed to the
Borrower in cash and (iii) for purposes not described in the foregoing clauses (i) and (ii),
in an aggregate principal amount outstanding not to exceed $2,000,000;
(d) Investments existing on, or contemplated as of, the date hereof and listed on
Schedule 10.5
and any extensions, renewals or reinvestments thereof, so long as the
aggregate amount of all Investments pursuant to this clause (d) is not increased at any time
above the amount of such Investments existing on the date hereof;
(e) Investments received in connection with the bankruptcy or reorganization of
suppliers or customers and in settlement of delinquent obligations of, and other disputes
with, customers arising in the ordinary course of business or upon foreclosure with respect
to any secured Investment or other transfer of title with respect to any secured Investment;
(f) Investments to the extent that payment for such Investments is made solely with
Stock or Stock Equivalents of the Borrower;
(g) Investments (i) in any Guarantor or the Borrower, (ii) in Restricted Subsidiaries
that are not Guarantors, in an aggregate amount pursuant to this clause (ii) not to exceed
(x) $25,000,000
plus
(y) the Applicable Amount at such time, and (iii) in Restricted
Subsidiaries that are not Guarantors so long as such Investment is part of a series of
simultaneous Investments by Restricted Subsidiaries in other Restricted Subsidiaries that
result in the proceeds of the initial Investment being invested in one or more Guarantors;
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(h) Investments constituting Permitted Acquisitions;
(i) (i) Investments (including Investments in Unrestricted Subsidiaries) and (ii)
Investments in joint ventures or similar entities that do not constitute Restricted
Subsidiaries, in each case, as valued at the fair market value of such Investment at the
time each such Investment is made, in an amount that, at the time such Investment is made,
would not exceed the sum of (x) $50,000,000,
plus
(y) the Applicable Amount at such
time
plus
(z) an amount equal to any repayments, interest, returns, profits,
distributions, income and similar amounts actually received in cash in respect of any such
Investment (which amount shall not exceed the amount of such Investment valued at the fair
market value of such Investment at the time such Investment was made),
(j) Investments constituting non-cash proceeds of sales, transfers and other
dispositions of assets to the extent permitted by
Section 10.4
;
(k) Investments made to repurchase or retire Stock of the Borrower or any direct or
indirect parent thereof owned by any employee stock ownership plan or key employee stock
ownership plan of the Borrower (or any direct or indirect parent thereof);
(l) Investments permitted under
Section 10.6
;
(m) loans and advance to any direct or indirect parent of the Borrower in lieu of, and
not in excess of the amount of, dividends to the extent permitted to be made to such parent
in accordance with
Section 10.6
;
(n) Investments consisting of extensions of credit in the nature of accounts receivable
or notes receivable arising from the grant of trade credit in the ordinary course of
business, and Investments received in satisfaction or partial satisfaction thereof from
financially troubled account debtors and other credits to suppliers in the ordinary course
of business;
(o) Investments in the ordinary course of business consisting of Article 3 endorsements
for collection or deposit and Article 4 customary trade arrangements with customers
consistent with past practices;
(p) advances of payroll payments to employees in the ordinary course of business;
(q) [Intentionally Omitted]
(r) Guarantee Obligations of the Borrower or any Restricted Subsidiary of leases (other
than Capitalized Leases) or of other obligations that do not constitute Indebtedness, in
each case entered into in the ordinary course of business;
(s) Investments made to repurchase or retire equity interests of the Borrower (or any
direct or indirect parent thereof) or the Borrower owned by any employee stock ownership
plan or key employee stock ownership plan of the Borrower (or any direct or indirect parent
thereof); and
-83-
(t) Investments of a Restricted Subsidiary acquired after the Closing Date or of any
Person merged into the Borrower or merged or consolidated with a Restricted Subsidiary in
accordance with
Section 10.3
after the Closing Date to the extent that such
Investments were not made in contemplation of or in connection with such acquisition, merger
or consolidation and were in existence on the date of such acquisition, merger or
consolidation.
10.6
Limitation on Dividends
. The Borrower will not declare or pay any dividends
(other than dividends payable solely in its Stock) or return any capital to its stockholders or
make any other distribution, payment or delivery of property or cash to its stockholders as such,
or redeem, retire, purchase or otherwise acquire, directly or indirectly, for consideration, any
shares of any class of its Stock or Stock Equivalents or the Stock or Stock Equivalents of any
direct or indirect parent now or hereafter outstanding, or set aside any funds for any of the
foregoing purposes, or permit any of the Restricted Subsidiaries to purchase or otherwise acquire
for consideration (other than in connection with an Investment permitted by
Section 10.5
)
any Stock or Stock Equivalents of the Borrower, now or hereafter outstanding (all of the foregoing
dividends
),
provided
that, so long as no Default or Event of Default exists or
would exist after giving effect thereto:
(a) the Borrower may redeem in whole or in part any of its Stock or Stock Equivalents
for another class of its Stock or Stock Equivalents or with proceeds from substantially
concurrent equity contributions or issuances of new Stock or Stock Equivalents,
provided
that such new Stock or Stock Equivalents contain terms and provisions at
least as advantageous to the Lenders in all respects material to their interests as those
contained in the Stock or Stock Equivalents redeemed thereby;
(b) the Borrower may (or may make dividends to permit any direct or indirect parent
thereof to) repurchase shares of its (or such parents) Stock or Stock Equivalents held by
officers, directors and employees of the Borrower and its Subsidiaries, so long as such
repurchase is pursuant to, and in accordance with the terms of, management and/or employee
stock plans, stock subscription agreements or shareholder agreements;
(c) the Borrower may pay dividends on the Stock or Stock Equivalents,
provided
that
the amount of any such dividends pursuant to this clause (c) shall not exceed
an amount equal to (i) $50,000,000 (less any amount expended pursuant to Section
10.7(a)(i)(x)), plus (ii) the Applicable Amount at such time; and
(d) the Borrower may pay dividends:
(i) so long as the Borrower is a member of a group filing a consolidated,
combined, unitary or affiliated tax return with a parent, the proceeds of which
will be used to pay (or to make dividends to allow any direct or indirect parent of
the Borrower to pay) within 30 days of the receipt thereof, the tax liability to
each relevant jurisdiction in respect of such consolidated, combined, unitary or
affiliated returns for the relevant jurisdiction of such parent
-84-
to the extent such tax liability is directly attributable to the taxable income
of the Borrower or its Subsidiaries (that are included in such consolidated,
combined, unitary or affiliated tax return), determined as if the Borrower and such
Subsidiaries filed a separate consolidated, combined, unitary or affiliated tax
return as a stand-alone group;
(ii) the proceeds of which shall be used to allow any direct or indirect parent
of Borrower to pay (A) its operating expenses incurred in the ordinary course of
business and other corporate overhead costs and expenses (including administrative,
legal, accounting and similar expenses provided by third parties), which are
reasonable and customary and incurred in the ordinary course of business, in an
aggregate amount not to exceed $1,000,000 in any fiscal year of the Borrower plus
any reasonable and customary indemnification claims made by directors or officers of
the Borrower (or any parent thereof) attributable to the ownership or operations of
the Borrower and its Subsidiaries or (B) fees and expenses otherwise (x) due and
payable by the Borrower or any of its Subsidiaries and (y) permitted to be paid by
the Borrower or such Subsidiary under this Agreement;
(iii) the proceeds of which shall be used to pay franchise taxes and other
fees, taxes and expenses required to maintain the corporate existence of any of its
direct or indirect parent of the Borrower, within thirty (30) days of the receipt
thereof;
(iv) in amount equal to the Net Cash Proceeds of any Disposition of Non-Core
Assets for the purposes of complying with the requirements of the Merger Agreement
relating thereto; and
(v) to any direct or indirect parent of the Borrower to finance any Investment
permitted to be made pursuant to
Section 10.5
;
provided
that (A)
such dividend shall be made substantially concurrently with the closing of such
Investment and (B) such parent shall, immediately following the closing thereof,
cause (1) all property acquired (whether assets, Stock or Stock Equivalents) to be
contributed to the Borrower or its Restricted Subsidiaries or (2) the merger (to the
extent permitted in
Section 10.5
) of the Person formed or acquired into the
Borrower or its Restricted Subsidiaries in order to consummate such Permitted
Acquisition.
10.7
Limitations on Debt Payments and Amendments
. (a) The Borrower will not,
and will not permit any Restricted Subsidiary to, prepay, repurchase or redeem or otherwise
defease any Subordinated Indebtedness;
provided
,
however
, that so long as no
Default or Event of Default shall have occurred and be continuing at the date of such prepayment,
repurchase, redemption or other defeasance or would result after giving effect thereof, the
Borrower or any Restricted Subsidiary may prepay, repurchase or redeem Subordinated Indebtedness
(i) for an aggregate price not in excess of (x) $50,000,000 (less any amount expended pursuant to
Section 10.6(c)(i)) plus (y) the Applicable Amount at the time of such prepayment, repurchase or
redemption, or (ii) with the proceeds of Subordinated Indebtedness
-85-
that (A) is permitted by
Section 10.1
(other than
Section 10.1(o)
) and (B)
has terms material to the interests of the Lenders not materially less advantageous to the
Lenders than those of such Subordinated Indebtedness being refinanced.
(b) The Borrower will not waive, amend, modify, terminate or release any Subordinated
Indebtedness to the extent that any such waiver, amendment, modification, termination or release
would be adverse to the Lenders in any material respect.
10.8
Limitations on Sale Leasebacks
. The Borrower will not, and will not permit any
of the Restricted Subsidiaries to, enter into or effect any Sale Leasebacks, other than Permitted
Sale Leasebacks.
10.9
Consolidated Total Debt to Consolidated EBITDA Ratio
The Borrower will not permit the Consolidated Total Debt to Consolidated EBITDA Ratio for any
Test Period ending during any period set forth below to be greater than the ratio set forth below
opposite such period:
|
|
|
Period
|
|
Ratio
|
March 31, 2007
|
|
5.75:1.00
|
June 30, 2007
|
|
5.75:1.00
|
September 30, 2007
|
|
5.75:1.00
|
December 31, 2007
|
|
5.75:1.00
|
March 31, 2008
|
|
5.50:1.00
|
June 30, 2008
|
|
5.50:1.00
|
September 30, 2008
|
|
5.25:1.00
|
December 31, 2008
|
|
5.25:1.00
|
March 31, 2009
|
|
5.00:1.00
|
June 30, 2009
|
|
5.00:1.00
|
September 30, 2009
|
|
4.50:1.00
|
December 31, 2009
|
|
4.50:1.00
|
March 31, 2010
|
|
4.50:1.00
|
June 30, 2010
|
|
4.50:1.00
|
September 30, 2010
|
|
4.00:1.00
|
December 31, 2010
|
|
4.00:1.00
|
March 31, 2011
|
|
4.00:1.00
|
June 30, 2011
|
|
4.00:1.00
|
September 30, 2011
|
|
3.50:1.00
|
December 31, 2011
|
|
3.50:1.00
|
March 31, 2012
|
|
3.50:1.00
|
June 30, 2012
|
|
3.50:1.00
|
September 30, 2012
|
|
3.00:1.00
|
December 31, 2012
|
|
3.00:1.00
|
March 31, 2013
|
|
3.00:1.00
|
June 30, 2013
|
|
3.00:1.00
|
September 30, 2013
|
|
3.00:1.00
|
December 31, 2013
|
|
3.00:1.00
|
-86-
10.10
Consolidated EBITDA to Consolidated Interest Expense Ratio.
The Borrower will not permit the Consolidated EBITDA to Consolidated Interest Expense Ratio
for any Test Period ending during any period set forth below to be less than the ratio set forth
below opposite such period:
|
|
|
Period
|
|
Ratio
|
March 31, 2007
|
|
2.00:1.00
|
June 30, 2007
|
|
2.00:1.00
|
September 30, 2007
|
|
2.00:1.00
|
December 31, 2007
|
|
2.00:1.00
|
March 31, 2008
|
|
2.25:1.00
|
June 30, 2008
|
|
2.25:1.00
|
September 30, 2008
|
|
2.50:1.00
|
December 31, 2008
|
|
2.50:1.00
|
March 31, 2009
|
|
2.50:1.00
|
June 30, 2009
|
|
2.50:1.00
|
September 30, 2009
|
|
2.50:1.00
|
December 31, 2009
|
|
2.50:1.00
|
March 31, 2010
|
|
2.75:1.00
|
June 30, 2010
|
|
2.75:1.00
|
September 30, 2010
|
|
2.75:1.00
|
December 31, 2010
|
|
2.75:1.00
|
March 31, 2011
|
|
3.00:1.00
|
June 30, 2011
|
|
3.00:1.00
|
September 30, 2011
|
|
3.00:1.00
|
December 31, 2011
|
|
3.00:1.00
|
March 31, 2012
|
|
3.25:1.00
|
June 30, 2012
|
|
3.25:1.00
|
September 30, 2012
|
|
3.25:1.00
|
December 31, 2012
|
|
3.25:1.00
|
March 31, 2013
|
|
3.25:1.00
|
June 30, 2013
|
|
3.25:1.00
|
September 30, 2013
|
|
3.25:1.00
|
December 31, 2013
|
|
3.25:1.00
|
10.11
Capital Expenditures:
The Borrower will not, and will not permit any of its Restricted Subsidiaries to, make, or be
committed to make, Capital Expenditures which in the aggregate in any Fiscal Year set forth below
exceed the amount set forth below for such Fiscal Year:
|
|
|
|
|
Fiscal Year
|
|
Amount
|
2007
|
|
$
|
12,000,000
|
|
2008
|
|
$
|
12,000,000
|
|
2009
|
|
$
|
12,000,000
|
|
2010
|
|
$
|
12,000,000
|
|
2011
|
|
$
|
12,000,000
|
|
2012
|
|
$
|
12,000,000
|
|
-87-
The amount of permitted Capital Expenditures set forth above in respect of any Fiscal Year
commencing with Fiscal Year 2008 shall be increased by 100% of the amount of unused permitted
Capital Expenditures for the immediately preceding Fiscal Year (such amount, a
carry-forward
amount
) without giving effect to any carry-forward amount that was added in such preceding
Fiscal Year and assuming any such carry-forward amount is utilized first.
10.12
Changes in Business
. The Borrower and the Subsidiaries, taken as a whole, will
not fundamentally and substantively alter the character of their business, taken as a whole, from
the business conducted by the Borrower and the Subsidiaries, taken as a whole, on the Closing Date
and other business activities incidental or related to any of the foregoing.
10.13
Burdensome Agreements
. The Borrower will not, and will not permit any
Restricted Subsidiary to, enter into or permit to exist any contractual obligation (other than this
Agreement or any other Credit Document) that limits the ability of (a) any Restricted Subsidiary
that is not a Guarantor to make dividends to the Borrower or any Guarantor or (b) the Borrower or
any Subsidiary Guarantor to create, incur, assume or suffer to exist Liens on property of such
Person for the benefit of the Lenders with respect to the Obligations;
provided
that the
foregoing clauses (a) and (b) shall not apply to contractual obligations which (i) (x) exist on the
date hereof and (to the extent not otherwise permitted by this
Section 10.13
) are listed on
Schedule 10.13
and (y) to the extent contractual obligations permitted by clause (x) are
set forth in an agreement evidencing Indebtedness, are set forth in any agreement evidencing any
permitted renewal, extension or refinancing of such Indebtedness so long as such renewal, extension
or refinancing does not expand the scope of such contractual obligation, (ii) are binding on a
Restricted Subsidiary at the time such Restricted Subsidiary first becomes a Restricted Subsidiary
of the Borrower, so long as such contractual obligations were not entered into solely in
contemplation of such Person becoming a Restricted Subsidiary of the Borrower; (iii) represent
Indebtedness of a Restricted Subsidiary of the Borrower which is not a Credit Party which is
permitted by
Section 10.01
, (iv) arise in connection with any Disposition permitted by
Section 10.04
, (v) are customary provisions in joint venture agreements and other similar
agreements applicable to joint ventures permitted under
Section 10.05
and applicable solely
to such joint venture entered into in the ordinary course of business, (vi) are negative pledges
and restrictions on Liens in favor of any holder of Indebtedness permitted under
Section
10.01
but solely to the extent any negative pledge relates to the property financed by or the
subject of such Indebtedness, (vii) are customary restrictions on leases, subleases, licenses or
asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets
subject thereto, (viii) comprise restrictions imposed by any agreement relating to secured
Indebtedness permitted pursuant to
Section 10.01
to the extent that such restrictions apply
only to the property or assets securing such Indebtedness or, in the case of secured Indebtedness
incurred pursuant to
Section 10.01(j)
or
Section 10.01(k)
) only, to the Restricted
Subsidiaries incurring or guaranteeing such Indebtedness, (ix) are customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of the Borrower or any
Restricted Subsidiary, (x) are customary provisions restricting
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assignment of any agreement entered into in the ordinary course of business, (xi) are
restrictions on cash or other deposits imposed by customers under contracts entered into in the
ordinary course of business, and (xii) exist under the Revolving Loan Credit Agreement or any
documentation relating to such debt.
SECTION 11.
Events of Default
Upon the occurrence of any of the following specified events (each an
Event of
Default
):
11.1
Payments
. The Borrower shall (a) default in the payment when due of any
principal of the Loans or (b) default, and such default shall continue for five or more days, in
the payment when due of any interest or stamping fees on the Loans or any Fees or of any other
amounts owing hereunder or under any other Credit Document; or
11.2
Representations, etc
. Any representation, warranty or statement made or deemed
made by any Credit Party herein or in any Security Document or any certificate, statement, report
or other document delivered or required to be delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or deemed made; or
11.3
Covenants
. Any Credit Party shall:
(a) default in the due performance or observance by it of any term, covenant or
agreement contained in
Section 9.1(h)
or
Section 10
; or
(b) default in the due performance or observance by it of any term, covenant or
agreement (other than those referred to in
Section 11.1
or
11.2
or clause
(a) of this
Section 11.3
) contained in this Agreement, any Security Document or the
Fee Letter and such default shall continue unremedied for a period of at least thirty (30)
days after receipt of written notice by the Borrower from the Administrative Agent or the
Required Lenders; or
11.4
Default Under Other Agreements
(a) The Borrower or any of the Restricted
Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the
Obligations) in excess of $15,000,000 in the aggregate, for the Borrower and such Restricted
Subsidiaries, beyond the period of grace, if any, provided in the instrument or agreement under
which such Indebtedness was created or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall occur or condition
exist (other than, with respect to Indebtedness consisting of any Hedge Agreements, termination
events or equivalent events pursuant to the terms of such Hedge Agreements), the effect of which
default or other event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, any such
Indebtedness to become due prior to its stated maturity; or (b) without limiting the provisions
of clause (a) above, any such Indebtedness shall be declared to be due and payable, or required
to be prepaid other than by a regularly scheduled required prepayment or as a mandatory
prepayment (and, with respect to Indebtedness consisting of any Hedge
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Agreements, other than due to a termination event or equivalent event pursuant to the terms
of such Hedge Agreements), prior to the stated maturity thereof; or
11.5
Bankruptcy, etc
. The Borrower or any Specified Subsidiary shall commence a
voluntary case, proceeding or action concerning itself under (a) Title 11 of the United States Code
entitled Bankruptcy, or (b) in the case of any Foreign Subsidiary that is a Specified Subsidiary,
any domestic or foreign law relating to bankruptcy, judicial management, insolvency reorganization
or relief of debtors legislation of its jurisdiction of incorporation, in each case as now or
hereafter in effect, or any successor thereto (collectively, the
Bankruptcy Code
); or an
involuntary case, proceeding or action is commenced against the Borrower or any Specified
Subsidiary and the petition is not controverted within 10 days after commencement of the case,
proceeding or action; or an involuntary case, proceeding or action is commenced against the
Borrower or any Specified Subsidiary and the petition is not dismissed within 60 days after
commencement of the case, proceeding or action; or a custodian (as defined in the Bankruptcy Code),
judicial manager, receiver, receiver manager, trustee or similar person is appointed for, or takes
charge of, all or substantially all of the property of the Borrower or any Specified Subsidiary; or
the Borrower or any Specified Subsidiary commences any other proceeding or action under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the
Borrower or any Specified Subsidiary; or there is commenced against the Borrower or any Specified
Subsidiary any such proceeding or action that remains undismissed for a period of 60 days; or the
Borrower or any Specified Subsidiary is adjudicated insolvent or bankrupt; or any order of relief
or other order approving any such case or proceeding or action is entered; or the Borrower or any
Specified Subsidiary suffers any appointment of any custodian receiver, receiver manager, trustee
or the like for it or any substantial part of its property to continue undischarged or unstayed for
a period of 60 days; or the Borrower or any Specified Subsidiary makes a general assignment for the
benefit of creditors; or any corporate action is taken by the Borrower or any Specified Subsidiary
for the purpose of effecting any of the foregoing; or
11.6
ERISA
. (a) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code; any Plan is or shall have
been terminated or is the subject of termination proceedings under ERISA (including the giving of
written notice thereof); an event shall have occurred or a condition shall exist in either case
entitling the PBGC to terminate any Plan or to appoint a trustee to administer any Plan
(including the giving of written notice thereof); any Plan shall have an accumulated funding
deficiency (whether or not waived); the Borrower or any Subsidiary or any ERISA Affiliate has
incurred or is likely to incur a liability to or on account of a Plan under Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code
(including the giving of written notice thereof); (b) there could result from any event or events
set forth in clause (a) of this
Section 11.6
the imposition of a lien, the granting of a
security interest, or a liability, or the reasonable likelihood of incurring a lien, security
interest or liability; and (c) such lien, security interest or liability will or would be
reasonably likely to have a Material Adverse Effect; or
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11.7
Guarantee
. Any Guarantee provided by any Material Subsidiary or any material
provision thereof shall cease to be in full force or effect or any such Guarantor thereunder or any
Credit Party shall deny or disaffirm in writing any such Guarantors obligations under the
Guarantee (or any of the foregoing shall occur with respect to a Guarantee provided by a Subsidiary
that is not a Material Subsidiary and shall continue unremedied for a period of at least 30
Business Days after receipt of written notice by the Borrower from the Administrative Agent, the
Collateral Agent or the Required Lenders); or
11.8
Pledge Agreement
. The Pledge Agreement pursuant to which the Stock or Stock
Equivalents of any Material Subsidiary is pledged or any material provision thereof shall cease to
be in full force or effect (other than pursuant to the terms hereof or thereof or as a result of
acts or omissions of the Collateral Agent or any Lender) or any pledgor thereunder or any Credit
Party shall deny or disaffirm in writing any pledgors obligations under the Pledge Agreement (or
any of the foregoing shall occur with respect to a pledge of the Stock or Stock Equivalents of a
Subsidiary that is not a Material Subsidiary and shall continue unremedied for a period of at least
30 days after receipt of written notice by the Borrower from the Administrative Agent, the
Collateral Agent or the Required Lenders); or
11.9
Security Agreement
. The Security Agreement pursuant to which the assets of the
Borrower or any Material Subsidiary are pledged as Collateral or any material provision thereof
shall cease to be in full force or effect (other than pursuant to the terms hereof or thereof or as
a result of acts or omissions of the Collateral Agent or any Lender) or any grantor thereunder or
any Credit Party shall deny or disaffirm in writing any grantors obligations under the Security
Agreement (or any of the foregoing shall occur with respect to Collateral provided by a Subsidiary
that is not a Material Subsidiary and shall continue unremedied for a period of at least 30
Business Days after receipt of written notice by the Borrower from the Administrative Agent, the
Collateral Agent or the Required Lenders); or
11.10
Mortgages
. Any Mortgage or any material provision of any Mortgage relating to
any material portion of the Collateral shall cease to be in full force or effect (other than
pursuant to the terms hereof or thereof or as a result of acts or omissions of the Collateral Agent
or any Lender) or any mortgagor thereunder or any Credit Party shall deny or disaffirm in writing
any mortgagors obligations under any Mortgage; or
11.11
Judgments
. One or more judgments or decrees shall be entered against the
Borrower or any of the Restricted Subsidiaries involving a liability of $15,000,000 or more in the
aggregate for all such judgments and decrees for the Borrower and the Restricted Subsidiaries (to
the extent not paid or fully covered by insurance provided by a carrier not disputing coverage) and
any such judgments or decrees shall not have been satisfied, vacated, discharged or stayed or
bonded pending appeal within 60 days from the entry thereof; or
11.12
Change of Control
. A Change of Control shall occur; or
11.13
Subordination
. The subordination provisions of any document or instrument
evidencing any Permitted Additional Debt having a principal amount in excess of $15,000,000 that
are subordinated shall be invalidated or otherwise cease to be legal, valid and binding
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obligations of the holders of such Permitted Additional Debt, enforceable in accordance with
their terms;
then, (1) upon the occurrence of any Event of Default described in Section 11.5,
automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or
with the consent of) Required Lenders, upon notice to the Borrower by Administrative Agent, (A)
each of the following shall immediately become due and payable, in each case without presentment,
demand, protest or other requirements of any kind, all of which are hereby expressly waived by each
Credit Party: (I) first to the unpaid principal amount of and accrued interest on the Loans, and
(II) then to all other Obligations; (B) Administrative Agent may cause Collateral Agent to enforce
any and all Liens and security interests created pursuant to Security Documents.
SECTION 12.
Investors Right to Cure
. Notwithstanding anything to the contrary
contained in
Section 11.3(a)
, in the event that the Borrower fails to comply with the
requirement of the covenant set forth in
Section 10.9
, until the expiration of the tenth
day after the date on which
Section 9.1
Financials with respect to the Test Period in which
the covenant set forth in such Section is being measured are required to be delivered pursuant to
Section 9.1
, any of the Investors shall have the right to make a direct or indirect equity
investment in the Borrower or any Restricted Subsidiary in cash (the
Cure Right
), and
upon the receipt by such Person of net cash proceeds pursuant to the exercise of the Cure Right
(including through the capital contribution of any such Net Cash proceeds to such person, the
Cure Amount
), the covenant set forth in such Section shall be recalculated, giving effect
to a pro forma increase to Consolidated EBITDA for such Test Period in an amount equal to such net
cash proceeds;
provided
that such pro forma adjustment to Consolidated EBITDA shall be
given solely for the purpose of determining the existence of a Default or an Event of Default under
the covenant set forth in such Section with respect to any Test Period that includes the fiscal
quarter for which such Cure Right was exercised and not for any other purpose under any Credit
Document.
If, after the exercise of the Cure Right and the recalculations pursuant to the preceding
paragraph, the Borrower shall then be in compliance with the requirements of the covenant set forth
in
Section 10.9
during such Test Period (including for purposes of
Section 7.1
),
the Borrower shall be deemed to have satisfied the requirements of such covenant as of the relevant
date of determination with the same effect as though there had been no failure to comply therewith
at such date, and the applicable Default or Event of Default under
Section 11.3
that had
occurred shall be deemed cured;
provided
that (i) in each Test Period there shall be at
least one fiscal quarter in which no Cure Right is exercised and (ii) with respect to any exercise
of the Cure Right, the Cure Amount shall be no greater than the amount required to cause the
Borrower to be in compliance with the covenant set forth in
Section 10.9
.
SECTION 13.
The Administrative Agent
13.1
Appointment
. (a) Each Lender hereby irrevocably designates and appoints
the Administrative Agent as the agent of such Lender under this Agreement and the other Credit
Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such
capacity, to take such action on its behalf under the provisions of this Agreement and the other
Credit Documents and to exercise such powers and perform such duties as are expressly
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delegated to the Administrative Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not
have any duties or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Credit Document or
otherwise exist against the Administrative Agent. The provisions of this Section 13 are solely
for the benefit of the Agents, any sub-agent and the Lenders and no Credit Party shall have any
rights as a third party beneficiary of any of the provisions hereof. In performing its functions
and duties hereunder, each Agent shall act solely as an agent of Lenders and does not assume and
shall not be deemed to have assumed any obligation towards or relationship of agency or trust
with or for Borrower or any of its Subsidiaries.
(b) The Administrative Agent and each Lender hereby irrevocably designate and appoint the
Collateral Agent as its agent under this Agreement and the other Credit Documents, and the
Administrative Agent and each Lender irrevocably authorize the Collateral Agent, in such
capacity, (i) to take such action on their behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as are expressly
delegated to the Collateral Agent by the terms of this Agreement and the other Credit Documents,
together with such other powers as are reasonably incidental thereto and (ii) to enter into any
and all of the Security Documents (including, for the avoidance of doubt, the Intercreditor
Agreement) together with such other documents as shall be necessary to give effect to (x) the
ranking and priority of Indebtedness contemplated by the Intercreditor Agreement and (y) the
Collateral contemplated by the other Security Documents, on its behalf. For the avoidance of
doubt, each Lender agrees to be bound by the terms of the Intercreditor Agreement to the same
extent as if it were a party thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Collateral Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with the Administrative Agent, and no
implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Credit Document or otherwise exist against the Collateral Agent.
(c) The Syndication Agent, in its capacity as such, shall not have any obligations, duties
or responsibilities under this Agreement but shall be entitled to all benefits of this
Section 13
.
13.2
Delegation of Duties
. Administrative Agent may perform any and all of its duties
and exercise its rights and powers under this Agreement or under any other Credit Document by or
through any one or more sub-agents appointed by Administrative Agent. 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 Affiliates. The exculpatory, indemnification and other provisions of this
Section 13.2 and of Section 13.7 shall apply to any of the Affiliates of Administrative 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
.
All of the rights,
benefits, and privileges (including the exculpatory and indemnification provisions) of this Section
13 and Section 14.5 shall apply to any such sub-agent and to the
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Affiliates of any such sub-agent, and shall apply to their respective activities as sub-agent
as if such sub-agent and Affiliates were named herein. Notwithstanding anything herein to the
contrary, with respect to each sub-agent appointed by the Administrative Agent, (i) such sub-agent
shall be a third party beneficiary under this Agreement with respect to all such rights, benefits
and privileges (including exculpatory rights and rights to indemnification) and shall have all of
the rights and benefits of a third party beneficiary, including an independent right of action to
enforce such rights, benefits and privileges (including exculpatory rights and rights to
indemnification) directly, without the consent or joinder of any other Person, against any or all
of the Credit Parties and the Lenders, (ii) such rights, benefits and privileges (including
exculpatory rights and rights to indemnification) shall not be modified or amended without the
consent of such sub-agent, and (iii) such sub-agent shall only have obligations to Administrative
Agent and not to any Credit Party, Lender or any other Person and no Credit Party, Lender or any
other Person shall have any rights, directly or indirectly, as a third party beneficiary or
otherwise, against such sub-agent
.
13.3
General Immunity
. (a)
No Responsibility for Certain Matters
. No Agent
shall be responsible to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency hereof or any other Credit Document or for any
representations, warranties, recitals or statements made herein or therein or made in any written
or oral statements or in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by any Agent to Lenders or by or on behalf of any Credit
Party, or for the financial condition or business affairs of any Credit Party or any other Person
liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions, provisions, covenants or
agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans
or as to the existence or possible existence of any Event of Default or Default or to make any
disclosures with respect to the foregoing other than to the extent required under this Agreement.
Anything contained herein to the contrary notwithstanding, Administrative Agent shall not have any
liability arising from confirmations of the amount of outstanding Loans or the component amount
thereof.
(b)
Exculpatory Provisions
. No Agent nor any of its officers, partners, directors,
employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under
or in connection with any of the Credit Documents except to the extent caused by such Agents gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the
taking of any action (including the failure to take an action) in connection herewith or any of the
other Credit Documents or from the exercise of any power, discretion or authority vested in it
hereunder or thereunder unless and until such Agent shall have received instructions in respect
thereof from Required Lenders (or such other Lenders as may be required to give such instructions
under Section 14.1) and, upon receipt of such instructions from Required Lenders (or such other
Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain
from acting, or to exercise such power, discretion or authority, in accordance with such
instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any communication, instrument or
document believed by it to be genuine and correct and to have been signed or sent by the proper
Person or Persons and shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Borrower and its Subsidiaries),
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accountants, experts and other professional advisors selected by it; and (ii) no Lender shall
have any right of action whatsoever against any Agent as a result of such Agent acting or (where so
instructed) refraining from acting hereunder or any of the other Credit Documents in accordance
with the instructions of Required Lenders (or such other Lenders as may be required to give such
instructions under Section 14.1)
13.4
Reliance by Agents
. The Administrative Agent and the Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts selected by the
Administrative Agent or the Collateral Agent. The Administrative Agent may deem and treat the
Lender specified in the Register with respect to any amount owing hereunder as the owner thereof
for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have
been filed with the Administrative Agent. The Administrative Agent and the Collateral Agent shall
be fully justified in failing or refusing to take any action under this Agreement or any other
Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as
it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against
any and all liability and expense that may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent and the Collateral Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future
holders of the Loans.
13.5
Notice of Default
. Neither the Administrative Agent nor the Collateral Agent
shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a notice of default.
In the event that the Administrative Agent receives such a notice, it shall give notice thereof to
the Lenders. The Administrative Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders,
provided
that unless
and until the Administrative Agent shall have received such directions, the Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the best interests of the
Lenders (except to the extent that this Agreement requires that such action be taken only with the
approval of the Required Lenders or each of the Lenders, as applicable).
13.6
Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders
. Each
Lender expressly acknowledges that neither the Administrative Agent nor the Collateral Agent nor
any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the Administrative Agent or the
Collateral Agent hereinafter taken, including any review of the affairs of the Borrower, any
Guarantor or any other Credit Party, shall be deemed to constitute any representation or warranty
by the Administrative Agent or the Collateral Agent to any Lender. Each Lender represents to the
Administrative Agent and the Collateral Agent that it has, independently and without reliance
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upon the Administrative Agent, the Collateral Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other condition and
creditworthiness of the Borrower, any Guarantor and any other Credit Party and made its own
decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent, the Collateral
Agent 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 analysis, appraisals and decisions in taking or not
taking action under this Agreement and the other Credit Documents, and to make such investigation
as it deems necessary to inform itself as to the business, operations, property, financial and
other condition and creditworthiness of the Borrower, any Guarantor and any other Credit Party.
Except for notices, reports and other documents expressly required to be furnished to the Lenders
by the Administrative Agent hereunder, neither the Administrative Agent nor the Collateral Agent
shall have any duty or responsibility to provide any Lender with any credit or other information
concerning the business, assets, operations, properties, financial condition, prospects or
creditworthiness of the Borrower, any Guarantor or any other Credit Party that may come into the
possession of the Administrative Agent or the Collateral Agent any of their respective officers,
directors, employees, agents, attorneys-in-fact or Affiliate. Notwithstanding anything herein to
the contrary, each Lender acknowledges that the lien and security interest granted to the
Collateral Agent pursuant to the Security Agreement or other applicable Security Document, and the
exercise of any right or remedy by the Collateral Agent thereunder, are subject to the provisions
of the Intercreditor Agreement and that in the event of any conflict between the terms of the
Intercreditor Agreement and such Security Document, the terms of the Intercreditor Agreement shall
govern and control.
13.7
Indemnification
. The Lenders agree to indemnify the Administrative Agent and the
Collateral Agent and any sub-agent thereof, each in its capacity as such (to the extent not
reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably
according to their respective portions of the Total Credit Exposure in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance
with their respective portions of the Total Credit Exposure in effect immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs (including legal fees and costs), expenses or disbursements of any kind
whatsoever that may at any time (including at any time following the payment of the Loans) be
imposed on, incurred by or asserted against the Administrative Agent or the Collateral Agent or
such sub-agent in any way relating to or arising out of, the Commitments, this Agreement, any of
the other Credit Documents or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by the Administrative
Agent or the Collateral Agent or such sub-agent under or in connection with any of the foregoing,
provided
that no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agents or the Collateral Agents or such
sub-agents gross negligence or willful misconduct. The agreements in this Section 13.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
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13.8
Agents in their Individual Capacity
. The agency hereby created shall in no way
impair or affect any of the rights and powers of, or impose any duties or obligations upon, any
Agent or any sub-agent thereof in its individual capacity as a Lender hereunder. With respect to
its participation in the Loans and the Letters of Credit, each Agent and any sub-agent thereof
shall have the same rights and powers hereunder as any other Lender and may exercise the same as if
it were not performing the duties and functions delegated to it hereunder, and the term Lender
shall, unless the context clearly otherwise indicates, include each Agent or any sub-agent thereof
in its individual capacity. Any Agent or any sub-agent thereof and its respective Affiliates may
accept deposits from, lend money to, own securities of, and generally engage in any kind of
banking, trust, financial advisory or other business with Borrower or any of its Affiliates as if
it were not performing the duties specified herein, and may accept fees and other consideration
from the Borrower for services in connection herewith and otherwise without having to account for
the same to Lenders.
13.9
Successor Agents
. The Administrative Agent may resign as Administrative Agent
and the Collateral Agent may resign as Collateral Agent upon 20 days prior written notice to the
Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent or the
Collateral Agent shall resign as Collateral Agent under this Agreement and the other Credit
Documents, then the Required Lenders shall appoint from among the Lenders a successor
Administrative Agent or successor Collateral Agent, as applicable, which successor agent in each
case, shall be approved by the Borrower (which approval shall not be unreasonably withheld) so long
as no Default or Event of Default is continuing, whereupon such successor agent shall succeed to
the rights, powers and duties of the Administrative Agent or the Collateral Agent, as the case may
be, and the term Administrative Agent or Collateral Agent, as the case may be, shall mean such
successor agent effective upon such appointment and approval, and the former Administrative Agents
or Collateral Agents rights, powers and duties as Administrative Agent or Collateral Agent, as the
case may be, shall be terminated, without any other or further act or deed on the part of such
former Administrative Agent or Collateral Agent, as the case may be, or any of the parties to this
Agreement or any holders of the Loans. After any retiring Administrative Agents or Collateral
Agents resignation as Administrative Agent or Collateral Agent, as the case may be, the provisions
of this
Section 13
shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent or Collateral Agent under this Agreement and the
other Credit Documents.
13.10
Withholding Tax
. To the extent required by any applicable law, the
Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to
any applicable withholding tax. If the Internal Revenue Service or any authority of the United
States or other jurisdiction
asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid
to or for the account of any Lender (because the appropriate form was not delivered, was not
properly executed, or because such Lender failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason), such Lender shall indemnify the Administrative Agent (to the extent that the
Administrative Agent has not already been reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) fully for all amounts paid, directly or indirectly, by the
Administrative Agent as tax or otherwise, including penalties and interest, together with all
expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.
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13.11
REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS
. By signing this
Agreement, each Lender:
(a) is deemed to have requested that the Agents furnish such Lender, promptly after it
becomes available, (i) a copy of all financial statements to be delivered by the Borrower
hereunder, (ii) a copy of any notice of Default or Event of Default received by such Agent
and (iii) a copy of each Report;
(b) expressly agrees and acknowledges that no Agent (i) makes any representation or
warranty as to the accuracy of any Report, or (ii) shall be liable for any information
contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that the Agent or other party performing any audit or examination will inspect
only specific information regarding the Borrower and will rely significantly upon the
Borrowers books and records, as well as on representations of the Borrowers personnel;
(d) agrees to keep all Reports confidential in accordance with
Section 14.16
;
and
without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold the Agents and any such other Person or Lender preparing a Report
harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may
reach or draw from any Report in connection with any loans or other credit accommodations that the
indemnifying Lender has made or may make to the Borrower, or the indemnifying Lenders
participation in, or the indemnifying Lenders purchase of, a loan or loans of the Borrower; and
(ii) to pay and protect, and indemnify, defend, and hold the Agents and any such other Person or
Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages,
costs, expenses, and other amounts (including reasonable costs of counsel) incurred by the Agents
and any such other Lender preparing a Report as the direct or
indirect result of any third parties who might obtain all or part of any Report through the
indemnifying Lender.
SECTION 14.
Miscellaneous
14.1
Amendments and Waivers
. Neither this Agreement nor any other Credit Document,
nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with
the provisions of this
Section 14.1
. The Required Lenders may, or, with the written
consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into
with the relevant Credit Party or Credit Parties written amendments, supplements or modifications
hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement
or the other Credit Documents or changing in any manner the rights of the Lenders or of the Credit
Parties hereunder or thereunder or (b) waive, on such terms and
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conditions as the Required Lenders
or the Administrative Agent, as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Credit Documents or any Default or Event of Default and
its consequences;
provided
,
however
, that no such waiver and no such amendment,
supplement or modification shall directly (i) forgive or reduce any portion of any Loan or any
Repayment Amount or extend the final scheduled maturity date of any Loan or extend any scheduled
Repayment Date for any Loan or reduce the stated rate (it being understood that any change to the
definitions of Consolidated Total Debt to Consolidated EBITDA Ratio or in the component definitions
thereof shall not constitute a reduction in the rate and only the consent of the Required Lenders
shall be necessary to waive any obligation of the Borrower to pay interest at the default rate or
amend
Section 2.8(c)
), or forgive any portion, or extend the date for the payment, of any
interest or fee payable hereunder (other than as a result of waiving the applicability of any
post-default increase in interest rates), or extend the final expiration date of any Lenders
Commitment, or increase the aggregate amount of the Commitments of any Lender, or amend or modify
any provisions of
Section 5.3(a)
(with respect to the ratable allocation of any payments
only),
2.4
(with respect to the ratable disbursement of funds) and
14.8(a)
, in each
case without the written consent of each Lender directly and adversely affected thereby, or (ii)
amend, modify or waive any provision of this
Section 14.1
or reduce the percentages
specified in the definitions of the term Required Lenders or consent to the assignment or
transfer by the Borrower of its rights and obligations under any Credit Document to which it is a
party (except as permitted pursuant to
Section 10.3
), in each case without the written
consent of each Lender directly and adversely affected thereby, or (iii) amend, modify or waive any
provision of
Section 13
without the written consent of the then-current Administrative
Agent, or, (iv) release all or substantially all of the Guarantors under the Guarantee (except as
expressly permitted by the Guarantee) or release all or substantially all of the Collateral under
the Security Agreement or the Pledge Agreement without the prior written consent of each Lender, or
(v) amend
Section 2.9
so as to permit Interest Period intervals greater than six months
without regard to availability to Lenders, without the written consent of each Lender directly and
adversely affected thereby; or (vi) amend, modify or waive any provisions hereof relating to the
Administrative Agent in a manner that directly and adversely affects it rights and obligations
hereunder without the written consent of the Administrative Agent; or (x) amend, modify or waive
any provisions hereof relating to the Collateral Agent in a manner that directly and adversely
affects it rights and obligations hereunder without the written consent of the Collateral
Agent. Any such waiver and any such amendment, supplement or modification shall apply equally
to each of the affected Lenders and shall be binding upon the Borrower, such Lenders, the
Administrative Agent and all future holders of the affected Loans. In the case of any waiver, the
Borrower, the Lenders and the Administrative Agent shall be restored to their former positions and
rights hereunder and under the other Credit Documents, and any Default or Event of Default waived
shall be deemed to be cured and not continuing, it being understood that no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any right consequent
thereon.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of
such Lender may not be increased or extended without the consent of such Lender (it being
understood that any Commitments or Loans held or deemed held by any Defaulting Lender shall be
excluded for a vote of the Lenders hereunder requiring any consent of the Lenders).
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Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with
the written consent of the Required Lenders, the Administrative Agent and the Borrower (a) to add
one or more additional credit facilities to this Agreement and to permit the extensions of credit
from time to time outstanding thereunder and the accrued interest and fees in respect thereof to
share ratably in the benefits of this Agreement and the other Credit Documents with the Term Loans
and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders
holding such credit facilities in any determination of the Required Lenders and other definitions
related to such new Term Loans.
In addition, notwithstanding the foregoing, this Agreement may be amended with the written
consent of the Administrative Agent, the Borrower and the Lenders providing the relevant
Replacement Term Loans (as defined below) to permit the refinancing of all outstanding Term Loans
(
Refinanced Term Loans
) with a replacement term loan tranche (
Replacement Term
Loans
) hereunder;
provided
that (a) the aggregate principal amount of such Replacement
Term Loans shall not exceed the aggregate principal amount of such Refinanced Term Loans, (b) the
Applicable Margin for such Replacement Term Loans shall not be higher than the Applicable Margin
for such Refinanced Term Loans, (c) the weighted average life to maturity of such Replacement Term
Loans shall not be shorter than the weighted average life to maturity of such Refinanced Term Loans
at the time of such refinancing (except to the extent of nominal amortization for periods where
amortization has been eliminated as a result of prepayment of the applicable Term Loans) and (d)
all other terms applicable to such Replacement Term Loans shall be substantially identical to, or
less favorable to the Lenders providing such Replacement Term Loans than those applicable to such
Refinanced Term Loans, except to the extent necessary to provide for covenants and other terms
applicable to any period after the latest final maturity of the Term Loans in effect immediately
prior to such refinancing.
14.2
Notices
. Unless otherwise expressly provided herein, all notices and other
communications provided for hereunder or under any other Credit Document shall be in writing
(including by facsimile transmission). All such written notices shall be mailed, faxed or
delivered to the
applicable address, facsimile number or electronic mail address, and all notices and other
communications expressly permitted hereunder to be given by telephone shall be made to the
applicable telephone number, as follows:
(a) if to the Borrower or the Administrative Agent, to the address, facsimile number,
electronic mail address or telephone number specified for such Person on
Schedule
14.2
or to such other address, facsimile number, electronic mail address or telephone
number as shall be designated by such party in a notice to the other parties; and
(b) if to any other Lender, to the address, facsimile number, electronic mail address
or telephone number specified in its Administrative Questionnaire or to such other address,
facsimile number, electronic mail address or telephone number as shall be designated by such
party in a notice to the Borrower or the Administrative Agent.
All such notices and other communications shall be deemed to be given or made upon the earlier to
occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by
courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail,
three (3) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile,
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when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail,
when delivered;
provided
that notices and other communications to the Administrative Agent
or the Lenders pursuant to Sections 2.3, 2.6, 2.9, and 5.1 shall not be effective until received.
14.3
No Waiver; Cumulative Remedies
. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent, the Collateral Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
14.4
Survival of Representations and Warranties
. All representations and warranties
made hereunder, in the other Credit Documents and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the making of the Loans hereunder.
14.5
Payment of Expenses and Taxes
. The Borrower agrees (a) to pay or reimburse the
Agents for all their reasonable and documented out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Credit Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including the reasonable fees, disbursements and other charges of
Latham & Watkins LLP, one local counsel in each relevant local jurisdiction and such
additional counsel to the extent consented to by the Borrower, (b) to pay or reimburse each
Lender, and Agent for all its reasonable and documented costs and expenses incurred in connection
with the enforcement or preservation of any rights under this Agreement, the other Credit Documents
and any such other documents, including the reasonable fees, disbursements and other charges of one
counsel to the Administrative Agent, Collateral Agent and the other Agents (unless there is an
actual or perceived conflict of interest in which case each such Person may retain its own
counsel), (c) to pay, indemnify, and hold harmless each Lender, and Agent from, any and all
recording and filing fees and (d) to pay, indemnify, and hold harmless each Lender, and Agent and
their respective directors, officers, employees, trustees, investment advisors and agents from and
against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever, including reasonable and
documented fees, disbursements and other charges of one primary counsel and one local counsel in
each relevant jurisdiction to such indemnified Persons (unless there is an actual or perceived
conflict of interest or the availability of different claims or defenses in which case each such
Person may retain its own counsel), related to the Transactions or with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the other Credit Documents
and any such other documents, including, without limitation, any of the foregoing relating to the
violation of, noncompliance with or liability under, any Environmental Law or to any actual or
alleged presence, release or threatened release of Hazardous Materials or any other Environmental
Claims involving or attributable to the operations of the Borrower, any of its Subsidiaries or any
of the Real Estate (all the foregoing in this clause (d), collectively, the
indemnified
liabilities
),
provided
that the Borrower shall have no obligation hereunder to the
Administrative Agent or any Lender nor any of their Related
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Parties with respect to indemnified
liabilities to the extent attributable to the bad faith, gross negligence or willful misconduct of,
or material breach of the Credit Documents by, the party to be indemnified or any of its Related
Parties. All amounts payable under this Section 14.5 shall be paid within ten (10) Business Days
of receipt by the Borrower of an invoice relating thereto setting forth such expense in reasonable
detail. No Person indemnified under this Section 14.5 shall be liable for any special, indirect,
consequential or punitive damages relating to this Agreement or any other Credit Document or
arising out of its activities in connection herewith or therewith. The agreements in this Section
14.5 shall survive repayment of the Loans and all other amounts payable hereunder
14.6
Successors and Assigns; Participations and Assignments
. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that (i) the Borrower may
not assign or otherwise transfer any of its rights or obligations hereunder without the prior
written consent of each Lender (and any attempted assignment or transfer by the Borrower or
without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer
its rights or obligations hereunder except in accordance with this
Section 14.6
. 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 paragraph (c) of this
Section 14.6
), pledges to the extent
provided in paragraph (d) of this Section 14.6 and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent,
and the Lenders) any legal or equitable right, remedy or claim under or by reason of this
Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any
Lender may 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 Commitments and
the Loans at the time owing to it) with the prior written consent of:
(A) the Borrower (which consent shall not be unreasonably withheld or
delayed;
provided
that it being understood that, without limitation,
the Borrower shall have the right to withhold its consent to any assignment
if, in order for such assignment to comply with applicable law, the Borrower
would be required to obtain the consent of, or make any filing or
registration with, any Governmental Authority),
provided
that no
consent of the Borrower shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund (unless increased costs would result
therefrom at any time when no Event of Default under
Section 11.1
or
Section 11.5
is continuing) or, if an Event of Default under
Section 11.1
or
Section 11.5
has occurred and is continuing,
any other assignee;
(B) the Administrative Agent (which consent shall not be unreasonably
withheld or delayed;
provided
that no consent of the Administrative
Agent shall be required for an assignment to a Lender, an Affiliate of a
Lender, an Approved Fund), or, in the case of assignments in connection with
the initial syndication of Commitments and Loans only, the Co-Lead
Arrangers.
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(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an Affiliate of a
Lender or an Approved Fund or an assignment of the entire remaining amount
of the assigning Lenders Commitment or Loans, or assignments in connection
with the initial syndication of Commitments and Loans (in amounts, and to
such Persons, as previously agreed between the Borrower and the Co-Lead
Arrangers), the amount of the Commitment or Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $1,000,000, and increments of
$1,000,000 in excess thereof, unless each of the Borrower and the
Administrative Agent otherwise consents (which consents shall not be
unreasonably withheld or delayed),
provided
that
no such
consent of the Borrower shall be required if an Event of Default under
Section 11.1
or
Section 11.5
has occurred and is continuing;
provided
,
further
, that contemporaneous assignments to
a single assignee made by Affiliates of Lenders and related Approved Funds
or by a single assignor made to Affiliates or related Approved Funds shall
be aggregated for purposes of meeting the minimum assignment amount
requirements stated above;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lenders rights and obligations
under this Agreement,
provided
that this clause shall not be
construed to prohibit the assignment of a proportionate part of all the
assigning Lenders rights and obligations in respect of one Class of
Commitments or Loans;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500,
provided
that only one
such fee shall be payable in the event of simultaneous assignments to or
from two or more Approved Funds; and
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an administrative questionnaire in a form approved by
the Administrative Agent (the
Administrative Questionnaire
).
For the purpose of this
Section 14.6(b)
, the term Approved Fund means
any Person (other than a natural person) that is engaged in making, purchasing,
holding or investing in bank loans and similar extensions of credit in the ordinary
course and that is administered, advised or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that
administers, advises or manages a Lender.
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(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(v)
of this
Section 14.6
, from and after the effective date specified in each
Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance, 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
Acceptance, be released from its obligations under this Agreement (and, in the case
of an Assignment and Acceptance covering all of the assigning Lenders rights and
obligations under this Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of
Sections 2.10, 2.11, 5.4
and
14.5
). Any assignment or transfer by a Lender of rights or obligations
under this Agreement that does not comply with this
Section 14.6
shall be
treated for purposes of this Agreement as a sale by such Lender of a participation
in such rights and obligations in accordance with paragraph (c) of this
Section
14.6
.
(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower shall maintain at the Administrative Agents Office a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitments of, and principal amount
of the Loans, each Lender pursuant to the terms hereof from time to time (the
Register
). Further, the Register shall contain the name and address of
the Administrative Agent and the lending office through which each such Person acts
under this Agreement. 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. The Register shall
be available for inspection by the Borrower or any Lender (with respect to any entry
relating to such Lenders Loans) at any reasonable time and from time to time upon
reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Acceptance executed by
an assigning Lender and an assignee, the assignees completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this
Section 14.6
and any written consent to such assignment required by paragraph (b) of this
Section 14.
6, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register.
(c) (i) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(each, a
Participant
) in all or a portion of such Lenders
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rights and
obligations under this Agreement (including all or a portion of its Commitments and
the Loans owing to it),
provided
that (A) such Lenders obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations and
(C) the Borrower, the Administrative Agent, and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lenders rights
and obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain the
sole right to enforce this Agreement and to approve any amendment, modification or
waiver of any provision of this Agreement or any other Credit Document,
provided
that such agreement or instrument may provide that such Lender will
not, without the consent of the Participant, agree to any amendment, modification or
waiver described in the first proviso to
Section 14.1
under subsections (i)
and (iv) that affects such Participant. Subject to paragraph (c)(ii) of this
Section 14.6
, the Borrower agrees that each Participant shall be entitled to
the benefits of
Sections 2.10
,
2.11
and
5.4
to the same
extent as if it were a Lender (subject to the requirements of those Sections) and
had acquired its interest by assignment pursuant to paragraph (b) of this
Section 14.6
. To the extent permitted by law, each Participant also shall
be entitled to the benefits of
Section 14.8(b)
as though it were a Lender,
provided such Participant agrees to be subject to
Section 14.8(a)
as though
it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment under
Section 2.10 or 5.4
than the applicable Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the sale
of the participation to such Participant is made with the Borrowers prior written
consent (which consent shall not be unreasonably withheld).
(d) Any Lender may, without the consent of the Borrower or the Administrative Agent, at any
time pledge or assign a security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this
Section 14.6
shall not apply to any such
pledge or assignment of a security interest,
provided
that no such pledge or assignment
of a security interest shall release a Lender from any of its obligations hereunder or substitute
any such pledgee or assignee for such Lender as a party hereto. In order to facilitate such
pledge or assignment, the Borrower hereby agrees that, upon request of any Lender at any time and
from time to time after the Borrower has made its initial borrowing hereunder, the Borrower shall
provide to such Lender, at the Borrowers own expense, a promissory note, substantially in the
form of
Exhibit L
evidencing the Term Loans, respectively, owing to such Lender.
(e) Subject to
Section 14.16
, the Borrower authorizes each Lender to disclose to any
Participant, secured creditor of such Lender or assignee (each, a
Transferee
) and any
prospective Transferee any and all financial information in such Lenders possession concerning
the Borrower and its Affiliates that has been delivered to such Lender by or on behalf of the
Borrower and its Affiliates pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower and its Affiliates in connection with such Lenders credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement.
14.7
Replacements of Lenders under Certain Circumstances
. (a) The Borrower
shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing
pursuant to
Section 2.10, 3.5
or
5.4
, (b) is affected in the manner described in
Section 2.10(a)(iii)
and as a result thereof any of the actions described in such Section
is required to be taken or (c)
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becomes a Defaulting Lender, with a replacement bank or other
financial institution,
provided
that (i) such replacement does not conflict with any
Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of
such replacement, (iii) the Borrower shall repay (or the replacement bank or institution shall
purchase, at par) all Loans and other amounts (other than any disputed amounts), pursuant to
Section 2.10, 2.11
or
5.4
, as the case may be) owing to such replaced Lender
prior to the date of replacement, (iv) the replacement bank or institution, if not already a
Lender, and the terms and conditions of such replacement, shall be reasonably satisfactory to the
Administrative Agent, (v) the replaced Lender shall be obligated to make such replacement in
accordance with the provisions of
Section 14.6
(
provided
that
the
Borrower shall be obligated to pay the registration and processing fee referred to therein) and
(vi) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the
Administrative Agent or any other Lender shall have against the replaced Lender.
(b) If any Lender (such Lender, a
Non-Consenting Lender
) has failed to consent to
a proposed amendment, waiver, discharge or termination which pursuant to the terms of
Section
14.1
requires the consent of all of the Lenders affected and with respect to which the
Required Lenders shall have granted their consent, then provided no Event of Default then exists,
the Borrower shall have the right (unless such Non-Consenting Lender grants such consent) to
replace such Non-Consenting Lender by requiring such Non-Consenting Lender to assign its Loans,
and its Commitments hereunder to one or more assignees reasonably acceptable to the
Administrative Agent,
provided
that: (a) all Obligations of the Borrower owing to such
Non-Consenting Lender being replaced shall be paid in full to such Non-Consenting Lender
concurrently with such assignment, (b) the replacement Lender shall purchase the foregoing by
paying to such Non-Consenting Lender a price equal to the principal amount thereof plus accrued
and unpaid interest thereon and (c) the replacement Lender shall grant such consent. In
connection with any such assignment, the Borrower, Administrative Agent, such Non-Consenting
Lender and the replacement Lender shall otherwise comply with
Section 14.6
.
14.8
Adjustments; Set-off
. (a) If any Lender (a
benefited Lender
)
shall at any time receive any payment of all or part of its Loans, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in
Section 11.5
, or
otherwise), in a greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lenders Loans, or interest thereon, such benefited
Lender shall purchase for cash from the other Lenders a participating interest in such portion of
each such other Lenders Loan, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to
share the excess payment or benefits of such collateral or proceeds ratably with each of the
Lenders;
provided
,
however
, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded,
and the purchase price and benefits returned, to the extent of such recovery, but without
interest.
(b) After the occurrence and during the continuance of an Event of Default, in addition to
any rights and remedies of the Lenders provided by law, each Lender shall have the right, without
prior notice to the Borrower, any such notice being expressly waived by the
-106-
Borrower to the
extent permitted by applicable law, subject to the consent of the Administrative Agent (such
consent not to be unreasonably withheld) upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and
appropriate and apply against such amount any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in
any currency, in each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and
the Administrative Agent after any such set-off and application made by such Lender,
provided
that the failure to give such notice shall not affect the validity of such
set-off and application.
14.9
Counterparts
. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts (including by facsimile or other electronic
transmission), and all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the parties shall be
lodged with the Borrower and the Administrative Agent.
14.10
Severability
. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.11
Integration
. This Agreement and the other Credit Documents represent the
agreement of the Borrower, the Collateral Agent, the Administrative Agent and the Lenders with
respect to the subject matter hereof, and there are no promises, undertakings, representations or
warranties by the Borrower, the Administrative Agent, the Collateral Agent or any Lender relative
to subject matter hereof not expressly set forth or referred to herein or in the other Credit
Documents.
14.12
GOVERNING LAW
. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
14.13
Submission to Jurisdiction; Waivers
. Each party hereto hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the courts of the United States of America for the
Southern District of New York and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such
-107-
action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Person at its address set forth on
Schedule
14.2
at such other address of which the Administrative Agent shall have been
notified pursuant to
Section 14.2
;
(d) agrees that nothing herein shall affect the right to effect service of process in
any other manner permitted by law or shall limit the right to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this
Section 14.13
any
special, exemplary, punitive or consequential damages.
14.14
Acknowledgments
. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Credit Documents;
(b) neither the Administrative Agent nor the Collateral Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in connection with
this Agreement or any of the other Credit Documents, and the relationship between
Administrative Agent, the Collateral Agent and Lenders, on one hand, and the Borrower, on
the other hand, in connection herewith or therewith is solely that of debtor and creditor;
and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Lenders or among the
Borrower and the Lenders.
14.15
WAIVERS OF JURY TRIAL
. THE BORROWER, EACH AGENT AND EACH LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
14.16
Confidentiality
. The Administrative Agent and each Lender shall hold all
non-public information furnished by or on behalf of the Borrower in connection with such Lenders
evaluation of whether to become a Lender hereunder or obtained by such Lender or the Administrative
Agent pursuant to the requirements of this Agreement (
Confidential Information
),
confidential in accordance with its customary procedure for handling confidential information of
this nature and (in the case of a Lender that is a bank) in accordance with safe and sound banking
practices and in any event may (i) make disclosure as required or requested by any governmental
agency or representative thereof or pursuant to legal process or to such Lenders or the
Administrative Agents attorneys, professional advisors or independent auditors
-108-
or Affiliates,
provided
that unless specifically prohibited by applicable law or court order, each Lender
and the
Administrative Agent shall notify the Borrower of any request by any governmental agency or
representative thereof (other than any such request in connection with an examination of the
financial condition of such Lender by such governmental agency or other routine examinations of
such Lender by such governmental agency) for disclosure of any such non-public information prior to
disclosure of such information, and provided, further, that in no event shall any Lender or the
Administrative Agent be obligated or required to return any materials furnished by the Borrower or
any Subsidiary of the Borrower, (ii) make disclosures of such information reasonably required by
any bona fide or potential assignee, transferee or participant in connection with the contemplated
assignment, transfer or participation by such Lender of any Loans or any participations therein or
by any pledgees referred to in Section 14.16(d) or by direct or indirect contractual counterparties
(or the professional advisors thereto) in Hedge Agreements (provided, such assignees, transferees,
participants, pledgees, counterparties and advisors are advised of and agree to be bound by
provisions that in substance are the equivalent to those in this Section 14.16), (iii) make
disclosure of such information reasonably required by any lender or other Person providing
financing to such Lender (provided such lenders or other Persons are advised of the confidential
nature of such information and agree to keep such information confidential on terms consistent with
this Section 14.16), and (iv) make disclosure to any rating agency,
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 Agents or any Lender.
14.17
Direct Website Communications
.
(a) (i) The Borrower may, at its option, provide to the Administrative
Agent any information, documents and other materials that it is obligated to furnish
to the Administrative Agent pursuant to the Credit Documents, including, without
limitation, all notices, requests, financial statements, financial and other
reports, certificates and other information materials, but excluding any such
communication that (A) relates to a request for a new, or a conversion of an
existing, borrowing or other extension of credit (including any election of an
interest rate or interest period relating thereto), (B) relates to the payment of
any principal or other amount due under the Credit Agreement prior to the scheduled
date therefor, (C) provides notice of any default or event of default under the
Credit Agreement or (D) is required to be delivered to satisfy any condition
precedent to the effectiveness of the Credit Agreement and/or any borrowing or other
extension of credit thereunder (all such non-excluded communications being referred
to herein collectively as
Communications
), by transmitting the
Communications in an electronic/soft medium in a format reasonably acceptable to the
Administrative Agent to lpgloans@lehman.com or such other email address as disclosed
in writing to the Borrower. Nothing in this
Section 14.17
shall prejudice
the right of the Borrower, the Administrative Agent or any Lender to give any notice
or other
communication pursuant to any Credit Document in any other manner specified in
such Credit Document.
(ii) The Administrative Agent agrees that the receipt of the Communications by
the Administrative Agent at its e-mail address set forth above
-109-
shall constitute
effective delivery of the Communications to the Administrative Agent for purposes of
the Credit Documents. Each Lender agrees that notice to it (as provided in the next
sentence) specifying that the Communications have been posted to the Platform shall
constitute effective delivery of the Communications to such Lender for purposes of
the Credit Documents. Each Lender agrees (A) to notify the Administrative Agent in
writing (including by electronic communication) from time to time of such Lenders
e-mail address to which the foregoing notice may be sent by electronic transmission
and (B) that the foregoing notice may be sent to such e-mail address.
(b) The Borrower further agrees that the Administrative Agent may make the Communications
available to the Lenders by posting the Communications on Intralinks or a substantially similar
electronic transmission system (the Platform), so long as the access to such Platform is
limited (i) to the Agents and the Lenders and (ii) remains subject the confidentiality
requirements set forth in
Section 14.16
.
(c) The Platform is provided as is and as available. The Agent Parties do not warrant
the accuracy or completeness of the Communications, or the adequacy of the platform and expressly
disclaim liability for errors or omissions in the Communications. No warranty of any kind,
express, implied or statutory, including, without limitation, 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 the Agent Parties in connection with the Communications or the
platform. In no event shall the Administrative Agent, the Collateral Agent or any of its
affiliates or any of their respective officers, directors, employees, agents, advisors or
representatives (collectively,
Agent Parties
) have any liability to the Borrower, any
Lender or any other person or entity for damages of any kind, including, without limitation,
direct or indirect, special, incidental or consequential damages, losses or expenses (whether in
tort, contract or otherwise) arising out of the Borrowers or the Administrative Agents
transmission of Communications through the internet, except to the extent the liability of any
Agent Party resulted from such Agent Partys (or any of its Related Parties) gross negligence,
bad faith or willful misconduct or material breach of the Credit Documents.
(d) The Borrower and each Lender acknowledge that certain of the Lenders may be
public-side Lenders (Lenders that do not wish to receive material non-public information with
respect to the Borrower, its Subsidiaries or their securities) and, if documents or notices
required to be delivered pursuant to the Credit Documents or otherwise are being distributed
through the Platform, any document or notice that the Borrower has indicated contains only
publicly available information with respect to the Borrower may be posted on that portion of the
Platform designated for such public-side Lenders. If the Borrower has not indicated whether a
document or notice delivered contains only publicly available information, the Administrative
Agent shall post such document or notice solely on that portion of the Platform
designated for Lenders who wish to receive material nonpublic information with respect to
the Borrower, its Subsidiaries and their securities. Notwithstanding the foregoing, the Borrower
shall be under no obligation under this Section 14.17 (d) to indicate any document or notice as
containing only publicly available information.
-110-
14.18
USA PATRIOT Act
. Each 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, which information includes the name and address of the Borrower and other
information that will allow such Lender to identify the Borrower in accordance with the Patriot
Act.
-111-
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to
be duly executed and delivered as of the date first above written.
|
|
|
|
|
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MCJUNKIN CORPORATION
|
|
|
By:
|
/s/
J.F. UNDERHILL
|
|
|
|
Name:
|
|
|
|
|
Title:
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|
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[SIGNATURE PAGE TO TERM CREDIT AGREEMENT]
|
|
|
|
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LEHMAN COMMERCIAL PAPER INC., as Administrative Agent, as Collateral Agent and as a Lender
|
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By:
|
/s/
JEFF OGDEN
|
|
|
|
Name:
|
Jeff Ogden
|
|
|
|
Title:
|
Managing Director
|
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[SIGNATURE PAGE TO TERM CREDIT AGREEMENT]
|
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GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead
Arranger, Joint Bookrunner, Syndication Agent and as
a Lender
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By:
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/s/
BRUCE MENDELSOHN
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Name:
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Bruce Mendelsohn
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Title:
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Authorized Signatory
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By:
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Name:
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Title:
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[SIGNATURE PAGE TO TERM LOAN CREDIT AGREEMENT]
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LEHMAN BROTHERS INC., as Co-Lead Arranger and Joint
Bookrunner
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By:
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/s/
JEFF OGDEN
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Name: Jeff Ogden
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Title: Managing Director
|
[SIGNATURE PAGE TO TERM LOAN CREDIT AGREEMENT]
SCHEDULE 1.1(A) EXISTING
LETTERS OF CREDIT
|
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Beneficiary
|
|
Expiration
Date
|
|
Amount
|
|
|
Purpose
|
|
Issuing
Bank
|
Brickstreet
|
|
11/1/07
|
|
$
|
200,000
|
|
|
Workers Comp
|
|
JPMorgan Chase
|
St. Paul Travelers
|
|
11/4/07
|
|
$
|
1,775,000
|
|
|
Insurance
|
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United Bank
|
State of West Virginia
|
|
1/31/08
|
|
$
|
1,000,000
|
|
|
Workers Comp
|
|
JPMorgan Chase
|
Sentry Insurance
|
|
11/1/07
|
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$
|
130,000
|
|
|
Insurance
|
|
JPMorgan Chase
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SCHEDULE 1.1(B) MORTGAGED PROPERTY
|
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Name of Pertection Entity
|
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Location
|
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McJunkin Corporation
|
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4732 Darien
Houston, TX 77028
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McJunkin Corporation
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1100 Leblanc Road,
Port Allen, LA 70767
West Baton Rouge Parish, LA
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McJunkin Corporation
|
|
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835 Hillcrest Drive,
Charleston, WV 25311
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McJunkin Corporation
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Nitro, WV
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SCHEDULE
1.1(c)
TERM LOAN COMMITMENTS
|
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Lender
|
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Term Loan Commitment
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Goldman Sachs Credit Partners L.P.
|
|
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$575,000,000
|
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Addresses on
file with Administrative Agent.
SCHEDULE 1.1(D)
EXCLUDED SUBSIDIARY
McJunkin
Receivables Corporation
SCHEDULE
1.1(E) INITIAL COST SAVINGS
|
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3/31/07
|
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$11,203,565
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6/30/07
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$7,842,496
|
9/30/07
|
|
|
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$4,481,426
|
12/31/07
|
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$1,120,357
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SCHEDULE
1.1(F) NON-CORE ASSETS
623,521 shares
of common stock of PrimeEnergy Corporation, which comprise
approximately 19% of outstanding stock
19/60
ownership interest in Vision Exploration & Production Co.,
LLC
Hansford
Street property and building (1400, 1401 and 1403 Hansford
Street, Charleston, WV 25301)
Beekman
apartment (575 Park Avenue, Apt. 401, New York, NY 10021)
Piedmont
Farm (State Route 3, Union, WV)
Vacant lot
at Hillcrest Drive (835 Hillcrest Drive, Charleston, WV, 25311)
SCHEDULE
8.12 SUBSIDIARIES
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Material
|
Name
|
|
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Owner
|
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FEIN
|
|
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Type
|
|
|
Subsidiary
(Y/N)
|
McJunkin Appalachian Oilfield Supply Company
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McJunkin Corporation
|
|
|
55-0685701
|
|
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corporation
|
|
|
Y
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McJunkin Nigeria Limited
|
|
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McJunkin Corporation
|
|
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55-0758030
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corporation
|
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N
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McJunkin Development Corporation
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McJunkin Corporation
|
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55-0825430
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|
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corporation
|
|
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N
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McJunkin-Puerto Rico Corporation
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McJunkin Corporation
|
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27-0094172
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|
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corporation
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N
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McJunkin Receivables Corporation
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McJunkin Corporation
|
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55-2070733
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|
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corporation
|
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N
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McJunkin-West Africa Corporation
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McJunkin Corporation
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20-7303835
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|
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corporation
|
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N
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Milton Oil & Gas Company
|
|
|
McJunkin Corporation
|
|
|
55-0547779
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corporation
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N
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Greenbrier Petroleum Corporation
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|
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Milton Oil & Gas Company
|
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55-0566559
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|
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corporation
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N
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Piedmont Farms, Inc.
|
|
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McJunkin Corporation
|
|
|
55-0547781
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|
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corporation
|
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N
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Ruffner Realty Company
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|
|
McJunkin Corporation
|
|
|
55-0547777
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|
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corporation
|
|
|
N
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McJunkin Nigeria Limited
|
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McJunkin Corporation
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N/A
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corporation
|
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N
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SCHEDULE
9.9 CLOSING DATE AFFILIATE TRANSACTIONS
NONE.
SCHEDULE
9.17(C) POST CLOSING ACTIONS
1. The Company agrees that it will provide the stock
certificate and stock power for Greenbrier Petroleum Corporation
no later than 30 days after the Closing Date or such later
date as the Administrative Agent may reasonably agree.
2. The Company agrees that it will provide evidence
of title insurance policies on each property listed on
Schedule 1.1(B) no later than 45 days after the
Closing Date or such later date as the Administrative Agent may
reasonably agree.
3. [Other real estate items TBD]
SCHEDULE
10.1 CLOSING DATE INDEBTEDNESS
Letters
of Credit
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Beneficiary
|
|
|
Expiration
Date
|
|
|
|
Amount
|
|
|
|
Purpose
|
|
|
Issuing
Bank
|
Brickstreet
|
|
|
|
11/1/07
|
|
|
|
$
|
200,000
|
|
|
|
|
Workers Comp
|
|
|
|
|
JP Morgan Chase
|
|
St. Paul Travelers
|
|
|
|
11/4/07
|
|
|
|
$
|
1,175,000
|
|
|
|
|
Insurance
|
|
|
|
|
United Bank
|
|
State of West Virginia
|
|
|
|
1/31/08
|
|
|
|
$
|
1,000,000
|
|
|
|
|
Workers Comp
|
|
|
|
|
JP Morgan Chase
|
|
Sentry Insurance
|
|
|
|
11/1/07
|
|
|
|
$
|
130,000
|
|
|
|
|
Insurance
|
|
|
|
|
JP Morgan Chase
|
|
Lumbermans Mutual
|
|
|
|
7/1/07
|
|
|
|
$
|
89,653
|
|
|
|
|
Insurance
|
|
|
|
|
National City
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse
|
|
|
State
|
|
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County
|
|
|
Lessor
|
|
|
Lease
Expir Date
|
Little Rock
|
|
|
AR
|
|
|
Pulaski
|
|
|
|
Hansford Associates, LP
|
|
|
|
12/31/2016
|
Bakersfield
|
|
|
CA
|
|
|
Kern
|
|
|
|
Hansford Associates, LP
|
|
|
|
3/31/2012
|
Augusta
|
|
|
GA
|
|
|
Richmond
|
|
|
|
Hansford Associates, LP
|
|
|
|
12/31/2009
|
Granite City
|
|
|
IL
|
|
|
Madison
|
|
|
|
Hansford Associates, LP
|
|
|
|
9/30/2009
|
Calvert City
|
|
|
KY
|
|
|
Marshall
|
|
|
|
Hansford Associates, LP
|
|
|
|
10/31/2011
|
Cleveland
|
|
|
OH
|
|
|
Summit
|
|
|
|
Hansford Associates, LP
|
|
|
|
10/31/2010
|
North Charleston
|
|
|
SC
|
|
|
Charleston
|
|
|
|
Hansford Associates, LP
|
|
|
|
12/31/2009
|
LaMarque
|
|
|
TX
|
|
|
Galveston
|
|
|
|
Hansford Associates, LP
|
|
|
|
12/31/2012
|
Rock Springs
|
|
|
WY
|
|
|
Sweetwater
|
|
|
|
Hansford Associates, LP
|
|
|
|
3/31/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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1
SCHEDULE
10.2 CLOSING DATE LIENS
None.
SCHEDULE
10.5 CLOSING DATE INVESTMENTS
1. Investments
held by McJunkin Corporation
|
|
|
|
Investment
|
|
|
Percentage Of Interest
|
Greenbrier Development Drilling
Partners 1976
P.O. Box 513
Charleston, West Virginia 25322
|
|
|
47 Units, 8.07%
|
W.T. Massey
200 N.W. 66th, Suite 935
Oklahoma City, Oklahoma 73116
&
H.A. Moore
4013 N.W. Expressway
Suite 605
Oklahoma City, Oklahoma 73116
|
|
|
Own various overriding royalty
interests in oil and gas wells in
Oklahoma
Own various overriding royalty
interests in oil and gas wells in
Oklahoma.
|
PrimeEnergy Corporation
One Landmark Square
Stamford, Connecticut 06901
|
|
|
Purchased 49.8% interest in K.R.M. Petroleum Company in 1984.
Name changed on 5/17/90 from K.R.M. Petroleum to PrimeEnergy
(percentage owned approximately 19.0% as of 6/30/06)
|
Vision Exploration & Production Co., LLC
8100 E. 22nd No. Bldg. 1100
Wichita, Kansas 67226
|
|
|
Purchased 1/3 interest in Vision
Exploration & Production, LLC
|
2. Investments
held by Milton Oil & Gas Company, a wholly owned subsidiary
of McJunkin Corporation:
|
|
|
|
Investment
|
|
|
Percentage Of Interest
|
Butcher & Singer
C/O Butcher & Singer, Inc.
211 South Broad Street
Philadelphia, Pennsylvania 15105
Buttes 1976-1 (931)
|
|
|
Overriding royalty interest
|
Cabot Oil & Gas Corporation
(formerly Appalachian Exploration & Development)
C/O Cabot Petroleum Corporation
Joint Interest Section
|
|
|
|
|
|
|
|
Investment
|
|
|
Percentage Of
Interest
|
921 Main Street, Suite 900
Houston, Texas 77002
|
|
|
|
|
|
|
|
B & H Partnership (935)
|
|
|
60% working interest
|
Milton Option (938)
|
|
|
60% working interest
|
P & H Partnership (942)
|
|
|
60% working interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dunne Equities
C/O Dunne Equities
8100 E. 22nd Street North
Building 1100
Wichita, Kansas 67226
|
|
|
|
|
|
|
|
Currently (24) Productive
Wells/Programs
|
|
|
Various %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quad D Operating
P.O. Box 5567
Huntington, West Virginia 25703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closterman M-1 And M-2 (952)
|
|
|
25% working interest
|
Closterman M-3 And M-4 (953)
|
|
|
18.75% working interest
|
Closterman M-5 (954)
|
|
|
18.75% working interest
|
Closterman M-6 (955)
|
|
|
18.75% working interest
|
D.P. Morris Lease Well (956)
|
|
|
25% working interest
|
|
|
|
|
Devon Energy Production Co LP
20 North Broadway
Oklahoma City, Oklahoma 73102
|
|
|
|
|
|
|
|
Clifton #1 (946)
|
|
|
.90868% working interest
|
Hawkins #1 (948)
|
|
|
1.82364% working interest
|
Pritchard #1 (949).
|
|
|
32835% net revenue interest
|
Whisenhunt (950)
|
|
|
|
Clifton #2 (947)
|
|
|
1.0138% working interest
|
Clifton #3 (951)
|
|
|
1.0447% working interest
|
|
|
|
|
3. Investments held by Ruffner Realty Company, a
wholly owned subsidiary of McJunkin Corporation:
|
|
|
|
Investment
|
|
|
Percentage Of
Interest
|
Auburn Lakes - Cost Basis
185 Acres + 370 Units
Condominium
2901 Cedar Road
Cleveland, Ohio
|
|
|
2.08%
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Percentage Of Interest
|
First Interstate Elyria
Shopping Center
Elyria, Ohio
|
|
|
1.04%
|
First Interstate Hawthorne - Cost Basis
Equity Investors
Shopping Center
29425 Chagrin Boulevard
Cleveland, Ohio
|
|
|
1.85%
|
First Interstate Mentor Centers
Equity Investors
Shopping Center
29425 Chagrin Boulevard
Cleveland, Ohio
|
|
|
1.39%
|
Merc-Ex Investors Ltd. Partnership. -
Cost Basis
Equity Investors, Inc.
Apartment Complex
Beachwood, Ohio
|
|
|
7.75%
|
One Congress Square - Cost Basis
Sovereign Realty
Office Building - Historic Structure
Chicago, Illinois
|
|
|
1.5%
|
|
|
|
|
SCHEDULE
10.11 CLOSING DATE RESTRICTIONS
None.
Exhibit 10.6
EXECUTION VERSION
$450,000,000
TERM LOAN CREDIT AGREEMENT
Dated as of May 22, 2008
among
MCJUNKIN RED MAN HOLDING CORPORATION,
as the Borrower
The Several Lenders
from Time to Time Parties Hereto
GOLDMAN SACHS CREDIT PARTNERS L.P. and
LEHMAN BROTHERS INC.,
as Co-Lead Arrangers and Joint Bookrunners
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent and Collateral Agent
and
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Syndication Agent
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
SECTION 1. DEFINITIONS
|
|
|
2
|
|
|
|
|
|
|
1.1 Defined Terms
|
|
|
2
|
|
1.2 Other Interpretive Provisions
|
|
|
35
|
|
1.3 Accounting Terms; Exchange Rates
|
|
|
35
|
|
1.4 Rounding
|
|
|
36
|
|
1.5
References to Agreements, Laws, Etc.
|
|
|
36
|
|
|
|
|
|
|
SECTION 2. AMOUNT AND TERMS OF CREDIT
|
|
|
36
|
|
|
|
|
|
|
2.1 Commitments
|
|
|
36
|
|
2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings
|
|
|
36
|
|
2.3 Notice of Borrowing
|
|
|
37
|
|
2.4 Disbursement of Funds
|
|
|
37
|
|
2.5 Repayment of Loans; Evidence of Debt
|
|
|
38
|
|
2.6 Conversions and Continuations
|
|
|
39
|
|
2.7
Pro Rata
Borrowings
|
|
|
39
|
|
2.8 Interest
|
|
|
40
|
|
2.9 Interest Periods
|
|
|
41
|
|
2.10
Increased Costs, Illegality, etc.
|
|
|
41
|
|
2.11 Compensation
|
|
|
43
|
|
2.12 Change of Lending Office
|
|
|
43
|
|
2.13 Notice of Certain Costs
|
|
|
44
|
|
|
|
|
|
|
SECTION 3. SPONSOR AND BORROWER PURCHASES.
|
|
|
44
|
|
|
|
|
|
|
3.1 Notice of Sponsor and Borrower Purchases
|
|
|
44
|
|
3.2 Cancellation of Loans
|
|
|
44
|
|
3.3 Acknowledgement
|
|
|
45
|
|
|
|
|
|
|
SECTION 4. FEES; COMMITMENTS
|
|
|
45
|
|
|
|
|
|
|
4.1 Fees
|
|
|
45
|
|
4.2 [Intentionally Omitted]
|
|
|
45
|
|
4.3 Mandatory Termination of Commitments
|
|
|
45
|
|
|
|
|
|
|
SECTION 5. PAYMENTS
|
|
|
45
|
|
|
|
|
|
|
5.1 Voluntary Prepayments
|
|
|
45
|
|
5.2 Mandatory Prepayments
|
|
|
46
|
|
5.3 Method and Place of Payment
|
|
|
48
|
|
5.4 Net Payments
|
|
|
49
|
|
5.5 Computations of Interest and Fees
|
|
|
51
|
|
5.6 Limit on Rate of Interest
|
|
|
51
|
|
-i-
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
SECTION 6. CONDITIONS PRECEDENT TO INITIAL BORROWING
|
|
|
52
|
|
|
|
|
|
|
6.1 Credit Documents
|
|
|
52
|
|
6.2 Collateral
|
|
|
52
|
|
6.3 Legal Opinions
|
|
|
53
|
|
6.4 Equity Investments; Existing Indebtedness
|
|
|
53
|
|
6.5 Closing Certificates
|
|
|
53
|
|
6.6 Organizational Documents; Incumbency
|
|
|
53
|
|
6.7 Fees
|
|
|
53
|
|
6.8 Representations and Warranties
|
|
|
53
|
|
6.9 Solvency Certificate
|
|
|
54
|
|
6.10 Historical Financial Statements
|
|
|
54
|
|
6.11 Notice of Borrowing
|
|
|
54
|
|
6.12 No Default
|
|
|
54
|
|
|
|
|
|
|
SECTION 7. [INTENTIONALLY OMITTED]
|
|
|
54
|
|
|
|
|
|
|
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
|
|
|
54
|
|
|
|
|
|
|
8.1 Corporate Status
|
|
|
54
|
|
8.2 Corporate Power and Authority
|
|
|
54
|
|
8.3 No Violation
|
|
|
54
|
|
8.4 Litigation
|
|
|
55
|
|
8.5 Margin Regulations
|
|
|
55
|
|
8.6 Governmental Approvals
|
|
|
55
|
|
8.7 Investment Company Act
|
|
|
55
|
|
8.8 True and Complete Disclosure
|
|
|
55
|
|
8.9 Financial Condition; Financial Statements
|
|
|
56
|
|
8.10 Tax Returns and Payments
|
|
|
56
|
|
8.11 Compliance with ERISA
|
|
|
56
|
|
8.12 Subsidiaries
|
|
|
57
|
|
8.13 Intellectual Property
|
|
|
57
|
|
8.14 Environmental Laws
|
|
|
57
|
|
8.15 Properties
|
|
|
58
|
|
8.16 Solvency
|
|
|
58
|
|
|
|
|
|
|
SECTION 9. AFFIRMATIVE COVENANTS
|
|
|
58
|
|
|
|
|
|
|
9.1 Information Covenants
|
|
|
58
|
|
9.2 Books, Records and Inspections
|
|
|
62
|
|
9.3 Maintenance of Insurance
|
|
|
62
|
|
9.4 Payment of Taxes
|
|
|
62
|
|
9.5 Consolidated Corporate Franchises
|
|
|
63
|
|
-ii-
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
9.6
Compliance with Statutes, Regulations, etc.
|
|
|
63
|
|
9.7 ERISA
|
|
|
63
|
|
9.8 Maintenance of Properties
|
|
|
64
|
|
9.9 Transactions with Affiliates
|
|
|
64
|
|
9.10 End of Fiscal Years; Fiscal Quarters
|
|
|
64
|
|
9.11 [Intentionally Omitted]
|
|
|
65
|
|
9.12 [Intentionally Omitted]
|
|
|
65
|
|
9.13 Use of Proceeds
|
|
|
65
|
|
9.14 [Intentionally Omitted]
|
|
|
65
|
|
9.15 [Intentionally Omitted]
|
|
|
65
|
|
9.16 [Intentionally Omitted]
|
|
|
65
|
|
9.17 Further Assurances
|
|
|
65
|
|
|
|
|
|
|
SECTION 10. NEGATIVE COVENANTS
|
|
|
65
|
|
|
|
|
|
|
10.1 Consolidated Total Debt to Consolidated EBITDA Ratio
|
|
|
65
|
|
10.2 Consolidated EBITDA to Consolidated Interest Expense Ratio
|
|
|
66
|
|
10.3 Capital Expenditures:
|
|
|
67
|
|
10.4 Permitted Activities of Borrower
|
|
|
67
|
|
|
|
|
|
|
SECTION 11. EVENTS OF DEFAULT
|
|
|
68
|
|
|
|
|
|
|
11.1 Payments
|
|
|
68
|
|
11.2
Representations, etc.
|
|
|
68
|
|
11.3 Covenants
|
|
|
68
|
|
11.4 Default Under Other Agreements
|
|
|
68
|
|
11.5
Bankruptcy, etc.
|
|
|
69
|
|
11.6 ERISA
|
|
|
69
|
|
11.7 [Intentionally Omitted]
|
|
|
70
|
|
11.8 Pledge Agreement
|
|
|
70
|
|
11.9 Security Agreement
|
|
|
70
|
|
11.10 [Intentionally Omitted]
|
|
|
70
|
|
11.11 Judgments
|
|
|
70
|
|
11.12 Change of Control
|
|
|
70
|
|
|
|
|
|
|
SECTION 12. INVESTORS RIGHT TO CURE
|
|
|
70
|
|
|
|
|
|
|
SECTION 13. THE ADMINISTRATIVE AGENT
|
|
|
71
|
|
|
|
|
|
|
13.1 Appointment
|
|
|
71
|
|
13.2 Delegation of Duties
|
|
|
72
|
|
13.3 General Immunity
|
|
|
73
|
|
13.4 Reliance by Agents
|
|
|
73
|
|
-iii-
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
13.5 Notice of Default
|
|
|
74
|
|
13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other
Lenders
|
|
|
74
|
|
13.7 Indemnification
|
|
|
75
|
|
13.8 Agents in their Individual Capacity
|
|
|
75
|
|
13.9 Successor Agents
|
|
|
75
|
|
13.10 Withholding Tax
|
|
|
76
|
|
13.11 REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS
|
|
|
76
|
|
|
|
|
|
|
SECTION 14. MISCELLANEOUS
|
|
|
77
|
|
|
|
|
|
|
14.1 Amendments and Waivers
|
|
|
77
|
|
14.2 Notices
|
|
|
79
|
|
14.3 No Waiver; Cumulative Remedies
|
|
|
79
|
|
14.4 Survival of Representations and Warranties
|
|
|
79
|
|
14.5 Payment of Expenses and Taxes
|
|
|
80
|
|
14.6 Successors and Assigns; Participations and Assignments
|
|
|
80
|
|
14.7 Replacements of Lenders under Certain Circumstances
|
|
|
84
|
|
14.8 Adjustments; Set-off
|
|
|
85
|
|
14.9 Counterparts
|
|
|
86
|
|
14.10 Severability
|
|
|
86
|
|
14.11 Integration
|
|
|
86
|
|
14.12 GOVERNING LAW
|
|
|
86
|
|
14.13 Submission to Jurisdiction; Waivers
|
|
|
86
|
|
14.14 Acknowledgments
|
|
|
87
|
|
14.15
WAIVERS OF JURY TRIAL
|
|
|
87
|
|
14.16 Confidentiality
|
|
|
87
|
|
14.17 Direct Website Communications
|
|
|
88
|
|
14.18 USA Patriot Act
|
|
|
90
|
|
-iv-
|
|
|
SCHEDULES
|
|
|
|
|
|
Schedule 1.1 (C)
|
|
Commitments and Addresses of Lenders
|
Schedule 1.1 (D)
|
|
Excluded Subsidiaries
|
Schedule 1.1(E)
|
|
Initial Cost Savings
|
Schedule 8.12
|
|
Subsidiaries
|
Schedule 9.9
|
|
Closing Date Affiliate Transactions
|
Schedule 9.17(B)
|
|
Post-Closing Actions
|
Schedule 14.2
|
|
Notice Addresses
|
|
|
|
EXHIBITS
|
|
|
|
|
|
Exhibit D
|
|
Form of Sponsor Affiliated Lender Waiver
|
Exhibit E
|
|
Form of Perfection Certificate
|
Exhibit F
|
|
Form of Pledge Agreement
|
Exhibit G
|
|
Form of Security Agreement
|
Exhibit H
|
|
[Intentionally Omitted]
|
Exhibit I
|
|
Form of Legal Opinion of Simpson Thacher & Bartlett LLP
|
Exhibit J
|
|
Form of Closing Certificate
|
Exhibit K
|
|
Form of Assignment and Acceptance
|
Exhibit L
|
|
Form of Promissory Note
|
-v-
TERM LOAN CREDIT AGREEMENT dated as of May 22, 2008, among MCJUNKIN RED MAN HOLDING
CORPORATION, a Delaware corporation (the
Borrower
), the lending institutions from time to
time parties hereto (each a
Lender
and, collectively, the
Lenders
), Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc., as Co-Lead Arrangers and Joint Bookrunners,
Lehman Commercial Paper Inc., as Administrative Agent and Collateral Agent, and Goldman Sachs
Credit Partners L.P., as Syndication Agent (such term and each other capitalized term used but not
defined in this introductory statement having the meaning provided in
Section 1
).
WHEREAS, Borrower owns 100% of the outstanding equity interests of McJunkin Red Man
Corporation (f/k/a McJunkin Corporation), a West Virginia corporation (
McJunkin Opco
);
WHEREAS, on January 31, 2007 (the
Original Closing Date
), McJunkin Opco, Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc., as the co-lead arrangers and joint
bookrunners, Lehman Commercial Paper Inc., as administrative agent and collateral agent, and
Goldman Sachs Credit Partners L.P., as the syndication agent, entered into that certain term loan
credit agreement (as amended, restated, increased or otherwise supplemented from time to time in
accordance with the McJunkin Opco Loan Documents (as hereinafter defined), the
McJunkin Opco
Term Loan Credit Agreement
) to, among other things, provide a portion of the consideration for
the acquisition of McJunkin Corporation (the
McJunkin Transaction
);
WHEREAS, on October 31, 2007 (the
Red Man Closing Date
), McJunkin Opco, Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc., as the co-lead arrangers and joint
bookrunners, The CIT Group/Business Credit, Inc., as administrative agent and co-collateral agent,
Bank of America, N.A., as co-collateral agent, and Goldman Sachs Credit Partners L.P., as the
syndication agent, entered into that certain revolving credit agreement (as amended, restated,
increased or otherwise supplemented from time to time in accordance with the McJunkin Opco Loan
Documents (as hereinafter defined), the
McJunkin Opco Revolving Credit Agreement
) to,
among other things, provide a portion of the consideration for the acquisition of Red Man Pipe &
Supply Co. (the
Red Man Transaction
);
WHEREAS, certain of the Investors made an additional equity investment in the amount of
$475,000,000 in PVF Holdings LLC f/k/a McJ Holding LLC (
Holdings
) (which equity
investment was contributed to Borrower and in turn to McJunkin Opco in exchange for common Stock)
on the Red Man Closing Date to provide a portion of the consideration for the Red Man Transaction;
WHEREAS, in connection with the foregoing, the Borrower has requested that the Lenders extend
credit in the form of Term Loans, in an aggregate principal amount of $450,000,000;
WHEREAS, the repayment of the Term Loans will be secured by perfected security interests in
and liens upon substantially all of the personal property and certain real property of the
Borrower;
WHEREAS, the proceeds of up to $25,000,000 of revolving credit loans made available to
McJunkin Opco pursuant to the McJunkin Opco Revolving Credit Agreement will be distributed to the
Borrower and used by the Borrower, together with the proceeds of the Term Loans, on the Closing
Date solely to fund a distribution to and/or stock redemption from the Investors in an aggregate
amount not to exceed $475,000,000 (such distribution to and/or stock redemption, the
Special
Equity Dividend
); and
WHEREAS, the Lenders are willing to make available to the Borrower such term loans, upon the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained
herein, the parties hereto hereby agree as follows:
SECTION 1.
Definitions
1.1
Defined Terms
. (a) As used herein, the following terms shall have the meanings
specified in this
Section 1.1
unless the context otherwise requires (it being understood
that defined terms in this Agreement shall include in the singular number the plural and in the
plural the singular):
ABR
shall mean, for any day, a rate
per annum
(rounded upwards, if necessary, to the
next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day or (b) the
Federal Funds Effective Rate in effect on such day plus
1
/
2
of 1%. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening
of business on the effective day of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
ABR Loan
shall mean each Loan bearing interest at the rate provided in
Section 2.8(a)
.
Acquired Entity or Business
shall have the meaning provided in the definition of the
term Consolidated EBITDA.
Acquisition Transactions
shall mean, collectively, the McJunkin Transaction, the Red
Man Transaction and the transactions contemplated by the McJunkin Opco Credit Agreements and the
acquisition documents with respect to the McJunkin Transaction and the Red Man Transaction.
Acquisition Transaction Expenses
shall mean any fees or expenses incurred or paid by
the Borrower or any of its Subsidiaries in connection with the Acquisition Transactions, the
McJunkin Opco Credit Agreements and the other McJunkin Opco Loan Documents and the transactions
contemplated thereby.
Adjusted Total Term Loan Commitment
shall mean at any time the Total Term Loan
Commitment less the Term Loan Commitments of all Defaulting Lenders.
Administrative Agent
shall mean Lehman Commercial Paper Inc., as the administrative
agent for the Lenders under this Agreement and the other Credit Documents, or any successor
administrative agent pursuant to
Section 13
.
2
Administrative Agents Office
shall mean in respect of all Credit Events for the
account of the Borrower, the office of the Administrative Agent located at 745 Seventh Avenue, New
York City, New York, or such other office as the Administrative Agent may hereafter designate in
writing as such to the other parties hereto.
Administrative Questionnaire
shall have the meaning provided in
Section 14.6(b)
.
Affiliate
shall mean, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common control with such Person.
A Person shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power (a) to vote 20% or more of the securities having ordinary voting power for
the election of directors of such corporation or (b) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of voting securities, by
contract or otherwise.
Agent Parties
shall have the meaning provided in
Section 14.17(c)
.
Agents
shall mean each Co-Lead Arranger, the Administrative Agent, the Collateral
Agent and the Syndication Agent.
Agreement
shall mean this Term Loan Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
Applicable ABR Margin
shall mean at any date, with respect to each ABR Loan that is
a Term Loan, 2.25%
per annum
.
Applicable LIBOR Margin
shall mean at any date, with respect to each LIBOR Loan that
is a Term Loan, 3.25%
per annum
.
Approved Fund
shall have the meaning provided in
Section 14.6
.
Asset Sale Prepayment Event
shall mean any Disposition of any business units, assets
or other property of the Borrower or any of the Restricted Subsidiaries not in the ordinary course
of business (including any Disposition of any Stock or Stock Equivalents of any Subsidiary of the
Borrower owned by the Borrower or a Restricted Subsidiary, including any sale of any Stock or Stock
Equivalents of any Restricted Subsidiary). Notwithstanding the foregoing, the term Asset Sale
Prepayment Event shall not include any (a) transaction permitted by
Section 10.4
of the
McJunkin Opco Term Loan Credit Agreement, other than transactions permitted by
Section
10.4(b)
thereof or (b) Disposition of Revolving Credit Collateral (as defined in the
Intercreditor Agreement);
provided
, that this clause (b) shall only apply prior to a
Discharge of Revolving Credit Obligations (as defined in the Intercreditor Agreement).
Assignment and Acceptance
shall mean an assignment and acceptance substantially in
the form of
Exhibit K
.
Authorized Officer
shall mean the President, the Chief Financial Officer, the
Treasurer or any other senior officer of the Borrower designated as such in writing to the
Administrative Agent by the Borrower.
3
Bankruptcy Code
shall have the meaning provided in
Section 11.5
.
Board
shall mean the Board of Governors of the Federal Reserve System of the United
States (or any successor).
Borrower
shall have the meaning provided in the preamble to this Agreement.
Borrower Purchase
shall have the meaning provided in
Section 3.1
.
Borrowing
shall mean and include the incurrence of one Type of Term Loan on the
Closing Date (or resulting from conversions on a given date after the Closing Date) having, in the
case of LIBOR Loans, the same Interest Period (
provided
that ABR Loans incurred pursuant to
Section 2.10(b)
shall be considered part of any related Borrowing of LIBOR Loans).
Business Day
shall mean (a) for all purposes other than as covered by clause (b)
below, any day excluding Saturday, Sunday and any day that shall be in New York City a legal
holiday or a day on which banking institutions are authorized by law or other governmental actions
to close and (b) with respect to all notices and determinations in connection with, and payments of
principal and interest on, LIBOR Loans, any day which is a Business Day described in clause (a) and
which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar
market.
Capital Expenditures
shall mean, for any period, the aggregate of all expenditures
(whether paid in cash or accrued as liabilities and including in all events all amounts expended or
capitalized under Capital Leases, but excluding any amount representing capitalized interest) by
McJunkin Opco and the other Restricted Subsidiaries during such period that, in conformity with
GAAP, are or are required to be included as additions during such period to property, plant or
equipment reflected in the consolidated balance sheet of McJunkin Opco and the other Restricted
Subsidiaries,
provided
that the term Capital Expenditures shall not include (a)
expenditures made in connection with the replacement, substitution, restoration or repair of assets
(i) to the extent financed from insurance proceeds paid on account of the loss of or damage to the
assets being replaced, restored or repaired or (ii) with awards of compensation arising from the
taking by eminent domain or condemnation of the assets being replaced, (b) the purchase price of
equipment that is purchased simultaneously with the trade-in of existing equipment pursuant to
Section 10.4 of the McJunkin Opco Credit Agreements to the extent that the gross amount of such
purchase price is reduced by the credit granted by the seller of such equipment for the equipment
being traded in at such time, (c) the purchase of plant, property or equipment made within fifteen
months of the sale of any asset to the extent purchased with the proceeds of such sale, (d)
expenditures that constitute any part of Consolidated Lease Expense, (e) expenditures that are
accounted for as capital expenditures by any Restricted Subsidiary and that actually are paid for
by a Person other than any Restricted Subsidiary and for which no Restricted Subsidiary has
provided or is required to provide or incur, directly or indirectly, any consideration or
obligation to such Person or any other Person (whether before, during or after such period), (f)
the book value of any asset owned by any Restricted Subsidiary prior to or during such period to
the extent that such book value is included as a capital expenditure during such period as a result
of such Person reusing or beginning to reuse such asset during such period without a corresponding
expenditure actually having been made in such period,
provided
that (x) any
4
expenditure necessary in order to permit such asset to be reused shall be included as a
Capital Expenditure during the period in which such expenditure actually is made and (y) such book
value shall have been included in Capital Expenditures when such asset was originally acquired, (g)
expenditures that constitute Permitted Acquisitions or (h) Acquisition Transaction Expenses.
Capital Lease
shall mean, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is
required to be, accounted for as a capital lease on the balance sheet of that Person.
Capitalized Lease Obligations
shall mean, as applied to any Person, all obligations
under Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount
thereof accounted for as liabilities in accordance with GAAP.
Casualty Event
shall mean, with respect to any Collateral, any loss of or damage to,
or any condemnation or other taking by a Governmental Authority of, such property for which such
Collateral for which the Borrower or any of its Restricted Subsidiaries receives insurance
proceeds, or proceeds of a condemnation award or other compensation.
Change in Law
shall mean (a) the adoption of any law, treaty, order, policy, rule or
regulation after the date of this Agreement, (b) any change in any law, treaty, order, policy, rule
or regulation or in the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by the Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental or quasi
governmental authority (whether or not having the force of law).
Change of Control
shall mean and be deemed to have occurred if (a) the Sponsor shall
at any time not own, in the aggregate, directly or indirectly, beneficially and of record, at least
35% of the voting power of the outstanding Voting Stock of Borrower (other than as the result of
one or more Qualified IPOs); or (b) any person, entity or group (within the meaning of
Section 13(d)
or
14(d)
of the Securities Exchange Act of 1934, as amended) shall at
any time have acquired direct or indirect beneficial ownership of a percentage of the voting power
of the outstanding Voting Stock of Borrower that exceeds the percentage of the voting power of such
Voting Stock then beneficially owned, in the aggregate, by the Sponsor, unless, in the case of
either clause (a) or (b) above, the Sponsor have, at such time, the right or the ability by voting
power, contract or otherwise to elect or designate for election at least a majority of the board of
directors of Borrower; or (c) Borrower shall at any time not directly own 100% of the outstanding
Stock of McJunkin Opco; or (d) Continuing Directors shall not constitute at least a majority of the
board of directors of the Borrower.
Closing Date
shall mean the date of the initial Borrowing hereunder.
Code
shall mean the Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated and rulings issued thereunder. Section references to the Code are to
the Code, as in effect at the date of this Agreement, and any subsequent provisions of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
Co-Lead Arrangers
shall mean Goldman Sachs Credit Partners L.P. and Lehman Brothers
Inc.
5
Collateral
shall have the meaning provided in the Security Agreement or any other
Security Document, as applicable.
Collateral Agent
shall mean Lehman Commercial Paper Inc., a New York corporation, as
collateral agent for the Lenders and the other Secured Parties.
Commitments
shall mean, with respect to each Lender, such Lenders Term Loan
Commitment.
Communications
shall have the meaning provided in
Section 14.17(a)
.
Confidential Information
shall have the meaning provided in
Section 14.16
.
Confidential Information Memorandum
shall mean the Confidential Information
Memorandum of the Borrower dated May, 2008, delivered to the Lenders in connection with this
Agreement.
Consolidated EBITDA
shall mean, for any period, Consolidated Net Income for such
period,
plus
:
(a) without duplication and to the extent already deducted (and not added back) in arriving at
such Consolidated Net Income, the sum of the following amounts for such period:
(i) total interest expense and to the extent not reflected in such total interest
expense, any losses on hedging obligations or other derivative instruments entered into for
the purpose of hedging interest rate risk, net of interest income and gains on such hedging
obligations, and costs of surety bonds in connection with financing activities,
(ii) provision for taxes based on income, profits or capital of McJunkin Opco and the
other Restricted Subsidiaries, including state, franchise and similar taxes and foreign
withholding taxes paid or accrued during such period,
(iii) depreciation and amortization,
(iv) Non-Cash Charges,
(v) extraordinary losses and unusual or non-recurring charges, severance, relocation
costs and curtailments or modifications to pension and post-retirement employee benefit
plans,
(vi) restructuring charges or reserves (including restructuring costs related to
acquisitions after the date hereof and to closure and/or consolidation of facilities),
(vii) any deductions attributable to minority interests,
6
(viii) the amount, if any, of management, monitoring, consulting and advisory fees and
related expenses paid to the Sponsor,
(ix) any costs or expenses incurred by any Restricted Subsidiary pursuant to any
management equity plan or stock option plan or any other management or employee benefit plan
or agreement or any stock subscription or shareholder agreement, to the extent that such
costs or expenses are funded with cash proceeds contributed to the capital of McJunkin Opco
or net cash proceeds of an issuance of Stock or Stock Equivalents of McJunkin Opco; and
(x) (A) for any period that includes a fiscal quarter occurring prior to fifth fiscal
quarter occurring after the Original Closing Date, the cost savings described on Schedule
1.1(e) and (B) for any period that includes a fiscal quarter occurring thereafter, the
amount of net cost savings projected by the Borrower and/or McJunkin Opco in good faith to
be realized as a result of specified actions taken by the Borrower and its Restricted
Subsidiaries in connection with the Acquisition Transactions (calculated on a Pro Forma
Basis as though such cost savings had been realized on the first day of such period), net of
the amount of actual benefits realized during such period from such actions,
provided
that
(A) such cost savings are reasonably identifiable and
factually supportable, (B) such actions are taken on or prior to the third anniversary of
the Closing Date, (C) no cost savings shall be added pursuant to this clause (x) to the
extent duplicative of any expenses or charges relating to such cost savings that are
included in clause (vi) above with respect to such period and (D) the aggregate amount of
cost savings added pursuant to this clause (x)(B) shall not exceed $5,000,000 for any period
consisting of four consecutive quarters,
less
(b) without duplication and to the extent included in arriving at such Consolidated Net
Income, the sum of the following amounts for such period:
(i) extraordinary gains and unusual or non-recurring gains,
(ii) non-cash gains (excluding any non-cash gain to the extent it represents the
reversal of an accrual or reserve for a potential cash item that reduced Consolidated Net
Income in any prior period),
(iii) gains on asset sales (other than asset sales in the ordinary course of business),
(iv) any net after-tax income from the early extinguishment of Indebtedness or hedging
obligations or other derivative instruments, and
(v) all gains from investments recorded using the equity method,
in each case, as determined on a consolidated basis for McJunkin Opco and the Restricted
Subsidiaries in accordance with GAAP;
provided
that, to the extent included in Consolidated
Net Income,
7
(A) there shall be excluded in determining Consolidated EBITDA currency translation
gains and losses related to currency remeasurements of Indebtedness or intercompany balances
(including the net loss or gain resulting from Hedge Agreements for currency exchange risk),
(B) there shall be excluded in determining Consolidated EBITDA for any period any
adjustments resulting from the application of Statement of Financial Accounting Standards
No. 133, and
(C) there shall be included in determining Consolidated EBITDA for any period, without
duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by
any Restricted Subsidiary during such period (but not the Acquired EBITDA of any related
Person, property, business or assets to the extent not so acquired) to the extent not
subsequently sold, transferred, abandoned or otherwise disposed by any Restricted Subsidiary
(each such Person, property, business or asset acquired and not subsequently so disposed of,
an
Acquired Entity or Business
) and the Acquired EBITDA of any Unrestricted
Subsidiary that is converted into a Restricted Subsidiary during such period (each, a
Converted Restricted Subsidiary
), based on the actual Acquired EBITDA of such
Acquired Entity or Business or Converted Restricted Subsidiary for such period (including
the portion thereof occurring prior to such acquisition or conversion) and (B) an adjustment
in respect of each Acquired Entity or Business equal to the amount of the Pro Forma
Adjustment with respect to such Acquired Entity or Business for such period (including the
portion thereof occurring prior to such acquisition) as specified in a Pro Forma Adjustment
Certificate and delivered to the Lenders and the Administrative Agents and (C) there shall
be excluded in determining Consolidated EBITDA for any period the Disposed EBITDA of any
Person, property, business or asset (other than an Unrestricted Subsidiary) sold,
transferred, abandoned or otherwise disposed of, closed or classified as discontinued
operations by any Restricted Subsidiary during such period (each such Person, property,
business or asset so sold or disposed of, a
Sold Entity or Business
), and the
Acquired EBITDA of any Restricted Subsidiary that is converted into an Unrestricted
Subsidiary during such period (each, a
Converted Unrestricted Subsidiary
) based on
the actual Disposed EBITDA of such Sold Entity or Business or Converted Restricted
Subsidiary for such period (including the portion thereof occurring prior to such sale,
transfer or disposition or conversion).
Consolidated EBITDA to Consolidated Interest Expense Ratio
shall mean, as of any
date of determination, the ratio of (a) Consolidated EBITDA for the relevant Test Period to (b)
Consolidated Interest Expense for such Test Period.
Consolidated Interest Expense
shall mean, for any period, the sum of (i) the cash
interest expense (including that attributable to Capital Leases in accordance with GAAP), net of
cash interest income, of McJunkin Opco and the other Restricted Subsidiaries on a consolidated
basis in accordance with GAAP with respect to all outstanding Indebtedness of McJunkin Opco and the
other Restricted Subsidiaries, including all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers acceptance financing and net costs under Hedge
Agreements (other than currency swap agreements, currency future or option contracts and other
similar agreements) and (ii) any cash payments made during such period in
8
respect of obligations referred to in clause (b) below relating to Funded Debt that were
amortized or accrued in a previous period (other than any such obligations resulting from the
discounting of Indebtedness in connection with the application of purchase accounting in connection
with the Acquisition Transactions or any Permitted Acquisition), but excluding, however, (a)
amortization of deferred financing costs and any other amounts of non-cash interest, (b) the
accretion or accrual of discounted liabilities during such period, and (c) all non-recurring cash
interest expense consisting of liquidated damages for failure to timely comply with registration
rights obligations and financing fees, all as calculated on a consolidated basis in accordance with
GAAP and excluding, for the avoidance of doubt, any interest in respect of items excluded from
Indebtedness in the proviso to the definition thereof,
provided
that (a) except as provided
in clause (b) below, there shall be excluded from Consolidated Interest Expense for any period the
cash interest expense (or cash interest income) of all Unrestricted Subsidiaries for such period to
the extent otherwise included in Consolidated Interest Expense, (b) there shall be included in
determining Consolidated Interest Expense for any period the cash interest expense (or income) of
any Acquired Entity or Business acquired during such period and of any Converted Restricted
Subsidiary converted during such period, in each case based on the cash interest expense (or
income) of such Acquired Entity or Business or Converted Restricted Subsidiary for such period
(including the portion thereof occurring prior to such acquisition or conversion) assuming any
Indebtedness incurred or repaid in connection with any such acquisition or conversion had been
incurred or prepaid on the first day of such period, and (c) there shall be excluded from
determining Consolidated Interest Expense for any period the cash interest expense (or income) of
any Sold Entity or Business disposed of during such period, based on the cash interest expense (or
income) relating to any Indebtedness relieved, retired or repaid in connection with any such
disposition of such Sold Entity or Business for such period (including the portion thereof
occurring prior to such disposal) assuming such debt relieved, retired or repaid in connection with
such disposition had been relieved, retired or repaid on the first day of such period.
Consolidated Lease Expense
shall mean, for any period, all rental expenses of
McJunkin Opco and the other Restricted Subsidiaries during such period under operating leases for
real or personal property (including in connection with Permitted Sale Leasebacks), excluding real
estate taxes, insurance costs and common area maintenance charges and net of sublease income, other
than (a) obligations under vehicle leases entered into in the ordinary course of business, (b) all
such rental expenses associated with assets acquired pursuant to a Permitted Acquisition to the
extent that such rental expenses relate to operating leases in effect at the time of (and
immediately prior to) such acquisition and (c) Capital Lease Obligations, all as determined on a
consolidated basis in accordance with GAAP,
provided
that there shall be excluded from
Consolidated Lease Expense for any period the rental expenses of all Unrestricted Subsidiaries for
such period to the extent otherwise included in Consolidated Lease Expense.
Consolidated Net Income
shall mean, for any period, the net income (loss) of
McJunkin Opco and the other Restricted Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, excluding, without duplication, (a) extraordinary items for such
period, (b) the cumulative effect of a change in accounting principles during such period to the
extent included in Consolidated Net Income, (c) in the case of any period that includes a period
ending prior to or during the fiscal year ending December 31, 2007, Acquisition Transaction
Expenses, (d) any fees and expenses incurred during such period, or any amortization thereof for
such period, in connection with any acquisition, investment,
9
recapitalization, asset disposition, issuance or repayment of debt, issuance of equity
securities, refinancing transaction or amendment or other modification of any debt instrument (in
each case, including any such transaction consummated prior to the Closing Date and any such
transaction undertaken but not completed) and any charges or non-recurring merger costs incurred
during such period as a result of any such transaction, (e) any income (loss) for such period
attributable to the early extinguishment of Indebtedness and (f) accruals and reserves that are
established that are so required to be established or adjusted as a result of the Acquisition
Transactions in accordance with GAAP or changes as a result of adoption of or modification of
accounting policies, in each case, within twelve months after the Red Man Closing Date. There
shall be excluded from Consolidated Net Income for any period the purchase accounting effects of
adjustments to inventory, property and equipment, software and other intangible assets and deferred
revenue in component amounts required or permitted by GAAP and related authoritative pronouncements
(including the effects of such adjustments pushed down to McJunkin Opco and the other Restricted
Subsidiaries), as a result of the Acquisition Transactions, any acquisition whether consummated
before or after the Closing Date, any Permitted Acquisition or other Investment, or the
amortization or write-off of any amounts thereof.
Consolidated Secured Debt
shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of McJunkin Opco and the other Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Transaction or any Permitted Acquisition), consisting of
Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by
promissory notes or similar instruments, in each case secured by Liens,
minus
(b) the
aggregate amount of cash and cash equivalents held in accounts on the consolidated balance sheet of
McJunkin Opco and the other Restricted Subsidiaries as at such date to the extent the use thereof
for application to payment of Indebtedness is not prohibited by law or any contract to which any
Restricted Subsidiary is a party.
Consolidated Total Assets
shall mean, as of any date of determination, the amount
that would, in conformity with GAAP, be set forth opposite the caption total assets (or any like
caption) on a consolidated balance sheet of McJunkin Opco and the other Restricted Subsidiaries at
such date.
Consolidated Total Debt
shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of McJunkin Opco and the other Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Acquisition Transactions or any Permitted Acquisition),
consisting of Indebtedness for borrowed money, Capital Lease Obligations and debt obligations
evidenced by promissory notes or similar instruments,
minus
(b) the aggregate amount of
cash and cash equivalents held in accounts on the consolidated balance sheet of the McJunkin Opco
and the other Restricted Subsidiaries as at such date to the extent the use thereof for application
to payment of Indebtedness is not prohibited by law or any contract to which any Restricted
Subsidiary is a party.
10
Consolidated Total Debt to Consolidated EBITDA Ratio
shall mean, as of any date of
determination, the ratio of (a) Consolidated Total Debt as of the last day of the relevant Test
Period to (b) Consolidated EBITDA for such Test Period.
Consolidated Working Capital
shall mean, at any date, the excess of (a) the sum of
all amounts (other than cash and Permitted Investments) that would, in conformity with GAAP, be set
forth opposite the caption total current assets (or any like caption) on a consolidated balance
sheet of McJunkin Opco and the other Restricted Subsidiaries at such date excluding the current
portion of current and deferred income taxes plus any LIFO reserve over (b) the sum of all amounts
that would, in conformity with GAAP, be set forth opposite the caption total current liabilities
(or any like caption) on a consolidated balance sheet of McJunkin Opco and the other Restricted
Subsidiaries on such date, including deferred revenue but excluding, without duplication, (i) the
current portion of any Funded Debt, (ii) all Indebtedness consisting of Loans and Letter of Credit
Exposure (as defined in the McJunkin Opco Revolving Credit Agreement) to the extent otherwise
included therein, (iii) the current portion of interest and (iv) the current portion of current and
deferred income taxes.
Continuing Director
shall mean, at any date, an individual (a) who is a member of
the board of directors of the Borrower on the date hereof, (b) who, as at such date, has been a
member of such board of directors for at least the twelve preceding months, (c) who has been
nominated to be a member of such board of directors, directly or indirectly, by a Sponsor or
Persons nominated by a Sponsor or (d) who has been nominated to be a member of such board of
directors by a majority of the other Continuing Directors then in office.
Contract Consideration
shall have the meaning provided in the definition of Excess
Cash Flow.
Contractual Obligation
means, as applied to any Person, any provision of any
security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking,
agreement or other instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject.
Converted Restricted Subsidiary
shall have the meaning provided in the definition of
the term Consolidated EBITDA.
Converted Unrestricted Subsidiary
shall have the meaning provided in the definition
of the term Consolidated EBITDA.
Credit Documents
shall mean this Agreement, the Security Documents, and any
promissory notes issued by the Borrower hereunder.
Credit Event
shall mean and include the making (but not the conversion or
continuation) of a Loan.
Cure Amount
shall have the meaning provided in
Section 12
.
Cure Right
shall have the meaning provided in
Section 12
.
11
Currency Agreement
means any foreign exchange contract, currency swap agreement,
futures contract, option contract, synthetic cap or other similar agreement or arrangement, each of
which is for the purpose of hedging the foreign currency risk associated with Borrowers and its
Subsidiaries operations and not for speculative purposes.
Debt Incurrence Prepayment Event
shall mean any issuance or incurrence by the
Borrower or any of the Restricted Subsidiaries of any Indebtedness (excluding any Indebtedness
permitted to be issued or incurred under
Section 10.1
of the McJunkin Opco Credit
Agreements other than
Section 10.1(o)
thereof and any issuance by McJunkin Opco of
Permitted Additional Debt (as defined therein) to the extent the Net Cash Proceeds are used for a
Permitted Acquisition).
Default
shall mean any event, act or condition that with notice or lapse of time, or
both, would constitute an Event of Default.
Defaulting Lender
shall mean any Lender with respect to which a Lender Default is in
effect.
Deferred Net Cash Proceeds
shall have the meaning provided such term in the
definition of Net Cash Proceeds.
Designated Non-Cash Consideration
shall mean the fair market value of non-cash
consideration received by the Borrower or a Restricted Subsidiary in connection with a Disposition
pursuant to
Sections 10.4(b)
and
(c)
of the McJunkin Opco Term Loan Credit
Agreement that is designated as Designated Non-Cash Consideration pursuant to a certificate of an
Authorized Officer of the Borrower, setting forth the basis of such valuation (which amount will be
reduced by the fair market value of the portion of the non-cash consideration converted to cash
within 180 days following the consummation of the applicable Disposition).
Discharge of McJunkin Opco Term Loan Obligations
shall mean the payment in full of
the Obligations (as defined in the McJunkin Opco Term Loan Credit Agreement) and any refinancing
Indebtedness in respect thereof permitted to be incurred by the McJunkin Opco Loan Documents.
Disposed EBITDA
shall mean, with respect to any Sold Entity or Business or any
Converted Unrestricted Subsidiary for any period, the amount for such period of Consolidated EBITDA
of such Sold Entity or Business or Converted Unrestricted Subsidiary (determined as if references
to the Borrower and the Restricted Subsidiaries in the definition of Consolidated EBITDA were
references to such Sold Entity or Business or Converted Unrestricted Subsidiary and its
Subsidiaries), all as determined on a consolidated basis for such Sold Entity or Business.
Disposition
shall have the meaning assigned to such term in the McJunkin Opco Term
Loan Credit Agreement.
Dividend Transactions
shall mean the transactions contemplated by this Agreement,
including without limitation the funding and making of the Special Equity Dividend.
12
Dividend Transaction Expenses
shall mean any fees or expenses incurred or paid by
the Borrower or any of its Subsidiaries in connection with the Dividend Transactions, this
Agreement and the other Credit Documents and the transactions contemplated hereby and thereby.
Dollar Equivalent
shall mean, on any date of determination, (a) with respect to any
amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any
Foreign Currency, the equivalent in Dollars of such amount, determined by the Administrative Agent
pursuant using the applicable Exchange Rate.
Dollars
and
$
shall mean dollars in lawful currency of the United States
of America.
Domestic Subsidiary
shall mean each Subsidiary of the Borrower that is organized
under the laws of the United States, any state or territory thereof, or the District of Columbia.
Engagement Letter
shall mean that certain confidential engagement letter dated as of
May 15, 2008 by and among Goldman Sachs Credit Partners L.P., Lehman Brothers Inc., Lehman
Commercial Paper Inc., Lehman Brothers Commercial Bank, Borrower and McJunkin Opco.
Environmental Claims
shall mean any and all actions, suits, orders, decrees,
demands, demand letters, claims, liens, notices of noncompliance, violation or potential
responsibility or investigation (other than internal reports prepared by the Borrower or any of the
Subsidiaries (a) in the ordinary course of such Persons business or (b) as required in connection
with a financing transaction or an acquisition or disposition of real estate) or proceedings
relating in any way to any Environmental Law or any permit issued, or any approval given, under any
such Environmental Law (hereinafter,
Claims
), including, without limitation, (i) any and
all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief relating to the presence, release or threatened release of
Hazardous Materials or arising from alleged injury or threat of injury to health or safety (to the
extent relating to human exposure to Hazardous Materials), or the environment including, without
limitation, ambient air, surface water, groundwater, land surface and subsurface strata and natural
resources such as wetlands.
Environmental Law
shall mean any applicable Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect
and in each case as amended, and any binding judicial or administrative interpretation thereof,
including any binding judicial or administrative order, consent decree or judgment, relating to the
protection of environment, including, without limitation, ambient air, surface water, groundwater,
land surface and subsurface strata and natural resources such as wetlands, or human health or
safety (to the extent relating to human exposure to Hazardous Materials), or Hazardous Materials.
ERISA
shall mean the Employee Retirement Income Security Act of 1974, as amended
from time to time. Section references to ERISA are to ERISA as in effect at the date of this
13
Agreement and any subsequent provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.
ERISA Affiliate
shall mean each person (as defined in Section 3(9) of ERISA) that
together with the Borrower or a Subsidiary would be deemed to be a single employer within the
meaning of Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
Event of Default
shall have the meaning provided in
Section 11
.
Excess Cash Flow
shall mean, for any period, an amount equal to the excess of
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(a)
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the sum, without duplication, of
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(i)
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Consolidated Net Income for such period,
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(ii)
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an amount equal to the amount of all non-cash
charges to the extent deducted in arriving at such Consolidated Net
Income,
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(iii)
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decreases in Consolidated Working Capital and
long-term account receivables for such period, and
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(iv)
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an amount equal to the aggregate net non-cash
loss on Dispositions by McJunkin Opco and the other Restricted
Subsidiaries during such period (other than Dispositions in the
ordinary course of business) to the extent deducted in arriving at such
Consolidated Net Income, over
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(b)
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the sum, without duplication, of
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(i)
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an amount equal to the amount of all non-cash
credits included in arriving at such Consolidated Net Income and cash
charges included in clauses (a) through (f) of the definition of
Consolidated Net Income (other than cash charges in respect of
Acquisition Transaction Expenses paid on or about the Original Closing
Date and Red Man Closing Date to the extent financed with the proceeds
of Indebtedness incurred on such dates or the equity investments made
by the Investors on such dates),
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(ii)
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without duplication of amounts deducted
pursuant to clause (xi) below in prior years, the amount of capital
expenditures made in cash during such period, except to the extent that
such capital expenditures were financed with the proceeds of
Indebtedness of McJunkin Opco or any other Restricted Subsidiary,
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(iii)
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the aggregate amount of all principal payments
of Indebtedness of McJunkin Opco and the other Restricted Subsidiaries
(including
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14
(A) the principal component of payments in respect of Capitalized
Leases and (B) the amount of any mandatory prepayment of Term Loans
pursuant to Section 5.2(a) of the McJunkin Term Loan Credit Agreement
and, without duplication, Section 5.2(a) hereof to the extent
required due to a Disposition that resulted in an increase to
Consolidated Net Income and not in excess of the amount of such
increase but excluding (x) all other prepayments of the Term Loans,
(y) all other prepayments of Term Loans (as defined in the McJunkin
Opco Term Loan Credit Agreement), and (z) all prepayments of
Revolving Credit Loans and Swing Line Loans) made during such period
(other than in respect of any revolving credit facility to the extent
there is not an equivalent permanent reduction in commitments
thereunder), except to the extent financed with the proceeds of other
Indebtedness of McJunkin Opco or any other Restricted Subsidiary,
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(iv)
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an amount equal to the aggregate net non-cash
gain on Dispositions by McJunkin Opco and the other Restricted
Subsidiaries during such period (other than Dispositions in the
ordinary course of business) to the extent included in arriving at such
Consolidated Net Income,
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(v)
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increases in Consolidated Working Capital for
such period and long-term account receivables for such period,
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(vi)
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cash payments by McJunkin Opco and the other
Restricted Subsidiaries during such period in respect of long-term
liabilities of McJunkin Opco and the other Restricted Subsidiaries
other than Indebtedness,
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(vii)
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without duplication of amounts deducted
pursuant to clause (xi) below in prior fiscal years, the aggregate
amount of cash consideration paid by McJunkin Opco and the other
Restricted Subsidiaries in connection with Investments (including
acquisitions) made during such period pursuant to Section 10.5 of the
McJunkin Opco Credit Agreements to the extent that such Investments
were financed with internally generated cash flow of McJunkin Opco and
the other Restricted Subsidiaries,
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(viii)
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the amount of dividends paid during such period to the extent such
dividends were financed with internally generated cash flow of McJunkin
Opco and the other Restricted Subsidiaries,
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(ix)
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the aggregate amount of expenditures actually
made by McJunkin Opco and the other Restricted Subsidiaries in cash
during such period (including expenditures for the payment of financing
fees)
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15
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to the extent that such expenditures are not expensed during such
period,
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(x)
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the aggregate amount of any premium, make-whole
or penalty payments actually paid in cash by McJunkin Opco and the
other Restricted Subsidiaries during such period that are required to
be made in connection with any prepayment of Indebtedness,
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(xi)
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without duplication of amounts deducted from
Excess Cash Flow in prior periods, the aggregate consideration required
to be paid in cash by any Restricted Subsidiary pursuant to binding
contracts (the
Contract Consideration
) entered into prior to
or during such period relating to Permitted Acquisitions, Investments
in the nature of joint ventures or capital expenditures to be
consummated or made during the period of four consecutive fiscal
quarters of McJunkin Opco following the end of such period,
provided
that to the extent the aggregate amount of internally
generated cash actually utilized to finance such Permitted
Acquisitions, Investment in the nature of joint ventures or capital
expenditures during such period of four consecutive fiscal quarters is
less than the Contract Consideration, the amount of such shortfall
shall be added to the calculation of Excess Cash Flow at the end of
such period of four consecutive fiscal quarters, and
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(xii)
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the amount of cash taxes paid in such period
to the extent they exceed the amount of tax expense deducted in
determining Consolidated Net Income for such period.
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Exchange Rate
shall mean on any day with respect to any Foreign Currency, the rate
at which such Foreign Currency may be exchanged into Dollars, as set forth at approximately
11:00 a.m. (London time) on such day on the Reuters World Currency Page for such Foreign Currency;
in the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate
shall be determined by reference to such other publicly available service for displaying exchange
rates as may be agreed upon by the Administrative Agent and the Borrower, or, in the absence of
such agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of
exchange of the Administrative Agent in the market where its foreign currency exchange operations
in respect of such Foreign Currency are then being conducted, at or about 10:00 a.m. (New York City
time) on such date for the purchase of Dollars for delivery two Business Days later.
Excluded Subsidiary
means (a) each Subsidiary listed on
Schedule 1.1(d)
hereto, (b) any Subsidiary that is not a wholly-owned Subsidiary, (c) each Unrestricted Subsidiary
and (d) each other Subsidiary that satisfies the definition of Excluded Subsidiary in the
McJunkin Opco Credit Agreements.
Excluded Taxes
shall mean, with respect to the Administrative Agent, the Collateral
Agent, or any Lender (a) (i) net income taxes and franchise taxes (imposed in lieu of net income
16
taxes) and capital taxes imposed on the Administrative Agent, or any Lender and (ii) any taxes
imposed on the Administrative Agent, or any Lender as a result of any current or former connection
between the Administrative Agent, or such Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Administrative Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or having been a party to or
having enforced this Agreement or any other Credit Document) and (b) (i) any withholding tax that
is imposed by a jurisdiction in which the Borrower is located or organized on amounts payable to
such Lender under the law in effect at the time such Lender becomes a party to this Agreement (or,
in the case of a Participant, on the date such Participant became a Participant hereunder);
provided
that
this clause (b)(i) shall not apply to the extent that (x) the
indemnity payments or additional amounts any Lender (or Participant) would be entitled to receive
(without regard to this clause (b)(i)) do not exceed the indemnity payment or additional amounts
that the person making the assignment, participation or transfer to such Lender (or Participant)
would have been entitled to receive in the absence of such assignment, participation or transfer or
(y) any Tax is imposed on a Lender in connection with an interest or participation in any Loan or
other obligation that such Lender was required to acquire pursuant to
Section 14.8(a)
or
that such Lender acquired pursuant to
Section 14.7
(it being understood and agreed, for the
avoidance of doubt, that any withholding tax imposed on a Lender as a result of a Change in Law
occurring after the time such Lender became a party to this Agreement (or designates a new lending
office) shall not be an Excluded Tax) or (ii) any Tax to the extent attributable to such Lenders
failure to comply with
Section 5.4(d)
or
Section 5.4(e)
.
Federal Funds Effective Rate
shall mean, for any day, the weighted average of the
per annum
rates on overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day,
the Federal Funds Effective Rate for such day shall be the average rate charged to the
Administrative Agent on such day on such transactions as determined by the Administrative Agent.
Fees
shall mean all amounts payable pursuant to, or referred to in,
Section
4.1
.
Financial Officer
shall mean the Chief Financial Officer, principal accounting
officer, Treasurer, or Controller or any other senior financial officer of the Borrower designated
in writing to the Administrative Agent by any of the foregoing and reasonably acceptable to the
Administrative Agent.
Foreign Asset Sale
shall have the meaning provided in
Section 5.2(g)
.
Foreign Currencies
shall mean any currency other than Dollars.
Foreign Plan
shall mean any employee benefit plan, program, policy, arrangement or
agreement maintained or contributed to by the Borrower or any of its Subsidiaries with respect to
employees employed outside the United States.
17
Foreign Subsidiary
shall mean each Subsidiary of the Borrower that is not a Domestic
Subsidiary.
Fund
shall mean GS Capital Partners V Fund, L.P. and GS Capital Partners VI Fund,
L.P.
Funded Debt
shall mean all indebtedness of McJunkin Opco and the other Restricted
Subsidiaries for borrowed money that matures more than one year from the date of its creation or
matures within one year from such date that is renewable or extendable, at the option of any
Restricted Subsidiary, to a date more than one year from such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to extend credit during a period
of more than one year from such date, including all amounts of Funded Debt required to be paid or
prepaid within one year from the date of its creation and, in the case of McJunkin Opco,
Indebtedness in respect of the Loans (as defined in the McJunkin Opco Term Loan Credit Agreement).
GAAP
shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time;
provided
,
however
, that if the Borrower
notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof
to eliminate the effect of any change occurring after the Closing Date in GAAP or in the
application thereof on the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance herewith.
Governmental Authority
shall mean any nation, sovereign or government, any state,
province, territory or other political subdivision thereof, and any entity or authority exercising
executive, legislative, judicial, regulatory or administrative functions of or pertaining to
government, including a central bank or stock exchange.
Guarantee Obligations
shall mean, as to any Person, any obligation of such Person
guaranteeing or intended to guarantee any Indebtedness of any other Person (the
primary
obligor
) in any manner, whether directly or indirectly, including any obligation of such
Person, whether or not contingent, (a) to purchase any such Indebtedness or any property
constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such Indebtedness or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of
any such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness or
(d) otherwise to assure or hold harmless the owner of such Indebtedness against loss in respect
thereof;
provided
,
however
, that the term
Guarantee Obligations
shall not
include endorsements of instruments for deposit or collection in the ordinary course of business or
customary and reasonable indemnity obligations in effect on the Closing Date or entered into in
connection with any acquisition or disposition of assets permitted under this Agreement (other than
such obligations with respect to Indebtedness). The amount of any Guarantee Obligation
18
shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness
in respect of which such Guarantee Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such Person is required to
perform thereunder) as determined by such Person in good faith.
Hazardous Materials
shall mean (a) any petroleum or petroleum products, radioactive
materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment
that contain dielectric fluid containing regulated levels of polychlorinated biphenyls, and radon
gas; (b) any chemicals, materials or substances defined as or included in the definition of
hazardous substances, hazardous waste, hazardous materials, extremely hazardous waste,
restricted hazardous waste, toxic substances, toxic pollutants, contaminants, or
pollutants, or words of similar import, under any applicable Environmental Law; and (c) any other
chemical, material or substance, which is prohibited, limited or regulated by any Environmental
Law.
Hedge Agreement
means an Interest Rate Agreement or a Currency Agreement entered
into in order to satisfy the requirements of this Agreement or otherwise in the ordinary course of
Borrowers or any of its Subsidiaries businesses.
Historical Financial Statements
shall mean as of the Closing Date, the audited
financial statements of McJunkin Opco and its Subsidiaries, for the 2005, 2006 and 2007 fiscal
years, consisting of balance sheets and the related consolidated statements of income,
stockholders equity and cash flows for such fiscal years.
Holdings shall have the meaning provided in the recitals to this Agreement.
Holdings Contribution
shall have the meaning provided in
Section 3.1
.
Indebtedness
of any Person shall mean (a) all indebtedness of such Person for
borrowed money, (b) the deferred purchase price of assets or services that in accordance with GAAP
would be included as liabilities in the balance sheet of such Person, (c) the face amount of all
letters of credit issued for the account of such Person and, without duplication, all drafts drawn
thereunder, (d) all Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed, (e) all Capitalized Lease
Obligations of such Person, (f) all obligations of such Person under interest rate swap, cap or
collar agreements, interest rate future or option contracts, currency swap agreements, currency
future or option contracts, commodity price protection agreements or other commodity price hedging
agreements and other similar agreements and (g) without duplication, all Guarantee Obligations of
such Person,
provided
that Indebtedness shall not include (i) trade payables and accrued
expenses, in each case payable directly or through a bank clearing arrangement and arising in the
ordinary course of business, (ii) deferred or prepaid revenue, (iii) purchase price holdbacks in
respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed
obligations of the respective seller and (iv) all intercompany Indebtedness having a term not
exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary
course of business.
Indemnified Taxes
shall mean all Taxes (other than Excluded Taxes) and Other Taxes.
19
Intercreditor Agreement
shall mean that certain Amended and Restated Intercreditor
Agreement dated as of the Red Man Closing Date, by and among McJunkin Opco, the Guarantors from
time to time party thereto, The CIT Group/Business Credit, Inc., Bank of America, N.A., and Lehman
Commercial Paper Inc., as it may be amended, restated, amended and restated, supplemented or
otherwise modified from time to time.
Interest Period
shall mean, with respect to any Term Loan, the interest period
applicable thereto, as determined pursuant to
Section 2.9
.
Interest Rate Agreement
means any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedging agreement or other similar
agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure
associated with Borrowers and its Subsidiaries operations and not for speculative purposes.
Investment
shall mean, for any Person: (a) the acquisition (whether for cash,
property, services or securities or otherwise) of Stock, Stock Equivalents, bonds, notes,
debentures, partnership or other ownership interests or other securities of any other Person
(including any short sale or any sale of any securities at a time when such securities are not
owned by the Person entering into such sale); (b) the making of any deposit with, or advance, loan
or other extension of credit to, any other Person (including the purchase of property from another
Person subject to an understanding or agreement, contingent or otherwise, to resell such property
to such Person), but excluding any such advance, loan or extension of credit having a term not
exceeding 364 days arising in the ordinary course of business; or (c) the entering into of any
guarantee of, or other contingent obligation with respect to, Indebtedness.
Investors
shall mean the Sponsor, the Management Investors and each other investor
providing a portion of the equity investments in connection with the McJunkin Transaction on the
Original Closing Date and the Red Man Transaction on the Red Man Closing Date.
McJunkin Opco
shall have the meaning provided in the preamble to this Agreement.
Lender
shall have the meaning provided in the preamble to this Agreement.
Lender Default
shall mean, (a) a Lender having notified the Administrative Agent
and/or the Borrower that it does not intend to comply with the obligations under
Section
2.1
or (b) a Lender being deemed insolvent or becoming the subject of a bankruptcy or
insolvency proceeding.
LIBOR Loan
shall mean any Loan bearing interest at a rate determined by reference to
the LIBOR Rate.
LIBOR Rate
shall mean, in the case of any LIBOR Loan, with respect to each day
during each Interest Period pertaining to such LIBOR Loan, (a) the rate of interest determined on
the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing
on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00
a.m. (London time) two Business Days prior to the beginning of such Interest Period multiplied by
(b) the Statutory Reserve Rate. In the event that any such rate does not appear on the applicable
Page of the Telerate Service (or otherwise on such service), the
LIBOR Rate
for the
20
purposes of this paragraph shall be determined by reference to such other publicly available
service for displaying LIBOR rates as may be agreed upon by the Administrative Agent and the
Borrower or, in the absence of such agreement, the
LIBOR Rate
for the purposes of this
paragraph shall instead be the rate
per annum
notified to the Administrative Agent by the Reference
Lender as the rate at which the Reference Lender is offered Dollar deposits at or about 11:00 a.m.
(London time) two Business Days prior to the beginning of such Interest Period in the interbank
LIBOR market where the LIBOR and foreign currency and exchange operations in respect of its LIBOR
Loans are then being conducted for delivery on the first day of such Interest Period for the number
of days comprised therein and in an amount comparable to the amount of its LIBOR Loan, as the case
may be, to be outstanding during such Interest Period.
Lien
shall mean any mortgage, pledge, security interest, hypothecation, assignment,
lien (statutory or other) or similar encumbrance (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease in the nature
thereof).
Loan
shall mean any Term Loan made by any Lender.
Management Investors
shall mean the directors, management officers and employees of
McJunkin Opco and its Subsidiaries who are investors in the McJunkin Opco or Borrower (or any
direct or indirect parent thereof) on the Red Man Closing Date.
Material Adverse Change
shall mean any event or circumstance which has resulted or
is reasonably likely to result in a material adverse change in the business, assets, operations,
properties or financial condition of the Borrower and its Subsidiaries, taken as a whole or that
would materially adversely affect the ability of the Borrower to perform its payment obligations
under this Agreement or any of the other Credit Documents.
Material Adverse Effect
shall mean a circumstance or condition affecting the
business, assets, operations, properties or financial condition of the Borrower and the
Subsidiaries, taken as a whole, that would materially adversely affect (a) the business, assets,
operations, properties, or financial condition of the Borrower and its Subsidiaries, taken as a
whole, (b) the ability of the Borrower to perform its payment obligations under this Agreement or
any of the other Credit Documents or (c) the rights and remedies of the Administrative Agent,
Collateral Agent and the Lenders under this Agreement or any of the other Credit Documents.
Material Subsidiary
shall mean, at any date of determination, each Restricted
Subsidiary (a) whose total assets at the last day of the Test Period ending on the last day of the
most recent fiscal period for which
Section 9.1
Financials have been delivered were equal
to or greater than 5% of the consolidated total assets of McJunkin Opco and the other Restricted
Subsidiaries at such date or (b) whose gross revenues for such Test Period were equal to or greater
than 5% of the consolidated gross revenues of McJunkin Opco and the other Restricted Subsidiaries
for such period, in each case determined in accordance with GAAP.
McJunkin Opco
shall have the meaning provided in the preamble to this Agreement.
21
McJunkin Opco Credit Agreements
shall have the McJunkin Opco Revolving Credit
Agreement and the McJunkin Opco Term Loan Credit Agreement, or any of them, as the context
requires.
McJunkin Opco Revolving Credit Agreement
shall have the meaning provided in the
recitals to this Agreement.
McJunkin Opco Revolving Loan Documents
shall mean the Credit Documents (as defined
in the McJunkin Revolving Credit Agreement).
McJunkin Opco Term Loan Credit Agreement
shall have the meaning provided in recitals
to this Agreement (it being agreed that at any time after the Discharge of the McJunkin Opco Term
Loan Obligations, McJunkin Opco Term Loan Credit Agreement shall mean such agreement as in effect
immediately prior to such Discharge).
McJunkin Opco Term Loan Documents
shall mean the Credit Documents (as defined in the
McJunkin Term Loan Credit Agreement).
McJunkin Opco Loan Documents
shall mean, collectively, the McJunkin Opco Revolving
Loan Documents and the McJunkin Opco Term Loan Documents.
McJunkin Transaction
shall have the meaning provided in recitals to this Agreement.
Minimum Borrowing Amount
shall mean $1,000,000 with respect to the Term Loans.
Moodys
shall mean Moodys Investors Service, Inc. or any successor by merger or
consolidation to its business.
Net Cash Proceeds
shall mean, with respect to any Prepayment Event, (a) the gross
cash proceeds (including payments from time to time in respect of installment obligations, if
applicable) received by or on behalf of the Borrower or any of the Restricted Subsidiaries in
respect of such Prepayment Event or issuance, as the case may be, less (b) the sum of:
(i) the amount, if any, of all taxes paid or estimated to be payable by the Borrower or
any of the Restricted Subsidiaries in connection with such Prepayment Event,
(ii) the amount of any reasonable reserve established in accordance with GAAP against
any liabilities (other than any taxes deducted pursuant to clause (i) above) (x) associated
with the assets that are the subject of such Prepayment Event and (y) retained by the
Borrower or any of the Restricted Subsidiaries,
provided
that the amount of any
subsequent reduction of such reserve (other than in connection with a payment in respect of
any such liability) shall be deemed to be Net Cash Proceeds of such a Prepayment Event
occurring on the date of such reduction,
(iii) the amount of any Indebtedness secured by a Lien on the assets that are the
subject of such Prepayment Event to the extent that the instrument creating or
22
evidencing such Indebtedness requires that such Indebtedness be repaid upon
consummation of such Prepayment Event,
(iv) in the case of any Asset Sale Prepayment Event, Casualty Event or Permitted Sale
Leaseback, the amount of any proceeds of such Prepayment Event that the Borrower or any
Subsidiary has reinvested (or intends to reinvest within the Reinvestment Period or has
entered into a binding commitment prior to the last day of the Reinvestment Period to
reinvest) in the business of the Borrower or any of the Restricted Subsidiaries (subject to
Section 10.12
of the McJunkin Opco Credit Agreements),
provided
that
any portion of such proceeds that has not been so reinvested within such Reinvestment Period
(with respect to such Prepayment Event, the
Deferred Net Cash Proceeds
) shall,
unless the Borrower or a Subsidiary has entered into a binding commitment prior to the last
day of such Reinvestment Period to reinvest such proceeds, (x) be deemed to be Net Cash
Proceeds of an Asset Sale Prepayment Event, Casualty Event or Permitted Sale Leaseback
occurring on the last day of such Reinvestment Period or 180 days after the date such
Borrower or such Subsidiary has entered into such binding commitment, as applicable, and (y)
be applied to the repayment of Term Loans in accordance with
Section 5.2(a)(i)
; and
(v) reasonable and customary fees.
Non-Cash Charges
shall mean (a) losses on asset sales (other than asset sales in the
ordinary course of business), disposals or abandonments, (b) any impairment charge or asset
write-off related to intangible assets (including good-will), long-lived assets, and investments in
debt and equity securities pursuant to GAAP, (c) all losses from investments recorded using the
equity method, (d) stock-based awards compensation expense, and (e) other non-cash charges
(
provided
that if any non-cash charges referred to in this clause (e) represent an accrual
or reserve for potential cash items in any future period, the cash payment in respect thereof in
such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding
amortization of a prepaid cash item that was paid in a prior period).
Non-Consenting Lender
shall have the meaning provided in
Section 14.7(b)
.
Non-Defaulting Lender
shall mean and include each Lender other than a Defaulting
Lender.
Non-U.S. Lender
shall mean any Lender that is not, for United States federal income
tax purposes, (a) a citizen or resident of the United States, (b) a corporation or partnership or
entity treated as a corporation or partnership created or organized in or under the laws of the
United States, or any political subdivision thereof, (c) an estate whose income is subject to U.S.
federal income taxation regardless of its source or (d) a trust if a court within the United States
is able to exercise primary supervision over the administration of such trust and one or more
United States persons have the authority to control all substantial decisions of such trust or a
trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a United States person.
23
Non-U.S. Participant
shall mean any Participant that if it were a Lender would
qualify as a Non-U.S. Lender.
Notice of Borrowing
shall mean each notice of a Borrowing of Term Loans pursuant to
Section 2.3(a)
.
Notice of Conversion or Continuation
shall have the meaning provided in
Section
2.6
.
Obligations
shall have the meaning assigned to such term in the Security Documents.
Organizational Documents
shall mean (a) with respect to any corporation, its
certificate or articles of incorporation or organization, as amended, and its by-laws, as amended,
(b) with respect to any limited partnership, its certificate of limited partnership (if any), as
amended, and its partnership agreement, as amended, (c) with respect to any general partnership,
its partnership agreement, as amended, and (d) with respect to any limited liability company, its
articles of organization (if any), as amended, and its operating agreement, as amended.
Original Closing Date
shall have the meaning provided in the recitals to this
Agreement.
Other Taxes
shall mean any and all present or future stamp, documentary or any other
excise, property or similar taxes (including interest, fines, penalties, additions to tax and
related expenses with regard thereto) arising directly from any payment made or required to be made
under this Agreement or from the execution or delivery of, registration or enforcement of,
consummation or administration of, or otherwise with respect to, this Agreement or any other Credit
Document.
Participant
shall have the meaning provided in
Section 14.6(c)
.
Patriot Act
shall have the meaning provided in
Section 14.18
.
PBGC
shall mean the Pension Benefit Guaranty Corporation established pursuant to
Section 4002 of ERISA, or any successor thereto.
Perfection Certificate
shall mean a certificate of the Borrower in the form of
Exhibit E
or any other form approved by the Administrative Agent.
Permitted Acquisition
shall have the meaning assigned to such term in the McJunkin
Opco Credit Agreements.
Permitted Investments
shall mean:
(a) securities issued or unconditionally guaranteed by the United States government or
any agency or instrumentality thereof, in each case having maturities of not more than 12
months from the date of acquisition thereof;
(b) securities issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof or any
24
political subdivision of any such state or any public instrumentality thereof or any
political subdivision of any such state or any public instrumentality thereof having
maturities of not more than 12 months from the date of acquisition thereof and, at the time
of acquisition, having an investment grade rating generally obtainable from either S&P or
Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, then
from another nationally recognized rating service);
(c) commercial paper issued by any Lender or any bank holding company owning any
Lender;
(d) commercial paper maturing no more than 12 months after the date of creation thereof
and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or
Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(e) domestic and LIBOR certificates of deposit or bankers acceptances maturing no more
than two years after the date of acquisition thereof issued by any Lender or any other bank
having combined capital and surplus of not less than $250,000,000 in the case of domestic
banks;
(f) repurchase agreements with a term of not more than 30 days for underlying
securities of the type described in clauses (a), (b) and (e) above entered into with any
bank meeting the qualifications specified in clause (e) above or securities dealers of
recognized national standing;
(g) marketable short-term money market and similar funds (x) either having assets in
excess of $250,000,000 or (y) having a rating of at least A-1 or P-1 from either S&P or
Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(h) shares of investment companies that are registered under the Investment Company Act
of 1940 and substantially all the investments of which are one or more of the types of
securities described in clauses (a) through (g) above; and
(i) in the case of Investments by any Restricted Foreign Subsidiary or Investments made
in a country outside the United States of America, Permitted Investments shall also include
((i) direct obligations of the sovereign nation (or any agency thereof) in which such
Restricted Foreign Subsidiary is organized and is conducting business or where such
Investment is made, or in obligations fully and unconditionally guaranteed by such sovereign
nation (or any agency thereof), in each case maturing within a two years after such date and
having, at the time of the acquisition thereof, a rating equivalent to at least A-1 from S&P
and at least P-1 from Moodys, (ii) investments of the type and maturity described in
clauses (a) through (h) above of foreign obligors, which Investments or obligors (or the
parents of such obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies, (iii) shares of money market mutual or similar funds
which invest exclusively in assets
otherwise satisfying the requirements of this definition (including this proviso) and
(iv) other short-term investments utilized by Foreign Restricted Subsidiaries in accordance
25
with normal investment practices for cash management in investments analogous to the
foregoing investments in clauses (a) through (i).
Permitted Liens
shall mean:
(a) Liens for taxes, assessments or governmental charges or claims not yet due or which
are being contested in good faith and by appropriate proceedings for which appropriate
reserves have been established in accordance with GAAP;
(b) Liens in respect of property or assets of the Borrower or any of the Subsidiaries
imposed by law, such as carriers, warehousemens and mechanics Liens and other similar
Liens arising in the ordinary course of business, in each case so long as such Liens arise
in the ordinary course of business and do not individually or in the aggregate have a
Material Adverse Effect;
(c) Liens arising from judgments or decrees in circumstances not constituting an Event
of Default under
Section 11.11
;
(d) Liens incurred or deposits made in connection with workers compensation,
unemployment insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations incurred in the ordinary
course of business or otherwise constituting Investments permitted by
Section 10.5
of the McJunkin Opco Credit Agreements;
(e) ground leases in respect of real property on which facilities owned or leased by
the Borrower or any of its Subsidiaries are located;
(f) easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not interfering in any material respect with the
business of the Borrower and its Subsidiaries, taken as a whole;
(g) any interest or title of a lessor or secured by a lessors interest under any lease
permitted by this Agreement;
(h) Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(i) Liens on goods the purchase price of which is financed by a documentary letter of
credit issued for the account of the Borrower or any of its Subsidiaries,
provided
that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect
of such letter of credit to the extent permitted under
Section 10.1
of the McJunkin
Opco Credit Agreements;
(j) leases or subleases granted to others not interfering in any material respect with
the business of the Borrower and its Subsidiaries, taken as a whole;
26
(k) Liens arising from precautionary Uniform Commercial Code financing statement or
similar filings made in respect of operating leases entered into by the Borrower or any of
its Subsidiaries; and
(l) Liens created in the ordinary course of business in favor of banks and other
financial institutions over credit balances of any bank accounts of the Borrower and the
Restricted Subsidiaries held at such banks or financial institutions, as the case may be, to
facilitate the operation of cash pooling and/or interest set-off arrangements in respect of
such bank accounts in the ordinary course of business.
Permitted Sale Leaseback
shall mean any Sale Leaseback consummated by the Borrower
or any of the Restricted Subsidiaries after the Original Closing Date,
provided
that
any such Sale Leaseback not between the Borrower and any Restricted Subsidiary or any
Restricted Subsidiary and another Restricted Subsidiary is consummated for fair value as determined
at the time of consummation in good faith by the Borrower or such Restricted Subsidiary and, in the
case of any Sale Leaseback (or series of related Sales Leasebacks) the aggregate proceeds of which
exceed $25,000,000 the board of directors of the Borrower or such Restricted Subsidiary (which such
determination may take into account any retained interest or other Investment of the Borrower or
such Restricted Subsidiary in connection with, and any other material economic terms of, such Sale
Leaseback).
Person
shall mean any individual, partnership, joint venture, firm, corporation,
limited liability company, association, trust or other enterprise or any Governmental Authority.
Plan
shall mean any multiemployer or single-employer plan, as defined in Section
4001 of ERISA and subject to Title IV of ERISA, that is or was within any of the preceding six plan
years maintained or contributed to by (or to which there is or was an obligation to contribute or
to make payments to) the Borrower, a Subsidiary or an ERISA Affiliate.
Platform
shall have the meaning provided in
Section 14.17(b)
.
Pledge Agreement
shall mean the Pledge Agreement, entered into by the relevant
pledgors party thereto and the Collateral Agent for the benefit of the Lenders and other Secured
Parties, substantially in the form of
Exhibit F
, on the Closing Date, as the same may be
amended, supplemented or otherwise modified from time to time.
Post-Acquisition Period
means, with respect to any Permitted Acquisition, the period
beginning on the date such Permitted Acquisition is consummated and ending on the last day of the
fourth full consecutive fiscal quarter immediately following the date on which such Permitted
Acquisition is consummated.
Prepayment Event
shall mean any Asset Sale Prepayment Event, Casualty Event, Debt
Incurrence Prepayment Event or any Permitted Sale Leaseback
Prime Rate
means the rate of interest quoted in the
Wall Street Journal
, Money Rates
Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least
75% of the nations thirty (30) largest banks), as in effect from time to time. The Prime Rate is
a reference rate and does not necessarily represent the lowest or best rate actually charged to any
27
customer. The Administrative Agent or any other Lender may make commercial loans or other
loans at rates of interest at, above or below the Prime Rate.
Pro Forma Adjustment
shall mean, for any Test Period that includes all or any part
of a fiscal quarter included in any Post-Acquisition Period, with respect to the Acquired EBITDA of
the applicable Acquired Entity or Business or the Consolidated EBITDA of the Borrower, the pro
forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the case may be,
projected by the Borrower or McJunkin Opco in good faith as a result of (a) actions taken during
such Post-Acquisition Period for the purposes of realizing reasonably identifiable and factually
supportable cost savings or (b) any additional costs incurred during such Post-Acquisition Period,
in each case in connection with the combination of the operations of such Acquired Entity or
Business with the operations of McJunkin Opco and the other Restricted Subsidiaries;
provided
that, so long as such actions are taken during such Post-Acquisition Period or
such costs are incurred during such Post-Acquisition Period, as applicable, it may be assumed, for
purposes of projecting such pro forma increase or decrease to such Acquired EBITDA or such
Consolidated EBITDA, as the case may be, that such cost savings will be realizable during the
entirety of such Test Period, or such additional costs, as applicable, will be incurred during the
entirety of such Test Period;
provided
further
that any such pro forma increase or
decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without
duplication for cost savings or additional costs already included in such Acquired EBITDA or such
Consolidated EBITDA, as the case may be, for such Test Period.
Pro Forma Adjustment Certificate
shall mean any certificate of an Authorized Officer
of the Borrower delivered pursuant to
Section 9.1(h)
or
Section 9.1(d)
.
Pro Forma Basis
,
Pro Forma Compliance
and
Pro Forma Effect
shall
mean, with respect to compliance with any test or covenant hereunder, that (A) to the extent
applicable, the Pro Forma Adjustment shall have been made and (B) all Specified Transactions and
the following transactions in connection therewith shall be deemed to have occurred as of the first
day of the applicable period of measurement in such test or covenant: (a) income statement items
(whether positive or negative) attributable to the property or Person subject to such Specified
Transaction, (i) in the case of a sale, transfer or other disposition of all or substantially all
Stock and Stock Equivalents in any Subsidiary of the Borrower or any division, product line, or
facility used for operations of McJunkin Opco or any of its Subsidiaries, shall be excluded, and
(ii) in the case of a Permitted Acquisition or Investment described in the definition of
Specified Transaction, shall be included, (b) any retirement of Indebtedness, and (c) any
Indebtedness incurred or assumed by McJunkin Opco or any of the other Restricted Subsidiaries in
connection therewith and if such Indebtedness has a floating or formula rate, shall have an implied
rate of interest for the applicable period for purposes of this definition determined by utilizing
the rate which is or would be in effect with respect to such Indebtedness as at the relevant date
of determination;
provided
that, without limiting the application of the Pro Forma
Adjustment pursuant to (A) above, the foregoing pro forma adjustments may be applied to any such
test or covenant solely to the extent that such adjustments are consistent with the definition of
Consolidated EBITDA and give effect to events (including operating expense reductions) that are (i)
(x) directly attributable to such transaction, (y) expected to have a continuing impact on McJunkin
Opco and the other Restricted Subsidiaries and (z) factually supportable or (ii) otherwise
consistent with the definition of Pro Forma Adjustment.
28
Qualified IPO
shall mean a bona fide underwritten sale to the public of common Stock
of the Borrower, any of its direct or indirect Subsidiaries or any of its direct or indirect parent
companies pursuant to a registration statement (other than on Form S-8 or any other form relating
to securities issuable under any benefit plan of Borrower, any of its direct or indirect
Subsidiaries or any of its direct or indirect parent companies) that is declared effective by the
SEC or the equivalent offering on a private exchange or platform.
Real Estate
shall have the meaning provided in
Section 9.1(i)
.
Red Man Closing Date
shall have the meaning provided in the recitals to this
Agreement.
Red Man Transaction
shall have the meaning provided in recitals to this Agreement.
Reference Lender
shall mean JPMorgan Chase Bank, N.A.
Register
shall have the meaning provided in
Section 14.6(b)(iv
).
Regulation D
shall mean Regulation D of the Board as from time to time in effect and
any successor to all or a portion thereof establishing reserve requirements.
Regulation T
shall mean Regulation T of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
Regulation U
shall mean Regulation U of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
Regulation X
shall mean Regulation X of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
Reinvestment Period
shall mean 15 months following the date of an Asset Sale
Prepayment Event or Casualty Event.
Related Parties
shall mean, with respect to any specified Person, such Persons
Affiliates and the directors, officers, employees, agents, trustees, advisors of such Person and
any Person that possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of such Person, whether through the ability to exercise voting power, by
contract or otherwise.
Report
shall mean reports prepared in good faith by an Agent or another Person
showing the results of appraisals, field examinations or audits pertaining to the Borrowers assets
from information furnished by or on behalf of the Borrower, after an Agent has exercised its rights
of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the
applicable Agent.
Reportable Event
shall mean an event described in Section 4043 of ERISA and the
regulations thereunder.
29
Required Lenders
shall mean, at any date, Non Defaulting Lenders having or holding a
majority of the outstanding principal amount of the Term Loans in the aggregate at such date.
Requirement of Law
shall mean, as to any Person, the Certificate of Incorporation
and by-laws or other organizational or governing documents of such Person, and any law, treaty,
rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or assets or to which
such Person or any of its property or assets is subject.
Restricted Foreign Subsidiary
shall mean a Foreign Subsidiary that is a Restricted
Subsidiary.
Restricted Subsidiary
shall mean McJunkin Opco and any other Subsidiary of the
Borrower other than an Unrestricted Subsidiary.
Sale Leaseback
shall mean any transaction or series of related transactions pursuant
to which the Borrower or any of the Restricted Subsidiaries (a) sells, transfers or otherwise
disposes of any property, real or personal, whether now owned or hereafter acquired, and (b) as
part of such transaction, thereafter rents or leases such property or other property that it
intends to use for substantially the same purpose or purposes as the property being sold,
transferred or disposed.
S&P
shall mean Standard & Poors Ratings Services or any successor by merger or
consolidation to its business.
SEC
shall mean the Securities and Exchange Commission or any successor thereto.
Section 9.1 Financials
shall mean the financial statements delivered, or required to
be delivered, pursuant to Section 9.1(a) or (b) together with the accompanying officers
certificate delivered, or required to be delivered, pursuant to
Section 9.1(e)
.
Secured Leverage Ratio
shall mean, as of any date of determination, the ratio of (a)
Consolidated Secured Debt as of the last day of the relevant Test Period to (b) Consolidated EBITDA
for such Test Period.
Secured Parties
shall have the meaning assigned to such term in the applicable
Security Documents.
Security Agreement
shall mean the Security Agreement entered into by the Borrower,
the other grantors party thereto and the Collateral Agent for the benefit of the Lenders,
substantially in the form of
Exhibit G
, as the same may be amended, supplemented or
otherwise modified from time to time.
Security Documents
shall mean, collectively, (a) the Security Agreement, (b) the
Pledge Agreement and (c) each other security agreement or other instrument or document
executed and delivered pursuant to
Section 9.17
or pursuant to any of the Security
Documents to secure any of the Obligations.
30
Sold Entity or Business
shall have the meaning provided in the definition of the
term Consolidated EBITDA.
Solvent
shall mean, with respect to the Borrower, that as of the Closing Date, both
(a) (i) the sum of the Borrowers debt (including contingent liabilities) does not exceed the
present fair saleable value of the Borrowers present assets; (ii) the Borrowers capital is not
unreasonably small in relation to its business as contemplated on the Closing Date; and (iii) the
Borrower has not incurred and does not intend to incur, or believe that it will incur, debts
including current obligations beyond its ability to pay such debts as they become due (whether at
maturity or otherwise); and (b) such Person is solvent within the meaning given that term and
similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes
of this definition, 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).
Special Equity Dividend
shall have the meaning provided in recitals to this
Agreement.
Specified Subsidiary
shall mean, at any date of determination (a) any Material
Subsidiary or (b) any Unrestricted Subsidiary (i) whose total assets at the last day of the Test
Period ending on the last day of the most recent fiscal period for which
Section 9.1
Financials have been delivered were equal to or greater than 15% of the consolidated total assets
of McJunkin Opco and its Subsidiaries at such date, (ii) whose gross revenues for such Test Period
were equal to or greater than 15% of the consolidated gross revenues of McJunkin Opco and its
Subsidiaries for such period, in each case determined in accordance with GAAP and (c) each other
Subsidiary that, when such Subsidiarys total assets or gross revenues are aggregated with the
total assets or gross revenues, as applicable, of each other Subsidiary that is the subject of an
Event of Default described in
Section 11.5
would constitute a Specified Subsidiary under
clause (a) or (b) above.
Specified Transaction
shall have the meaning assigned to such term in the McJunkin
Opco Credit Agreements.
Sponsor
shall mean the Fund and its respective Affiliates.
Sponsor Affiliated Institutional Lender
means any investment fund or other
institutional lender that is an Affiliate of Fund so long as (a) Fund owns directly or indirectly
less than all of the equity interests of such Person and (b) Fund does not directly appoint any
Person with responsibility for reviewing or approving credit decisions with respect to the
transactions contemplated by the Credit Documents;
provided
that each Sponsor Affiliated
Institutional Lender shall agree in the applicable Assignment and Acceptance that it will not
provide any information obtained by such Person in its capacity as a Lender to any Sponsor
Affiliated Lender.
Sponsor Affiliated Lender
means any investment fund, managed account or other entity
with respect to which the Principal Investment Area of Goldman, Sachs & Co. acts as an advisor
31
or manager (other than any private equity fund or other Person that is primarily engaged in the making
of investments in loans or debt securities);
provided
such Person (a) together with each
other Sponsor Affiliated Lender, holds no more than 30% of the aggregate principal amount of the
Loans outstanding at any time, (b) executes and delivers a waiver in substantially the form of
Exhibit D
stating that it shall have no right whatsoever so long as such Person is an
Affiliate of Borrower or the Fund to (i) consent to any amendment, modification, waiver, consent or
other such action with respect to any of the terms of this Agreement or any other Credit Document;
provided
that such Person shall also instruct the Administrative Agent to automatically
deem any Loans held by such Person to be voted pro rata according to the Loans of all other Lenders
(other than any Sponsor Affiliated Lender) in connection with any such amendment, modification,
waiver, consent or other action, (ii) require any Agent or other Lender to undertake any action (or
refrain from taking any action) with respect to this Agreement or any other Credit Document, (iii)
otherwise vote on any matter related to this Agreement or any other Credit Document;
provided
that such Person shall also instruct the Administrative Agent to automatically
deem any Loans held by such Person to be voted pro rata according to the Loans of all other Lenders
(other than any Sponsor Affiliated Lender), (iv) attend any meeting (live or by any electronic
means) in its capacity as a Lender with any Agent or other Lender or receive any information from
any Agent or other Lender, (v) have access to the Platform, or (vi) make or bring any claim, in
such Persons capacity as Lender, against the Agent or any Lender with respect to the duties and
obligations of such Person under this Agreement and the other Credit Documents;
provided
that no such amendment, modification, waiver or consent referred to above shall deprive us of such
Persons share of any payments or other recoveries which the Lenders are entitled to share on a pro
rata basis hereunder and (c) includes a representation in the Assignment and Acceptance with
respect to each Sponsor Purchase and each Sponsor Sale stating that such Sponsor Affiliated Lender
does not have any material non-public information (
MNPI
) with respect to Borrower or any
of its Subsidiaries or securities that either (i) has not been disclosed to the Lenders (other than
Lenders that do not wish to receive MNPI with respect to Borrower or any of its Subsidiaries or
securities) prior to such time or (ii) if not disclosed to the Lenders, could reasonably be
expected to have a material adverse effect upon, or otherwise be material to, a Lenders decision
to sell their Loans to such Sponsor Affiliated Lender or purchase Loans from such Sponsor
Affiliated Lender, as applicable.
Sponsor Purchase
shall have the meaning provided in
Section 3.1
.
Sponsor Purchase Cap Amount
shall have the meaning provided in
Section 3.1
.
Sponsor Contribution
shall have the meaning provided in
Section 3.1
.
Sponsor Sale
means the sale, assignment or transfer by a Sponsor Affiliated Lender
of all or a portion of its rights and obligations under this Agreement, including, without
limitation, all or a portion of its Loans owing to it, in accordance with
Section 14.6
.
Statutory Reserve Rate
shall mean for any day as applied to any LIBOR Loan, a
fraction (expressed as a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve percentages that are in
effect on that day (including any marginal, special, emergency or supplemental reserves),
expressed as a decimal, as prescribed by the Board and to which the Administrative Agent is
32
subject, for eurocurrency funding (currently referred to as
Eurocurrency Liabilities
in
Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such
Regulation D. LIBOR Loans shall be deemed to constitute eurocurrency funding and to be subject to
such reserve requirements without benefit of or credit for proration, exemptions or offsets that
may be available from time to time to any Lender under such Regulation D or any comparable
regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
Stock
shall mean shares of capital stock or shares in the capital, as the case may
be (whether denominated as common stock or preferred stock or ordinary shares or preferred shares,
as the case may be), beneficial, partnership or membership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, partnership, limited liability
company or equivalent entity, whether voting or non-voting.
Stock Equivalents
shall mean 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.
Subsidiary
of any Person shall mean and include (a) any corporation more than 50% of
whose Stock of any class or classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether or not at the time Stock of
any class or classes of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or indirectly through
Subsidiaries and (b) any partnership, association, joint venture or other entity in which such
Person directly or indirectly through Subsidiaries has more than a 50% equity interest at the time.
Unless otherwise expressly provided, all references herein to a Subsidiary shall mean a
Subsidiary of the Borrower.
Syndication Agent
shall mean Goldman Sachs Credit Partners L.P., together with its
affiliates, as the syndication agent for the Lenders under this Agreement and the other Credit
Documents.
Taxes
shall mean any and all present or future taxes, duties, levies, imposts,
assessments, deductions, withholdings or other similar charges imposed by any Governmental
Authority whether computed on a separate, consolidated, unitary, combined or other basis and any
and all liabilities (including interest, fines, penalties or additions to tax) with respect to the
foregoing.
Term Loan Commitment
shall mean (a) in the case of each Lender that is a Lender on
the date hereof, the amount set forth opposite such Lenders name on
Schedule 1.1(c)
as
such Lenders Term Loan Commitment and (b) in the case of any Lender that becomes a Lender after
the date hereof, the amount specified as such Lenders Commitment in the Assignment and
Acceptance pursuant to which such Lender assumed a portion of the Total Term Loan Commitment, in
each case as the same may be changed from time to time pursuant to the terms
hereof. The aggregate amount of the Term Loan Commitments as of the Closing Date is
$450,000,000.
33
Term Loans
shall have the meaning provided in Section 2.1.
Term Loan Maturity Date
shall mean January 31, 2014, or, if such date is not a
Business Day, the next preceding Business Day.
Test Period
shall mean, for any determination under this Agreement, the four
consecutive fiscal quarters of the Borrower then last ended.
Total Commitment
shall mean the Total Term Loan Commitment.
Total Credit Exposure
shall mean, at any date, the sum of (a) the Total Term Loan
Commitment at such date and (b) the outstanding principal amount of all Term Loans at such date.
Total Term Loan Commitment
shall mean the sum of the Term Loan Commitments of all
the Lenders.
Transferee
shall have the meaning provided in
Section 14.6(e)
.
Type
shall mean as to any Term Loan, its nature as an ABR Loan or a LIBOR Loan.
Unfunded Current Liability
of any Plan shall mean the amount, if any, by which the
present value of the accrued benefits under the Plan as of the close of its most recent plan year,
determined in accordance with Statement of Financial Accounting Standards No. 87 as in effect on
the date hereof, based upon the actuarial assumptions that would be used by the Plans actuary in a
termination of the Plan, exceeds the fair market value of the assets allocable thereto.
Unrestricted Subsidiary
shall mean (a) any Subsidiary of McJunkin Opco that is
formed or acquired after the Closing Date,
provided
that at such time (or promptly
thereafter) the Borrower designates such Subsidiary an Unrestricted Subsidiary in a written notice
to the Administrative Agent, (b) any Restricted Subsidiary subsequently re-designated as an
Unrestricted Subsidiary by the Borrower in a written notice to the Administrative Agent,
provided
that in the case of (a) and (b), (x) such designation or re-designation shall be
deemed to be an Investment by McJunkin Opco on the date of such re-designation in an Unrestricted
Subsidiary in an amount equal to the sum of (i) McJunkin Opcos direct or indirect equity ownership
percentage of the net worth of such designated or re-designated Restricted Subsidiary immediately
prior to such designated or re-designation (such net worth to be calculated without regard to any
guarantee provided by such designated or re-designated Restricted Subsidiary) and (ii) the
aggregate principal amount of any Indebtedness owed by such designated or re-designated Restricted
Subsidiary to McJunkin Opco or any other Restricted Subsidiary immediately prior to such designated
or re-designation, all calculated, except as set forth in the parenthetical to clause (i), on a
consolidated basis in accordance with GAAP and (y) no Default or Event of Default would result from
such designation or re-designation and (c) each Subsidiary of an Unrestricted Subsidiary;
provided
,
however
, that at the time of any written designation or re-designation by
the Borrower to the Administrative Agent that any Unrestricted Subsidiary
shall no longer constitute an Unrestricted Subsidiary, such Unrestricted Subsidiary shall
cease to be an Unrestricted Subsidiary to the extent no Default or Event of Default would result
from such designation or re-designation. On or promptly after the date of its formation,
acquisition,
34
designation or re-designation, as applicable, each Unrestricted Subsidiary (other than
an Unrestricted Subsidiary that is a Foreign Subsidiary) shall have entered into a tax sharing
agreement containing terms that, in the reasonable judgment of the Administrative Agent, provide
for an appropriate allocation of tax liabilities and benefits. An Unrestricted Subsidiary which
has been re-designated as a Restricted Subsidiary may not be subsequently re-designated as an
Unrestricted Subsidiary.
Voting Stock
shall mean, with respect to any Person, such Persons Stock or Stock
Equivalents having the right to vote for the election of directors of such Person under ordinary
circumstances.
1.2
Other Interpretive Provisions
. With reference to this Agreement and each other Credit
Document, unless otherwise specified herein or in such other Credit Document:
(a) The meanings of defined terms are equally applicable to the singular and plural
forms of the defined terms.
(b) The words herein, hereto, hereof and hereunder and words of similar import
when used in any Credit Document shall refer to such Credit Document as a whole and not to
any particular provision thereof.
(c) Article, Section, Exhibit and Schedule references are to the Credit Document in
which such reference appears.
(d) The term including is by way of example and not limitation.
(e) The term documents includes any and all instruments, documents, agreements,
certificates, notices, reports, financial statements and other writings, however evidenced,
whether in physical or electronic form.
(f) In the computation of periods of time from a specified date to a later specified
date, the word from means from and including; the words to and until each mean to
but excluding; and the word through means to and including.
(g) Section headings herein and in the other Credit Documents are included for
convenience of reference only and shall not affect the interpretation of this Agreement or
any other Credit Document.
1.3
Accounting Terms; Exchange Rates
. (a) 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.
(b) Notwithstanding anything to the contrary herein, for purposes of determining compliance
with any test or covenant contained in this Agreement with respect to any period during which any
Specified Transaction occurs, the Consolidated Total Debt to Consolidated EBITDA and the
Consolidated EBITDA to Consolidated Interest Expense Ratio shall be calculated with respect to
such period and such Specified Transaction on a Pro Forma Basis.
35
For purposes of determining compliance under
Section 10.1
with respect to any amount
in a Foreign Currency, such amount shall be deemed to equal the Dollar Equivalent thereof based on
the average Exchange Rate for a Foreign Currency for the most recent twelve-month period
immediately prior to the date of determination determined in a manner consistent with that used in
calculating Consolidated EBITDA for the related period.
1.4
Rounding
. Any financial ratios required to be maintained by the Borrower pursuant to
this Agreement (or required to be satisfied in order for a specific action to be permitted under
this Agreement) shall be calculated by dividing the appropriate component by the other component,
carrying the result to one place more than the number of places by which such ratio is expressed
herein and rounding the result up or down to the nearest number (with a rounding-up if there is no
nearest number).
1.5
References to Agreements, Laws, Etc
. Unless otherwise expressly provided herein, (a)
references to Organizational Documents, agreements (including the Credit Documents) and other
Contractual Obligations shall be deemed to include all subsequent amendments, restatements,
amendment and restatements, extensions, supplements and other modifications thereto, but only to
the extent that such amendments, restatements, amendment and restatements, extensions, supplements
and other modifications are permitted by any Credit Document; and (b) references to any Applicable
Law shall include all statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting such applicable law.
SECTION 2.
Amount and Terms of Credit
2.1
Commitments
. Subject to and upon the terms and conditions herein set forth,
each Lender having a Term Loan Commitment severally agrees to make a loan or loans (each a
Term Loan
) on the Closing Date to the Borrower in Dollars, which Term Loans shall not
exceed for any such Lender the Term Loan Commitment of such Lender and in the aggregate shall not
exceed $450,000,000.
Such Term Loans (i) shall be made on the Closing Date in accordance with the preceding paragraph,
(ii) may at the option of the Borrower be incurred and maintained as, and/or converted into, ABR
Loans or LIBOR Loans,
provided
that all such Term Loans made by each of the Lenders
pursuant to the same Borrowing shall, unless otherwise specifically provided herein, consist
entirely of Term Loans of the same Type, (iii) may be repaid or prepaid in accordance with the
provisions hereof, but once repaid or prepaid, may not be reborrowed, (iv) shall not exceed for any
such Lender its Term Loan Commitment and (v) shall not exceed in the aggregate the total of all
Term Loan Commitments. On the Term Loan Maturity Date, all then unpaid Term Loans shall be repaid
in full.
2.2
Minimum Amount of Each Borrowing; Maximum Number of Borrowings
. The aggregate
principal amount of each Borrowing of Term Loans shall be in a multiple of $1,000,000 and, shall
not be less than the Minimum Borrowing Amount with respect thereto. More than one Borrowing may be
incurred on any date,
provided
that at no time shall there be outstanding more than six (6)
Borrowings of LIBOR Loans under this Agreement.
36
2.3
Notice of Borrowing
. (a) The Borrower shall give the Administrative Agent at
the Administrative Agents Office (i) prior to 12:00 Noon (New York City time) at least three
Business Days prior written notice (or telephonic notice promptly confirmed in writing no later
than 1:00 p.m. (New York City time)) of the Borrowing of Term Loans if all or any of such Term
Loans are to be initially LIBOR Loans, and (ii) prior written notice (or telephonic notice
promptly confirmed in writing no later than 1:00 p.m. (New York City time)) prior to 10:00 a.m.
(New York City time) on the date of the Borrowing of Term Loans if all such Term Loans are to be
ABR Loans. Such Notice of Borrowing shall specify (i) the aggregate principal amount of the Term
Loans to be made, (ii) the date of the Borrowing (which shall be the Closing Date) and (iii)
whether the Term Loans shall consist of ABR Loans and/or LIBOR Loans and, if the Term Loans are
to include LIBOR Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall promptly give each Lender written notice (or telephonic notice
promptly confirmed in writing) of the proposed Borrowing of Term Loans, of such Lenders
proportionate share thereof and of the other matters covered by the related Notice of Borrowing.
(b) [Intentionally Omitted].
(c) [Intentionally Omitted].
(d) [Intentionally Omitted]
(e) [Intentionally Omitted].
(f) Without in any way limiting the obligation of the Borrower to confirm in writing any
notice it may give hereunder by telephone, the Administrative Agent may act prior to receipt of
written confirmation without liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from an Authorized Officer of the
Borrower. In each such case, the Borrower hereby waives the right to dispute the
Administrative Agents record of the terms of any such telephonic notice.
2.4
Disbursement of Funds
. (a) No later than 12:00 Noon (New York City time) on
the date specified in each Notice of Borrowing each Lender will make available its
pro rata
portion, if any, of each Borrowing requested to be made on such date in the manner provided
below.
(b) Each Lender shall make available all amounts it is to fund to the Borrower under any
Borrowing for its applicable Commitments, and in immediately available funds to the
Administrative Agent at the Administrative Agents Office and the Administrative Agent will make
available to the Borrower, by depositing to an account designated by the Borrower to the
Administrative Agent the aggregate of the amounts so made available in Dollars. Unless the
Administrative Agent shall have been notified by any Lender prior to the date of any such
Borrowing that such Lender does not intend to make available to the Administrative Agent its
portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may
assume that such Lender has made such amount available to the Administrative Agent on such date
of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to
37
the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Administrative Agent
by such Lender and the Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If
such Lender does not pay such corresponding amount forthwith upon the Administrative Agents
demand therefor the Administrative Agent shall promptly notify the Borrower and the Borrower
shall immediately pay such corresponding amount to the Administrative Agent. The Administrative
Agent shall also be entitled to recover from such Lender or the Borrower interest on such
corresponding amount in respect of each day from the date such corresponding amount was made
available by the Administrative Agent to the Borrower to the date such corresponding amount is
recovered by the Administrative Agent, at a rate
per annum
equal to (i) if paid by such Lender,
the Federal Funds Effective Rate or (ii) if paid by the Borrower, the then-applicable rate of
interest or fees, calculated in accordance with
Section 2.8
, for the respective Loans.
(c) Nothing in this
Section 2.4
shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights that the Borrower may
have against any Lender as a result of any default by such Lender hereunder (it being understood,
however, that no Lender shall be responsible for the failure of any other Lender to fulfill its
commitments hereunder).
2.5
Repayment of Loans; Evidence of Debt
. (a) The Borrower shall repay to the
Administrative Agent in Dollars, for the benefit of the applicable Lenders, on the Term Loan
Maturity Date, the then-unpaid Term Loans made to the Borrower.
(b) [Intentionally Omitted].
(c) [Intentionally Omitted].
(d) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to the appropriate lending office of such Lender
resulting from each Loan made by such lending office of such Lender from time to time, including
the amounts of principal and interest payable and paid to such lending office of such Lender from
time to time under this Agreement.
(e) The Administrative Agent shall maintain the Register pursuant to
Section
14.6(b)
, and a sub account for each Lender, in which Register and subaccounts (taken
together) shall be recorded (i) the amount of each Term Loan made hereunder, the Type of each
Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower
and each Lenders share thereof.
(f) The entries made in the Register and accounts and subaccounts maintained pursuant to
paragraphs (d) and (e) of this
Section 2.5
shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations of the Borrower
therein recorded;
provided
,
however
, that the failure of any Lender or the
Administrative Agent to maintain such account, such Register or such subaccount, as
38
applicable,
or any error therein, shall not in any manner affect the obligation of the Borrower to repay
(with applicable interest) the Loans made to the Borrower by such Lender in accordance with the
terms of this Agreement.
2.6
Conversions and Continuations
. (a) The Borrower shall have the option on any
Business Day to convert all or a portion equal to at least the Minimum Borrowing Amount of the
outstanding principal amount of Term Loans made to the Borrower (as applicable) of one Type into
a Borrowing or Borrowings of another Type and the Borrower shall have the option on any Business
Day to continue the outstanding principal amount of any LIBOR Loans as LIBOR Loans for an
additional Interest Period on the last Business Day of the existing Interest Period,
provided
that (i) no partial conversion of LIBOR Loans shall reduce the outstanding
principal amount of LIBOR Loans made pursuant to a single Borrowing to less than the Minimum
Borrowing Amount, (ii) ABR Loans may not be converted into LIBOR Loans if a Default or Event of
Default is in existence on the date of the conversion and the Administrative Agent has or the
Required Lenders have determined in its or their sole discretion not to permit such conversion,
(iii) LIBOR Loans may not be continued as LIBOR Loans for an additional Interest Period if an
Event of Default is in existence on the date of the proposed continuation and the Administrative
Agent has or the Required Lenders have determined in its or their sole discretion not to permit
such continuation and (iv) Borrowings resulting from conversions pursuant to this
Section
2.6
shall be limited in number as provided in
Section 2.2
. Each such conversion or
continuation shall be effected by the Borrower by giving the Administrative Agent at the
Administrative Agents Office prior to 1:00 p.m. (New York City time) at least three Business
Days prior written notice or written notice prior to 10:00 a.m. (New York City time) on the same
Business Day in the case of a conversion into ABR Loans (or, in each case,
telephonic notice promptly confirmed in writing no later than 1:00 p.m. (New York City
time)) (each, a
Notice of Conversion or Continuation
) specifying the Term Loans to be
so converted or continued, the Type of Term Loans to be converted or continued into and, if such
Term Loans are to be converted into or continued as LIBOR Loans, the Interest Period to be
initially applicable thereto. The Administrative Agent shall give each Lender notice as promptly
as practicable of any such proposed conversion or continuation affecting any of its Term Loans.
(b) If any Default or Event of Default is in existence at the time of any proposed
continuation of any LIBOR Loans and the Administrative Agent has or the Required Lenders have
determined in its or their sole discretion not to permit such continuation, such LIBOR Loans
shall be automatically converted on the last day of the current Interest Period into ABR Loans.
If upon the expiration of any Interest Period in respect of LIBOR Loans, the Borrower has failed
to elect a new Interest Period to be applicable thereto as provided in paragraph (a) above, the
Borrower shall be deemed to have elected to continue such Borrowing of LIBOR Loans into a
Borrowing of ABR Loans, effective as of the expiration date of such current Interest Period.
2.7
Pro Rata
Borrowings
. Each Borrowing of Term Loans under this Agreement shall be
granted by the Lenders
pro rata
on the basis of their then-applicable Term Loan Commitments. It is
understood that (a) no Lender shall be responsible for any default by any other Lender in its
obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans
provided to be made by it hereunder, regardless of the failure of any other
39
Lender to fulfill its
commitments hereunder and (b) other than as expressly provided herein with respect to a Defaulting
Lender, failure by a Lender to perform any of its obligations under any of the Credit Documents
shall not release any Person from performance of its obligation under any Credit Document.
2.8
Interest
. (a) The unpaid principal amount of each ABR Loan shall bear interest
from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a
rate
per annum
that shall at all times be the Applicable ABR Margin plus the ABR in effect from
time to time.
(b) The unpaid principal amount of each LIBOR Loan shall bear interest from the date of the
Borrowing thereof until maturity thereof (whether by acceleration or otherwise) at a rate
per
annum
that shall at all times be the Applicable LIBOR Margin in effect from time to time plus the
relevant LIBOR Rate.
(c) If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable
thereon shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest (including post-petition interest in any
proceeding under the Bankruptcy Code or other applicable bankruptcy laws) at a rate
per annum
that is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto
plus
2% or (y) in the case of any overdue interest, to the extent permitted by applicable
law, the rate described in
Section 2.8(a)
plus
2% from and including the
date of such non-payment to but excluding the date on which such amount is paid in full (after as
well as before judgment). Payment or acceptance of the increased rates of interest provided for
in this Section 2.8 is not a permitted alternative to timely payment and shall not constitute a
waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of
Administrative Agent or any Lender.
(d) Interest on each Loan shall accrue from and including the date of any Borrowing to but
excluding the date of any repayment thereof and shall be payable (i) in respect of each ABR Loan,
quarterly in arrears on the last day of each March, June, September and December, (ii) in respect
of each LIBOR Loan, on the last day of each Interest Period applicable thereto and, in the case
of an Interest Period in excess of three months, on each date occurring at three-month intervals
after the first day of such Interest Period, (iii) in respect of each Loan (except, other than in
the case of prepayments, any ABR Loan), on any prepayment date (on the amount prepaid), at
maturity (whether by acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance with
Section
5.5
.
(f) The Administrative Agent, upon determining the interest rate for any Borrowing of LIBOR
Loans, shall promptly notify the Borrower and the relevant Lenders thereof. Each such
determination shall, absent clearly demonstrable error, be final and conclusive and binding on
all parties hereto.
40
2.9
Interest Periods
. At the time the Borrower gives a Notice of Borrowing or Notice of
Conversion or Continuation in respect of the making of, or conversion into or continuation as, a
Borrowing of LIBOR Loans (in the case of the initial Interest Period applicable thereto) or prior
to 10:00 a.m. (New York City time) on the third Business Day prior to the expiration of an Interest
Period applicable to a Borrowing of LIBOR Loans, the Borrower shall have the right to elect by
giving the Administrative Agent written notice (or telephonic notice promptly confirmed in writing
no later than 1:00 p.m. (New York City time)) the Interest Period applicable to such Borrowing,
which Interest Period shall, at the option of the Borrower be a one, two, three, six or if
available to all the Lenders as determined by the Lenders in good faith based on prevailing market
conditions, a nine or twelve month period.
Notwithstanding anything to the contrary contained above:
(a) the initial Interest Period for any Borrowing of LIBOR Loans shall commence on the date
of such Borrowing (including the date of any conversion from a Borrowing of ABR Loans) and each
Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on
which the next preceding Interest Period expires;
(b) if any Interest Period relating to a Borrowing of LIBOR Loans begins on the last
Business Day of a calendar month or begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period, such Interest
Period shall end on the last Business Day of the calendar month at the end of such Interest
Period;
(c) if any Interest Period would otherwise expire on a day that is not a Business Day, such
Interest Period shall expire on the next succeeding Business Day,
provided
that if any
Interest Period would otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day; and
(d) the Borrower shall not be entitled to elect any Interest Period in respect of any LIBOR
Loan if such Interest Period would extend beyond the applicable maturity date of such Loan.
2.10
Increased Costs, Illegality, etc
(a) . (a) In the event that (x) in the case of
clause (i) below, the Administrative Agent or (y) in the case of clauses (ii) and (iii) below,
any Lender shall have reasonably determined (which determination shall, absent clearly
demonstrable error, be final and conclusive and binding upon all parties hereto):
(i) on any date for determining the LIBOR Rate for any Interest Period that (x) deposits in
the principal amounts of the Loans comprising such LIBOR Borrowing are not generally available in
the relevant market or (y) by reason of any changes arising on or after the Closing Date affecting
the interbank LIBOR market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of LIBOR Rate; or
(ii) at any time, that such Lender shall incur increased costs or reductions in the amounts
received or receivable hereunder with respect to any LIBOR Loans (other than any
41
such increase or
reduction attributable to Taxes) because of (x) any change since the date hereof in any applicable
law, governmental rule, regulation, guideline or order (or in the interpretation or administration
thereof and including the introduction of any new law or governmental rule, regulation, guideline
or order), such as, for example, without limitation, a change in official reserve requirements,
and/or (y) other circumstances affecting the interbank LIBOR market or the position of such Lender
in such market; or
(iii) at any time, that the making or continuance of any LIBOR Loan has become unlawful by
compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or
order (or would conflict with any such governmental rule, regulation, guideline or order not having
the force of law even though the failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the date hereof that materially and
adversely affects the interbank LIBOR market;
then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i)
above) shall within a reasonable time thereafter give notice (if by telephone, confirmed in
writing) to the Borrower and to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the
case of clause (i) above, LIBOR Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to
such notice by the Administrative Agent no longer exist (which notice the Administrative Agent
agrees to give at such time when such circumstances no longer exist), and any Notice of Borrowing
or Notice of Conversion given by the Borrower with respect to LIBOR Loans that have not yet been
incurred shall be deemed rescinded by the Borrower (y) in the case of clause (ii) above, the
Borrower shall pay to such Lender, promptly after receipt of written demand therefor such
additional amounts (in the form of an increased rate of, or a different method of calculating,
interest or otherwise as such Lender in its reasonable discretion shall determine) as shall be
required to compensate such Lender for such increased costs or reductions in amounts receivable
hereunder (it being agreed that a written notice as to the additional amounts owed to such Lender,
showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by
such Lender shall, absent clearly demonstrable error, be final and conclusive and binding upon all
parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in
Section 2.10(b)
as promptly as possible and, in any event, within the
time period required by law.
(b) At any time that any LIBOR Loan is affected by the circumstances described in
Section 2.10(a)(ii)
or
(iii)
, the Borrower may (and in the case of a LIBOR Loan
affected pursuant to
Section 2.10(a)(iii)
shall) either (x) if the affected LIBOR Loan is
then being made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative Agent
telephonic notice thereof on the same date that the Borrower was notified by a Lender pursuant to
Section 2.10(a)(ii)
or
(iii)
(confirmed promptly in writing no later than 10:00
a.m. (New York City time) on the next day) or (y) if the affected LIBOR Loan is then outstanding,
upon at least three Business Days notice to the Administrative Agent, require the affected
Lender to convert each such LIBOR Loan into an ABR Loan,
provided
that if more than one
Lender is affected at any time, then all affected Lenders must be treated in the same manner
pursuant to this
Section 2.10(b)
.
42
(c) If, after the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, the National Association of Insurance
Commissioners, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by a Lender or its parent with any request or directive
made or adopted after the date hereof regarding capital adequacy (whether or not having the force
of law) of any such authority, association, central bank or comparable agency, has or would have
the effect of reducing the rate of return on such Lenders or its parents or its Affiliates
capital or assets as a consequence of such Lenders commitments or obligations hereunder to a
level below that which such Lender or its parent or its Affiliate could have achieved but for
such adoption, effectiveness, change or compliance (taking into consideration such Lenders or
its parents policies with respect to capital adequacy), then from time to time, promptly after
demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or its parent for such
reduction, it being understood and agreed, however, that a Lender shall not be entitled to such
compensation as a result of such Lenders compliance with, or pursuant to any request or
directive to comply with, any such law, rule or regulation as in effect on the date hereof. Each
Lender, upon determining in good faith that any additional amounts will be payable pursuant to
this
Section 2.10(c)
, will give prompt written
notice thereof to the Borrower which notice shall set forth in reasonable detail the basis
of the calculation of such additional amounts, although the failure to give any such notice shall
not, subject to
Section 2.13
, release or diminish the Borrowers obligations to pay
additional amounts pursuant to this
Section 2.10(c)
upon receipt of such notice.
(d) It is understood that to the extent duplicative of
Section 5.4
, this
Section
2.10
shall not apply to Taxes.
2.11
Compensation
. If (a) any payment of principal of any LIBOR Loan is made by the
Borrower to or for the account of a Lender other than on the last day of the Interest Period for
such LIBOR Loan as a result of a payment or conversion pursuant to
Section 2.5, 2.6, 2.10, 5.1,
5.2
or
14.7
, as a result of acceleration of the maturity of the Loans pursuant to
Section 11
or for any other reason, (b) any Borrowing of LIBOR Loans is not made as a
result of a withdrawn Notice of Borrowing, (c) any ABR Loan is not converted into a LIBOR Loan as a
result of a withdrawn Notice of Conversion or Continuation, (d) any LIBOR Loan is not continued as
an LIBOR Loan, as the case may be, as a result of a withdrawn Notice of Conversion or Continuation
or (e) any prepayment of principal of any LIBOR Loan is not made as a result of a withdrawn notice
of prepayment pursuant to
Section 5.1 or 5.2
, the Borrower shall, after receipt of a
written request by such Lender (which request shall set forth in reasonable detail the basis for
requesting such amount), pay to the Administrative Agent for the account of such Lender any amounts
required to compensate such Lender for any additional losses, costs or expenses that such Lender
may reasonably incur as a result of such payment, failure to convert, failure to continue or
failure to prepay, including any loss, cost or expense (excluding loss of anticipated profits)
actually incurred by reason of the liquidation or reemployment of deposits or other funds acquired
by any Lender to fund or maintain such LIBOR Loan.
2.12
Change of Lending Office
. Each Lender agrees that, upon the occurrence of any event
giving rise to the operation of
Section 2.10(a)(ii)
,
2.10(a)(iii)
,
2.10(b)
,
or
5.4
with respect
43
to such Lender, it will, if requested by the Borrower use reasonable
efforts (subject to overall policy considerations of such Lender) to designate another lending
office for any Loans affected by such event,
provided
that such designation is made on such
terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage,
with the object of avoiding the consequence of the event giving rise to the operation of any such
Section. Nothing in this
Section 2.12
shall affect or postpone any of the obligations of
the Borrower or the right of any Lender provided in
Section 2.10
,
3.5
or
5.4
.
2.13
Notice of Certain Costs
. Notwithstanding anything in this Agreement to the contrary,
to the extent any notice required by
Section 2.10, 2.11
, or
5.4
is given by any
Lender more than 180 days after such Lender has knowledge (or should have had knowledge) of the
occurrence of the event giving rise to the additional cost, reduction in amounts, loss, tax or
other additional amounts described in such Sections, such Lender shall not be entitled to
compensation under
Section 2.10
,
2.11
, or
5.4
,
as the case may be, for any such amounts incurred or accruing prior to the 181st day prior to
the giving of such notice to the Borrower;
provided
that if the event giving rise to such
additional cost, reduction in amounts, loss, tax or other additional amounts has a retroactive
effect, then the 180 day period referred to above shall be extended to include the period of
retroactive effect thereof
.
SECTION 3.
Sponsor and Borrower Purchases
.
3.1
Notice of Sponsor and Borrower Purchases
. Sponsor may (i) from time to time seek to
purchase in accordance with
Section 14.6
Loans from Lenders pursuant to open market
purchases, including, without limitation, pursuant to a Dutch auction, on terms to be agreed among
the Sponsor and the Lenders participating in such open market purchases (each, a
Sponsor
Purchase
, and collectively, the
Sponsor Purchases
), in an aggregate amount for all
such Sponsor Purchases by Sponsor Affiliated Lenders not to exceed 30% of the aggregate principal
amount of the Loans outstanding at any time (the
Sponsor Purchase Cap Amount
), and (ii)
at any time on or after the date of such Sponsor Purchase, contribute (the
Sponsor
Contribution
) the Loans acquired in such Sponsor Purchase to Holdings as a contribution to the
equity of Holdings in return for additional Stock in Holdings and Holdings will then contribute
(the
Holdings Contribution
and, together with the Sponsor Contribution, the
Contributions
) the Loans acquired in such Sponsor Purchase to Borrower as a contribution
to the equity of Borrower in return for additional Stock of Borrower. Additionally, the Borrower
may from time to time seek to purchase in accordance with
Section 14.6
Loans from Lenders
pursuant to open market purchases, including, without limitation, pursuant to a Dutch auction, on
terms to be agreed among the Borrower and the Lenders participating in such open market purchases
(each, a
Borrower Purchase
, and collectively, the
Borrower Purchases
).
3.2
Cancellation of Loans
. Notwithstanding any provision in this Agreement or the other
Credit Documents, (a) if the Sponsor Purchases are contributed by any Sponsor Affiliated Lender as
an equity contribution to Holdings and Borrower pursuant to and to the extent provided in the
definition of Contributions, then promptly following such Contributions, any Loans that are the
subject of such Contributions shall be forgiven by Sponsor, Holdings and Borrower, as applicable,
and shall be cancelled and no longer outstanding (and may not be resold by Borrower), for all
purposes of this Agreement and all other Credit Documents, including, but not limited to (A) the
making of, or the application of, any payments to the Lenders under this
44
Agreement or any other
Credit Document, (B) the making of any request, demand, authorization, direction, notice, consent
or waiver under this Agreement or any other Credit Document or (C) the determination of Required
Lenders, or for any similar or related purpose, under this Agreement or any other Credit Document;
(b) immediately following the consummation of a Borrower Purchase, any Loans that are the subject
of such Borrower Purchase shall be forgiven by Borrower and shall be cancelled and no longer
outstanding (and may not be resold by Borrower), for all purposes of this Agreement and all other
Credit Documents, including, but not limited to (A) the making of, or the application of, any
payments to the Lenders under this Agreement or any other Credit Document, (B) the making of any
request, demand, authorization, direction, notice, consent or
waiver under this Agreement or any other Credit Document or (C) the determination of Required
Lenders, or for any similar or related purpose, under this Agreement or any other Credit Document;
and (c) the parties hereto hereby agree that any Contribution or Borrower Purchase will not be a
voluntary prepayment by Borrower for any purpose under this Agreement and the other Credit
Documents, including, without limitation, the application of
Section 5.3(a)
and
Section
14.8(a)
.
3.3
Acknowledgement
. Each Lender acknowledges that (a) Affiliates of Borrower, including
the Fund and/or entities controlled by the Fund that have complied with the definition of Sponsor
Affiliated Lender may purchase Loans hereunder from Lenders from time to time on or after the
Closing Date in an aggregate amount not to exceed the Sponsor Purchase Cap Amount, subject to the
restrictions set forth in
Section 14.6
and (b) other Affiliates of Borrower constituting
Sponsor Affiliated Institutional Lenders may purchase Loans hereunder from Lenders from time to
time on or after the Closing Date, subject to the restrictions set forth in
Section 14.6
but not subject to the Sponsor Purchase Cap Amount or any other obligations described in the
definition of Sponsor Affiliated Lender.
SECTION 4.
Fees; Commitments
4.1
Fees
. (b) The Borrower agrees to pay to the Collateral Agent, for its own account,
fees in the amounts and at the times set forth in the Engagement Letter.
4.2
[Intentionally Omitted]
.
4.3
Mandatory Termination of Commitments
. (i) The Term Loan Commitments shall terminate
at 5:00 p.m. (New York City time) on the Closing Date.
SECTION 5.
Payments
5.1
Voluntary Prepayments
. The Borrower shall have the right to prepay Term Loans, in
each case, without premium or penalty except as set forth in subsection (b) below, in whole or in
part from time to time on the following terms and conditions: (i) the Borrower shall give the
Administrative Agent and at the Administrative Agents Office written notice (or telephonic notice
promptly confirmed in writing no later than 1:00 p.m. (New York City time)) of its intent to make
such prepayment, the amount of such prepayment and (in the case of LIBOR Loans) the specific Borrowing(s)
pursuant to which made, which notice shall be given by the Borrower no later than (x) in the case
of a LIBOR Loans, 12:00 noon (New York City time) three Business Days prior to or (y) in the case
of ABR Loans, 12:00 noon (New York City time) on, the date of
45
such prepayment and shall promptly be
transmitted by the Administrative Agent to each of the Lenders; (ii) each partial prepayment of any
Borrowing of Term Loans shall be in a multiple of $100,000 and in an aggregate principal amount of
at least $1,000,000,
provided
that no partial prepayment of LIBOR Loans made pursuant to a
single Borrowing shall reduce the outstanding LIBOR Loans made pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount for LIBOR Loans and (iii) any prepayment of LIBOR
Loans pursuant to this
Section 5.1
on any day other than the last day of an Interest Period
applicable thereto shall be subject to compliance by the Borrower with the applicable provisions of
Section 2.11
. Each prepayment in respect of any Term Loans pursuant to this
Section
5.1
shall be applied to Term Loans in such manner as the Borrower may determine. At the
Borrowers election in connection with any prepayment pursuant to this
Section 5.1
, such
prepayment shall not be applied to any Term Loan of a Defaulting Lender.
5.2
Mandatory Prepayments
. (a)
Term Loan Prepayments
. (i) After the
Discharge of McJunkin Opco Term Obligations, on each occasion that a Prepayment Event occurs, the
Borrower shall, within one Business Day after the occurrence of a Debt Incurrence Prepayment Event
and within five Business Days after the occurrence of any other Prepayment Event (or, in the case
of Deferred Net Cash Proceeds, within five Business Days after the Reinvestment Period relating to
such Prepayment Event or 180 days thereafter, as applicable), prepay, in accordance with paragraph
(c) below, the principal amount of Term Loans in an amount equal to 100% of the Net Cash Proceeds
from such Prepayment Event. If the Stock or Stock Equivalents of any Restricted Subsidiary is sold
or any Restricted Subsidiary is sold as a going concern on any date, the sale proceeds shall be
allocated as follows: (x) that portion of the sale proceeds equal to the aggregate value of
Accounts and Cost of Inventory (in each case, as defined in the McJunkin Opco Revolving
Credit Agreement) shall be allocated to the Revolving Credit Collateral (as defined in the
Intercreditor Agreement) of the Restricted Subsidiary so sold and shall be deemed to be proceeds
thereof and (y) the balance of sale proceeds shall be allocated to the Collateral of the Restricted
Subsidiaries so sold and shall be deemed to be proceeds thereof and applied pursuant to the
foregoing sentence.
(ii) After the Discharge of McJunkin Opco Term Obligations, not later than the date that is
ninety days after the last day of any fiscal year (commencing with and including the fiscal year
ending December 31, 2007), the Borrower shall prepay, in accordance with paragraph (c) below, the
principal of Term Loans in an amount equal to (x) 50% of Excess Cash Flow for such fiscal year,
provided
that
(A) the percentage in this
Section 5.2(a)(ii)
shall be
reduced to 25% if the Borrowers ratio of Consolidated Total Debt on the date of prepayment (prior
to giving effect thereto) to Consolidated EBITDA for the most recent Test Period ended prior to
such prepayment date is no greater than 2.50 to 1.00 but greater than 2.00 to 1.00 and (B) no
payment of any Term Loans shall be required under this
Section 5.2(a)(ii)
if the Borrowers
ratio of Consolidated Total Debt on the date of prepayment (prior to giving effect thereto) to
Consolidated EBITDA for the most recent Test Period ended prior to such prepayment date is no
greater than 2.00 to 1.00), minus (y) the principal amount of Term Loans voluntarily prepaid
pursuant to
Section 5.1
during such fiscal year.
(iii) On each occasion that a Qualified IPO occurs, the Borrower shall, within one Business
Day after the occurrence thereof, prepay, in accordance with paragraph (c) below, the principal
amount of Term Loans in an amount equal to 50% of the cash proceeds received
46
from such Qualified
IPO, net of underwriting discounts and commissions and other reasonable costs and expenses
associated therewith, including reasonable legal fees and expenses.
(b)
Compliance with McJunkin Opco Term Loan Credit Agreement
. Notwithstanding
anything to the contrary, (A) no prepayments of Loans shall be required or permitted pursuant to
Section 5.2(a)(i)
or
(ii)
if dividends (as defined in the McJunkin Opco Credit
Agreements) are not permitted to be made by McJunkin Opco pursuant to the McJunkin Opco Credit
Agreements and (B) the amount of Net Cash Proceeds required to be applied toward prepayment of
Loans pursuant to
Section 5.2(a)(i)
or
(ii)
shall be reduced on a dollar for
dollar basis by amounts actually applied toward prepayment of McJunkin Opco Term Loans pursuant
to
Section 5.2(a)(i)
or
(ii)
of the McJunkin Opco Term Loan Credit Agreement, as
applicable.
(c)
Application to Repayment Amounts
. With respect to each prepayment of Term Loans
required by
Section 5.2(a)
, the Borrower will, not later than the date specified in
Section 5.2(a)
for making such prepayment, give the Administrative Agent telephonic
notice (promptly confirmed in writing no later than 1:00 p.m. (New York City time)) requesting
that the Administrative Agent provide notice of such prepayment to the applicable Term Loan
Lenders.
(d)
Application to Term Loans
. With respect to prepayment of Term Loans required by
Section 5.2(a)
, the Borrower may designate the Types of Loans that are to be prepaid and
the specific Borrowing(s) pursuant to which made. In the absence of a designation by the
Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the
above, make such designation in its reasonable discretion with a view, but no obligation, to
minimize breakage costs owing under
Section 2.11
.
(e)
LIBOR Interest Periods
. In lieu of making any payment pursuant to this
Section 5.2
in respect of any LIBOR Loan other than on the last day of the Interest
Period therefor so long as no Event of Default shall have occurred and be continuing, the
Borrower at its option may deposit with the Administrative Agent an amount equal to the amount of
the LIBOR Loan to be prepaid and such LIBOR Loan shall be repaid on the last day of the Interest
Period therefor in the required amount. Such deposit shall be held by the Administrative Agent
in a corporate time deposit account established on terms reasonably satisfactory to the
Administrative Agent, earning interest at the then-customary rate for accounts of such type.
Such deposit shall constitute cash collateral for the Obligations,
provided
that
the Borrower may at any time direct that such deposit be applied to make the applicable payment
required pursuant to this
Section 5.2
.
(f)
Minimum Amount
. No prepayment shall be required pursuant to
Section
5.2(a)(i)
unless and until the amount at any time of Net Cash Proceeds from Prepayment Events
required to be applied at or prior to such time pursuant to such Section and not yet applied at or
prior to such time to prepay Term Loans pursuant to such Section exceeds (i) $5,000,000 for a
single Prepayment Event or (ii) $10,000,000 in the aggregate for all such Prepayment Events (it
being understood that (x) Net Cash Proceeds from Prepayment Events not applied toward prepayment of
McJunkin Opco Term Loans pursuant to
Section 5.2(a)(i)
of the McJunkin Opco Term Loan
Credit Agreement as a result of the operation of
Section 5.2(f)
of the McJunkin Opco Term
Loan
47
Credit Agreement shall reduce the $10,000,000 basket in this clause (ii) on a dollar for
dollar basis) and (y) only the portion of Net Cash Proceeds in excess of the $10,000,000 basket in
this clause (ii) (as may be reduced pursuant to the preceding clause (x)) shall be required to
prepay the Term Loans.
(g)
Foreign Asset Sales
. Notwithstanding any other provisions of this
Section
5.2
, (i) to the extent that any of or all the Net Cash Proceeds of a Casualty Event or any
asset sale by a Restricted Foreign Subsidiary giving rise to an Asset Sale Prepayment Event (a
Foreign Asset Sale
) or Excess Cash Flow are prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such Net Cash Proceeds or Excess Cash
Flow so affected will not be required to be applied to repay Term Loans at the times provided in
this
Section 5.2
but may be retained by the applicable Restricted Foreign Subsidiary so
long, but only so long, as the applicable local law will not permit repatriation to the United
States (the Borrower hereby agreeing to cause the applicable Restricted Foreign Subsidiary to
promptly take all actions required by the applicable local law to permit such repatriation), and
once such repatriation of any of such affected Net Cash Proceeds or Excess Cash Flow is permitted
under the applicable local law, such repatriation will be immediately effected and such repatriated
Net Cash Proceeds or Excess Cash Flow will be promptly (and in any event not later than two
Business Days after such repatriation) applied (net of additional taxes payable or reserved against
as a result thereof) to the repayment of the Term Loans pursuant to this
Section 5.2
and
(ii) to the extent that the Borrower has determined in good faith that repatriation of any of or
all the Net Cash Proceeds of any Foreign Asset Sale or Excess Cash Flow would have an adverse tax
or accounting consequence with respect to such Net Cash Proceeds or Excess Cash Flow, the Net Cash
Proceeds or Excess Cash Flow so affected may be retained by the applicable Restricted Foreign
Subsidiary,
provided
that, in the case of this clause (ii), on or before the date on which
any Net Cash Proceeds or Excess Cash Flow so retained would otherwise have been required to be
applied to reinvestments or prepayments pursuant to
Section 5.2(a)
, (x) the Borrower
applies an amount equal to such Net Cash Proceeds or Excess Cash Flow to such reinvestments or
prepayments as if such Net Cash Proceeds or Excess Cash Flow had been received by the Borrower
rather than such Restricted Foreign Subsidiary, less the amount of additional taxes that would have
been payable or reserved against if such Net Cash Proceeds or Excess Cash Flow had been repatriated
(or, if less, the Net Cash Proceeds or Excess Cash Flow that would be calculated if received by
such Foreign Subsidiary) or (y) such Net Cash Proceeds or Excess Cash Flow are applied to the
repayment of Indebtedness of a Restricted Foreign Subsidiary.
(h)
Optional Waiver of Mandatory Prepayments
. Notwithstanding the foregoing
provisions of this
Section 5.2
, the Lenders shall have the right to waive by written notice
to Borrower and the Administrative Agent on or before the date on which such mandatory prepayment
would otherwise be required to be made hereunder the right to receive the amount of such mandatory
prepayment of the Loans. If any Lender elects to waive the right to receive the amount of such
mandatory prepayment, all of the amount that otherwise would have been
applied to mandatorily prepay such Loans of such Lender shall be retained by Borrower for use
at its discretion.
5.3
Method and Place of Payment
. (a) Except as otherwise specifically provided
herein, all payments under this Agreement shall be made by the Borrower, without set-off,
counterclaim or deduction of any kind, to the Administrative Agent for the ratable account of
48
the
Lenders entitled thereto, not later than 12:00 Noon (New York City time) on the date when due and
shall be made in immediately available funds at the Administrative Agents Office or at such
other office as the Administrative Agent shall specify for such purpose by notice to the
Borrower, it being understood that written or facsimile notice by the Borrower to the
Administrative Agent to make a payment from the funds in the Borrowers account at the
Administrative Agents Office shall constitute the making of such payment to the extent of such
funds held in such account. All repayments or prepayments of Loans (whether of principal,
interest or otherwise) hereunder shall be made in Dollars. The Administrative Agent will
thereafter cause to be distributed on the same day (if payment was actually received by the
Administrative Agent prior to 2:00 p.m. (New York City time) on such day) like funds relating to
the payment of principal or interest or Fees ratably to the Lenders entitled thereto.
(b) Any payments under this Agreement that are made later than 2:00 p.m. (New York City
time) shall be deemed to have been made on the next succeeding Business Day. Whenever any
payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such extension at the applicable rate in
effect immediately prior to such extension.
5.4
Net Payments
. (a) Any and all payments made by or on behalf of the Borrower
under this Agreement or any other Credit Document shall be made free and clear of, and without
deduction or withholding for or on account of, any Indemnified Taxes;
provided
that if
the Borrower shall be required by law to deduct or withhold any Indemnified Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after making all
required deductions and withholdings (including deductions or withholdings applicable to
additional sums payable under this
Section 5.4
) the Administrative Agent, the Collateral
Agent, or any Lender, as the case may be, receives an amount equal to the sum it would have
received had no such deductions or withholdings been made, (ii) the Borrower shall make such
deductions or withholdings and (iii) the Borrower shall pay the full amount deducted or withheld
to the relevant Governmental Authority in accordance with applicable law. Whenever any
Indemnified Taxes are payable by the Borrower, as promptly as possible thereafter, the Borrower
shall send to the Administrative Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt (or other evidence acceptable
to such Lender, acting reasonably) received by the Borrower showing payment thereof.
(b) The Borrower shall pay and shall indemnify and hold harmless the Administrative Agent,
the Collateral Agent, and each Lender with regard to any Other Taxes (whether or not such Other
Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority).
(c) The Borrower shall indemnify and hold harmless the Administrative Agent, the Collateral
Agent, and each Lender within 15 Business Days after written demand therefor, for the full amount
of any Indemnified Taxes imposed on, or paid by, the Administrative Agent, the Collateral Agent,
or such Lender as the case may be, on or with respect to any payment by or on account of any
obligation of Borrower under this Agreement or under any other Credit
49
Document (including
Indemnified Taxes imposed or asserted on or attributable to amounts payable under this
Section 5.4
) and any reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment or liability
delivered to the Borrower by a Lender or by the Administrative Agent or the Collateral Agent on
its own behalf or on behalf of a Lender shall be conclusive absent manifest error.
(d) Each Non-U.S. Lender making or acquiring a Loan to the Borrower shall:
(i) deliver to the Borrower and the Administrative Agent two copies of either (x) in the case
of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of portfolio interest, United States Internal Revenue
Service Form W-8BEN (together with a certificate representing that such Non-U.S. Lender is not a
bank for purposes of
Section 881(c)
of the Code, is not a 10-percent shareholder (within
the meaning of
Section 871(h)(3)(B)
of the Code) of the Borrower and is not a controlled
foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4)
of the
Code)), (y) Internal Revenue Service Form W-8BEN or Form W-8ECI, or (z) Internal Revenue Service
Form W-8IMY (together with the forms and certificates described in clauses (x) and (y), as
appropriate), in each case properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the
Borrower under this Agreement; and
(ii) deliver to the Borrower and the Administrative Agent two further copies of any such form
or certification (or any applicable successor form) on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of any event requiring a change
in the most recent form previously delivered by it to the Borrower;
unless in any such case any Change in Law or other event has occurred prior to the date on which
any such delivery would otherwise be required that renders any such form inapplicable or would
prevent such Lender from duly completing and delivering any such form with respect to it and such
Lender so advises the Borrower and the Administrative Agent. Each Person that shall become a
Participant pursuant to
Section 14.6
or a Lender pursuant to
Section 14.6
shall,
upon the effectiveness of the related transfer, be required to provide all the forms and statements
required pursuant to this
Section 5.4(d)
,
provided
that in the case of a
Participant such Participant shall furnish all such required forms and statements to the Lender
from which the related participation shall have been purchased.
(e) Each Lender that is entitled to an exemption from or reduction of non-U.S. withholding
tax under the laws of the jurisdiction in which the Borrower is organized, or any treaty to which
such jurisdiction is a party, with respect to payments under this Agreement or any other Credit
Document by Borrower shall deliver to Borrower (with a copy to the Administrative Agent), as
applicable, at the time or times prescribed by applicable law and reasonably requested by
Borrower such properly completed and executed documentation prescribed by applicable law as will
permit such payments to be made without such withholding or at such reduced rate,
provided
that such Lender is legally entitled to complete, execute and deliver such
documentation, such documentation is necessary in order for such
50
exemption or reduction to apply
and in such Lenders reasonable judgment the completion, execution or submission would not
materially prejudice the legal position of the Lender. In addition, each Lender shall deliver
such other documentation prescribed by applicable law and reasonably requested by the Borrower or
the Administrative Agent (including an IRS Form W-8 or W-9) as will enable the Borrower or the
Administrative Agent to determine whether such Lender is subject to United States backup
withholding or information reporting requirements.
(f) If the Borrower determines in good faith that a reasonable basis exists for contesting
any taxes for which indemnification has been demanded hereunder, the relevant Lender, the
Administrative Agent or the Collateral Agent, as applicable, shall cooperate with the Borrower in
a reasonable challenge of such taxes at the Borrowers expense if so requested by the Borrower.
If any Lender, the Administrative Agent or the Collateral Agent, as applicable, receives a refund
of a tax for which a payment has been made by the Borrower pursuant to this Agreement, which
refund in the good faith judgment of such Lender, the Administrative Agent or the Collateral
Agent, as the case may be, is attributable to such payment made by the Borrower, then the Lender,
the Administrative Agent or the Collateral Agent, as the case may be, shall reimburse the
Borrower for such amount (together with any interest received thereon) as the Lender,
Administrative Agent or the Collateral Agent, as the case may be, determines to be the proportion
of the refund as will leave it, after such reimbursement, in no better or worse position (taking
into account expenses or any taxes imposed on the refund) than it would have been in if the
payment had not been required. A Lender, the Administrative Agent or the Collateral Agent shall
claim any refund that it determines is available to it, unless it concludes in its reasonable
discretion that it would be adversely affected by making such a claim. The Borrower, upon the
request of the Lender, the Administrative Agent or the Collateral Agent, as applicable, agrees to
repay the amount paid over to the Borrower to the Lender, the Administrative Agent or the
Collateral Agent, as applicable, in the event the Lender, the Administrative Agent or the
Collateral Agent, as applicable, is required to repay the refund to the Governmental Authority.
Neither the Lender, the Administrative Agent nor the Collateral Agent shall be obliged to
disclose any information regarding its tax affairs or computations to the Borrower in connection
with this paragraph (f) or any other provision of this
Section 5.4
.
(g) The agreements in this
Section 5.4
shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
5.5
Computations of Interest and Fees
. (a) Interest on LIBOR Loans and, except as provided in the next succeeding sentence,
ABR Loans shall be calculated on the basis of a 360-day year for the actual days elapsed.
Interest on ABR Loans in respect of which the rate of interest is calculated on the basis of the
Prime Rate and interest on overdue interest shall be calculated on the basis of a 365- (or 366-,
as the case may be) day year for the actual days elapsed.
(b) Fees shall be calculated on the basis of a 365- (or 366-, as the case may be) day year
for the actual days elapsed.
5.6
Limit on Rate of Interest
.
51
(a)
No Payment shall exceed Lawful Rate
. Notwithstanding any other term of this
Agreement, the Borrower shall not be obliged to pay any interest or other amounts under or in
connection with this Agreement in excess of the amount or rate permitted under or consistent with
any applicable law, rule or regulation.
(b)
Payment at Highest Lawful Rate
. If the Borrower is not obliged to make a
payment which it would otherwise be required to make, as a result of
Section 5.6(a)
, the
Borrower shall make such payment to the maximum extent permitted by or consistent with applicable
laws, rules and regulations.
(c)
Adjustment if any Payment exceeds Lawful Rate
. If any provision of this
Agreement or any of the other Credit Documents would obligate the Borrower to make any payment of
interest or other amount payable to any Lender in an amount or calculated at a rate which would
be prohibited by any applicable law, rule or regulation, then notwithstanding such provision,
such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum
amount or rate of interest, as the case may be, as would not be so prohibited by law, such
adjustment to be effected, to the extent necessary, by reducing the amount or rate of interest
required to be paid by the Borrower to the affected Lender under
Section 2.8
.
Notwithstanding the foregoing, and after giving effect to all adjustments contemplated thereby, if
any Lender shall have received from the Borrower an amount in excess of the maximum permitted by
any applicable law, rule or regulation, then the Borrower shall be entitled, by notice in writing
to the Administrative Agent to obtain reimbursement from that Lender in an amount equal to such
excess, and pending such reimbursement, such amount shall be deemed to be an amount payable by that
Lender to the Borrower.
SECTION 6.
Conditions Precedent to Initial Borrowing
The initial Borrowing under this Agreement is subject to the satisfaction of the following
conditions precedent, except as otherwise agreed between the Borrower and the Administrative Agent.
6.1
Credit Documents
. The Administrative Agent shall have received:
(a) this Agreement, executed and delivered by a duly authorized officer of the Borrower
and each Lender;
(b) the Pledge Agreement, executed and delivered by a duly authorized officer of
Borrower; and
(c) the Security Agreement, executed and delivered by a duly authorized officer of
Borrower.
6.2
Collateral
. (a) All outstanding equity interests in whatever form of McJunkin
Opco directly owned by or on behalf of Borrower and required to be pledged pursuant to the Pledge
Agreement shall have been pledged pursuant thereto and the Collateral Agent shall have received
all certificates (if any) representing securities pledged under the Pledge
52
Agreement to the
extent certificated, accompanied by instruments of transfer and undated stock powers endorsed in
blank.
(b) All Uniform Commercial Code financing statements, required by law or reasonably
requested by the Collateral Agent to be filed to create the Liens intended to be created by the
Security Agreement and perfect such Liens to the extent required by, and with the priority
required by, the Security Agreement shall have been delivered to the Collateral Agent for filing.
(c) The Borrower shall deliver to the Collateral Agent a completed Perfection Certificate,
executed and delivered by an Authorized Officer of the Borrower, together with all attachments
contemplated thereby.
6.3
Legal Opinions
. The Administrative Agent shall have received the executed legal
opinion of Simpson Thacher & Bartlett LLP, special New York counsel to the Borrower, substantially
in the form of
Exhibit I
. The Borrower and the Administrative Agent hereby instruct such
counsel to deliver such legal opinions.
6.4
Equity Investments; Existing Indebtedness
. After giving effect to the Dividend
Transactions, the Borrower shall have no outstanding Indebtedness other than the Term Loans.
6.5
Closing Certificates
. The Administrative Agent shall have received a certificate of
Borrower, dated the Closing Date, substantially in the form of
Exhibit J
, with appropriate
insertions, executed by the President or any Vice President and the Secretary or any Assistant
Secretary of Borrower, and attaching the documents referred to in
Section 6.6
.
6.6
Organizational Documents; Incumbency
. The Administrative Agent shall have received a
copy of (a) each Organizational Document of Borrower certified, to the extent applicable, as of a
recent date by the applicable Governmental Authority, (b) signature and incumbency certificates of
the Authorized Officers of Borrower executing the Credit Documents; (c) resolutions of the Board of
Directors or similar governing body of Borrower approving and authorizing the execution, delivery
and performance of Credit Documents and the extensions of credit contemplated hereunder, certified
as of the Closing Date by its secretary or an assistant secretary as being in full force and effect
without modification or amendment and (d) a good standing certificate from the applicable
Governmental Authority of Borrowers jurisdiction of incorporation, organization or formation.
6.7
Fees
. The Co-Lead Arrangers and the Collateral Agent shall have received the fees to
be received on the Closing Date set forth in the Engagement Letter and all expenses required to be
paid by the Borrower pursuant to the Engagement Letter (including the reasonable fees,
disbursements and other charges of counsel) for which invoices have been presented prior to the
Closing Date shall have been paid.
6.8
Representations and Warranties
. On the Closing Date, the representations and
warranties made by the Borrower contained herein or in the other Credit Documents shall be true and
correct in all material respects.
53
6.9
Solvency Certificate
. On the Closing Date, Administrative Agent shall have received a
certificate from an Authorized Officer of the Borrower, with appropriate attachments and
demonstrating that after giving effect to the consummation of the Dividend Transactions, the
Borrower on a consolidated basis with its Subsidiaries is Solvent.
6.10
Historical Financial Statements
. Lenders shall have received the Historical Financial
Statements.
6.11
Notice of Borrowing
. The Administrative Agent shall have received a Notice of
Borrowing (whether in writing or by telephone) meeting the requirements of
Section 2.3
.
6.12
No Default
. At the time of the initial Borrowing and after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing.
SECTION 7.
[Intentionally Omitted.]
SECTION 8.
Representations, Warranties and Agreements
In order to induce the Lenders to enter into this Agreement, to make the Loans as provided for
herein, the Borrower (with respect to itself and its Subsidiaries) makes the following
representations and warranties to, and agreements with, the Lenders, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans:
8.1
Corporate Status
. The Borrower and each Material Subsidiary (a) is a duly organized
and validly existing corporation or other entity in good standing under the laws of the
jurisdiction of its organization and has the corporate or other organizational power and authority
to own its property and assets and to transact the business in which it is engaged and (b) has duly
qualified and is authorized to do business and is in good standing in all jurisdictions where it is
required to be so qualified, except where the failure to be so qualified could not reasonably be
expected to result in a Material Adverse Effect.
8.2
Corporate Power and Authority
. Borrower has the corporate or other organizational
power and authority to execute, deliver and carry out the terms and provisions of the Credit
Documents and has taken all necessary corporate or other organizational action to authorize the
execution, delivery and performance of the Credit Documents. Borrower has duly executed and
delivered each Credit Document and each such Credit Document constitutes the legal, valid and
binding obligation of Borrower enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors rights generally and subject to general principles of equity. Borrower is in compliance
with all laws, orders, writs and injunctions except to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect.
8.3
No Violation
. Neither the execution, delivery or performance by Borrower of the
Credit Documents nor compliance with the terms and provisions thereof nor the consummation of the
other transactions contemplated hereby or thereby will (a) contravene any applicable provision of
any material law, statute, rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality, (b) result in any breach of any of the terms, covenants, conditions
or provisions of, or constitute a default under, or result in the creation or imposition of
54
(or the obligation to create or impose) any Lien upon any of the property or assets of
Borrower or any of the Restricted Subsidiaries (other than Liens created under the Credit
Documents) pursuant to, the terms of any material indenture, loan agreement, lease agreement,
mortgage, deed of trust, agreement or other material instrument to which Borrower or any of the
Restricted Subsidiaries is a party or by which it or any of its property or assets is bound or (c)
violate any provision of the certificate of incorporation, by-laws or other constitutional
documents of Borrower or any of the Restricted Subsidiaries.
8.4
Litigation
. There are no actions, suits or proceedings (including Environmental
Claims) pending or, to the knowledge of the Borrower, threatened with respect to the Borrower or
any of its Subsidiaries that could reasonably be expected to result in a Material Adverse Effect or
a Material Adverse Change.
8.5
Margin Regulations
. Neither Borrower nor any of its Subsidiaries is engaged
principally, as one or more of its important activities, in the business of extending credit for
the purpose of purchasing any margin stock as defined in Regulation U. Neither the making of any
Loan hereunder nor the use of the proceeds thereof will violate the provisions of Regulation T, U
or X of the Board.
8.6
Governmental Approvals
. The execution, delivery and performance of any Credit
Document does not require any consent or approval of, registration or filing with, or any other
action by, any Governmental Authority, except for (i) such as have been obtained or made and are in
full force and effect, (ii) filings and recordings in respect of the Liens created pursuant to the
Security Documents and (iii) such licenses, approvals, authorizations or consents the failure to
obtain or make could not reasonably be expected to have a Material Adverse Effect.
8.7
Investment Company Act
. The Borrower is not an investment company, or a company
controlled by an investment company, within the meaning of the Investment Company Act of 1940,
as amended.
8.8
True and Complete Disclosure
. (a) None of the factual information and data
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower, any
of the Subsidiaries or any of their respective authorized representatives in writing to the
Administrative Agent and/or any Lender on or before the Closing Date (including (i) the
Confidential Information Memorandum and (ii) all information contained in the Credit Documents)
for purposes of or in connection with this Agreement or any transaction contemplated herein
contained any untrue statement or omitted to state any material fact necessary to make such
information and data (taken as a whole) not misleading at such time in light of the circumstances
under which such information or data was furnished, it being understood and agreed that for
purposes of this
Section 8.8(a)
, such factual information and data shall not include
projections and pro forma financial information.
(b) The projections and pro forma financial information contained in the information and
data referred to in paragraph (a) above were based on good faith estimates and assumptions
believed by such Persons to be reasonable at the time made, it being recognized by the Lenders
that such projections as to future events are not to be viewed as
55
facts and that actual results during the period or periods covered by any such projections
may differ from the projected results.
8.9
Financial Condition; Financial Statements
. The (a) unaudited historical
consolidated financial information of the Borrower and its Subsidiaries as set forth in the
Confidential Information Memorandum, and (b) the Historical Financial Statements, in each case
present or will, when provided, present fairly in all material respects the combined financial
position of the Borrower and its Subsidiaries at the respective dates of said information,
statements and results of operations for the respective periods covered thereby. The financial
statements referred to in clause (b) of this
Section 8.9
have been prepared in accordance
with GAAP, consistently applied (except to the extent provided in the notes to said financial
statements), and the audit reports accompanying such financial statements are not subject to any
qualification as to the scope of the audit or the status of McJunkin Opco as a going concern.
There has been no Material Adverse Change since December 31, 2007.
8.10
Tax Returns and Payments
. The Borrower and each of the Subsidiaries has filed
all federal income tax returns and all other material tax returns, domestic and foreign, required
to be filed by it and has paid all income and other material Taxes payable by it that have become
due, other than those (a) not yet delinquent or (b) contested in good faith as to which adequate
reserves have been provided in accordance with GAAP and which could not reasonably be expected to
result in a Material Adverse Effect. The Borrower and each of the Subsidiaries have paid, or have
provided adequate reserves (in the good faith judgment of the management of the Borrower) in
accordance with GAAP for the payment of, all material federal, state, provincial and foreign income
taxes applicable for all prior fiscal years and for the current fiscal year to the Closing Date.
8.11
Compliance with ERISA
. (a) Each Plan is in compliance with ERISA, the
Code and any applicable Requirement of Law; no Reportable Event has occurred (or is reasonably
likely to occur) with respect to any Plan; no Plan is insolvent or in reorganization (or is
reasonably likely to be insolvent or in reorganization), and no written notice of any such
insolvency or reorganization has been given to the Borrower, any Subsidiary or any ERISA
Affiliate; no Plan (other than a multiemployer plan) has an accumulated or waived funding
deficiency (or is reasonably likely to have such a deficiency); none of the Borrower, any
Subsidiary or any ERISA Affiliate has incurred (or is reasonably likely expected to incur) any
liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code or has been notified in
writing that it will incur any liability under any of the foregoing Sections with respect to any
Plan; no proceedings have been instituted (or are reasonably likely to be instituted) to
terminate or to reorganize any Plan or to appoint a trustee to administer any Plan, and no
written notice of any such proceedings has been given to the Borrower, any Subsidiary or any
ERISA Affiliate; and no lien imposed under the Code or ERISA on the assets of the Borrower or any
Subsidiary or any ERISA Affiliate exists (or is reasonably likely to exist) nor has the Borrower,
any Subsidiary or any ERISA Affiliate been notified in writing that such a lien will be imposed
on the assets of the Borrower, any Subsidiary or any ERISA Affiliate on account of any Plan,
except to the extent that a breach of any of the representations, warranties or agreements in
this
Section 8.11
would not result, individually or in the aggregate, in an amount of
liability that would be reasonably likely to have a Material Adverse Effect. No
56
Plan (other than a multiemployer plan) has an Unfunded Current Liability that would,
individually or when taken together with any other liabilities referenced in this
Section
8.11
, be reasonably likely to have a Material Adverse Effect. With respect to Plans that are
multiemployer plans (as defined in Section 3(37) of ERISA), the representations and warranties in
this
Section 8.11(a)
, other than any made with respect to (i) liability under Section
4201 or 4204 of ERISA or (ii) liability for termination or reorganization of such Plans under
ERISA, are made to the best knowledge of the Borrower.
(b) All Foreign Plans are in compliance with, and have been established, administered and
operated in accordance with, the terms of such Foreign Plans and applicable law, except for any
failure to so comply, establish, administer or operate the Foreign Plans as would not reasonably
be expected to have a Material Adverse Effect. All contributions or other payments which are due
with respect to each Foreign Plan have been made in full and there are no funding deficiencies
thereunder, except to the extent any such events would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
8.12
Subsidiaries
.
Schedule 8.12
lists each Subsidiary of the Borrower (and
the direct and indirect ownership interest of the Borrower therein), in each case existing on the
Closing Date. To the knowledge of the Borrower, after due inquiry, each Material Subsidiary as of
the Closing Date has been so designated on
Schedule 8.12
.
8.13
Intellectual Property
. The Borrower and each of the Restricted Subsidiaries have
obtained all intellectual property, free from burdensome restrictions, that are necessary for the
operation of their respective businesses as currently conducted and as proposed to be conducted,
except where the failure to obtain any such rights could not reasonably be expected to have a
Material Adverse Effect.
8.14
Environmental Laws
. (a) Except as could not reasonably be expected to
have a Material Adverse Effect: (i) the Borrower and each of the Subsidiaries and all Real
Estate are, and have been, in compliance with, and possess all permits, licenses and
registrations required pursuant to, all Environmental Laws; (ii) neither the Borrower, nor any of
the Subsidiaries is subject to any Environmental Claim or any other liability under any
Environmental Law; (iii) the Borrower and its Subsidiaries are not conducting, or required to
conduct, any investigation, removal, remedial or other corrective action pursuant to any
Environmental Law at any location, including any Real Estate currently owned or leased by the
Borrower or any of its Subsidiaries, and any real property to which the Borrower or any of its
Subsidiaries may have sent Hazardous Materials; and (iv) no underground storage tank or related
piping, or any impoundment or other disposal area containing Hazardous Materials is located at,
on or under any Real Estate currently owned or leased by the Borrower or any of its Subsidiaries.
(b) Neither the Borrower, nor any of the Subsidiaries has treated, stored, transported,
released or disposed or arranged for disposal or transport for disposal of Hazardous Materials
at, on, under or from any currently or formerly owned or leased Real Estate or facility in a
manner that could reasonably be expected to have a Material Adverse Effect.
57
8.15
Properties
. The Borrower and each of the Subsidiaries have good and marketable
title to or leasehold interest in all properties that are necessary for the operation of their
respective businesses as currently conducted and as proposed to be conducted, free and clear of all
Liens (other than any Liens permitted by this Agreement or the McJunkin Opco Revolving Credit
Agreement) and except where the failure to have such good title could not reasonably be expected to
have a Material Adverse Effect
.
8.16
Solvency
. On the Closing Date (after giving effect to the Dividend
Transactions), immediately following the making of each Loan and after giving effect to the
application of the proceeds of such Loans, the Borrower on a consolidated basis with its
Subsidiaries will be Solvent.
SECTION 9.
Affirmative Covenants
The Borrower hereby covenants and agrees that on the Closing Date and thereafter, until the
Commitments have terminated and the Loans, together with interest, Fees and all other Obligations
incurred hereunder, are paid in full:
9.1
Information Covenants
. The Borrower will furnish to the Administrative Agent:
(a)
Annual Financial Statements
. As soon as available and in any event on or
before the date on which such financial statements are required to be filed with the SEC
(or, if such financial statements are not required to be filed with the SEC, on or before
the date that is 105 days after the end of each such fiscal year), the consolidated balance
sheet of McJunkin Opco and the other Restricted Subsidiaries (and, to the extent prepared,
of Borrower and the Restricted Subsidiaries) as at the end of such fiscal year, and the
related consolidated statement of operations and consolidated statement of cash flows for
such fiscal year, setting forth comparative consolidated figures for the preceding fiscal
year, and certified by independent certified public accountants of recognized national
standing whose opinion shall not be qualified as to the scope of audit or as to the status
of McJunkin Opco or any of the Material Subsidiaries (or group of Subsidiaries that together
would constitute a Material Subsidiary) as a going concern, together in any event with a
certificate of such accounting firm stating that in the course of its regular audit of the
business of McJunkin Opco and the Material Subsidiaries, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm has obtained no
knowledge of any Default or Event of Default relating to
Sections 10.1
,
10.2
or
10.3
that has occurred and is continuing or, if in the opinion of such accounting
firm such a Default or Event of Default has occurred and is continuing, a statement as to
the nature thereof which shall be certified by a Financial Officer of the Borrower.
(b)
Quarterly Financial Statements
. As soon as available and in any event on
or before the date on which such financial statements are required to be filed with the SEC
with respect to each of the first three quarterly accounting periods in each fiscal year of
McJunkin Opco (or, if such financial statements are not required to be filed with the SEC,
on or before the date that is sixty (60) days after the end of each such quarterly
accounting period), the consolidated balance sheet of (i) McJunkin Opco and the other
58
Restricted Subsidiaries (and, to the extent prepared, Borrower and the Restricted
Subsidiaries) and (ii) McJunkin Opco and its Subsidiaries (and, to the extent prepared,
Borrower and its Restricted Subsidiaries), in each case as at the end of such quarterly
period and the related consolidated statement of operations for such quarterly accounting
period and for the elapsed portion of the fiscal year ended with the last day of such
quarterly period, and the related consolidated statement of cash flows for the elapsed
portion of the fiscal year ended with the last day of such quarterly period, and setting
forth comparative consolidated figures for the related periods in the prior fiscal year or,
in the case of such consolidated balance sheet, for the last day of the prior fiscal year,
all of which shall be certified by a Financial Officer of the Borrower, subject to changes
resulting from audit and normal year-end audit adjustments.
(c)
Monthly Financial Statements
. As soon as available and in any event on or
before the date that is thirty (30) days after the end of each fiscal month of Borrower, the
consolidated balance sheet of (i) McJunkin Opco and the other Restricted Subsidiaries (and,
to the extent prepared, Borrower and the Restricted Subsidiaries) and (ii) McJunkin Opco and
its Subsidiaries (and, to the extent prepared, Borrower and its Restricted Subsidiaries), in
each case as at the end of such fiscal month and the related consolidated statement of
operations for such fiscal month and for the elapsed portion of the fiscal year ended with
the last day of such fiscal month, and the related consolidated statement of cash flows for
the elapsed portion of the fiscal year ended with the last day of such fiscal month, and
setting forth comparative consolidated figures for the related periods in the prior fiscal
year or, in the case of such consolidated balance sheet, for the last day of the prior
fiscal year, all of which shall be certified by a Financial Officer of the Borrower, subject
to changes resulting from audit and normal year-end audit adjustments.
(d)
Budgets
. Not more than sixty (60) days after the commencement of each
fiscal year of McJunkin Opco, a budget of McJunkin Opco in reasonable detail for such fiscal
year as customarily prepared by management of McJunkin Opco for their internal use
consistent in scope with the financial statements provided pursuant to
Section
9.1(a)
, setting forth the principal assumptions upon which such budgets are based.
(e)
Officers Certificates
. At the time of the delivery of the financial
statements provided for in
Sections 9.1(a)
and
(b)
, a certificate of an
Authorized Officer of the Borrower to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and extent thereof,
which certificate shall set forth (i) the calculations required to establish whether the
Borrower and the Subsidiaries were in compliance with the provisions of
Sections
10.1
and
10.2
as at the end of such fiscal year or period, as the case may be,
(ii) a specification of any change in the identity of the Restricted Subsidiaries and
Unrestricted Subsidiaries as at the end of such fiscal year or period, as the case may be,
from the Restricted Subsidiaries and Unrestricted Subsidiaries, respectively, provided to
the Lenders on the Closing Date or the most recent fiscal year or period, as the case may
be, (iii) the amount of any Pro Forma Adjustment not previously set forth in a Pro Forma
Adjustment Certificate or any change in the amount of a Pro Forma Adjustment set forth in
any Pro Forma Adjustment Certificate previously provided and, in either case, in reasonable
detail, the calculations and basis therefor. At the time of the delivery of the financial
statements provided for in
59
Section 9.1(a)
, a certificate of an Authorized Officer of the Borrower setting
forth the information required pursuant to
Section 1(a)
of the Perfection
Certificate or confirming that there has been no change in such information since the
Closing Date or the date of the most recent certificate delivered pursuant to this
subsection (e)(ii), as the case may be.
(f)
[Intentionally Omitted]
(g)
[Intentionally Omitted]
(h)
Notice of Default or Litigation
. Promptly after an Authorized Officer of
the Borrower or any of the Subsidiaries obtains knowledge thereof, notice of (i) the
occurrence of any event that constitutes a Default or Event of Default, which notice shall
specify the nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto and (ii) any litigation or governmental proceeding
pending against the Borrower or any of the Subsidiaries that could reasonably be expected to
result in a Material Adverse Effect or a Material Adverse Change.
(i)
Environmental Matters
. The Borrower will promptly advise the
Administrative Agent in writing after obtaining knowledge of any one or more of the
following environmental matters, unless such environmental matters could not, individually
or when aggregated with all other such matters, be reasonably expected to result in a
Material Adverse Effect:
(i) Any pending or threatened Environmental Claim against Borrower or any
Restricted Subsidiary or any current or former Real Estate;
(ii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that (x) could reasonably be expected to result in noncompliance
by Borrower or any Restricted Subsidiary with any applicable Environmental Law or
(y) could reasonably be anticipated to form the basis of an Environmental Claim
against Borrower or any Restricted Subsidiary or any current or former Real Estate;
(iii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that could reasonably be anticipated to cause such Real Estate to
be subject to any restrictions on the ownership, occupancy, use or transferability
of such Real Estate under any Environmental Law; and
(iv) The conduct or need to conduct of any investigation, or any removal,
remedial or other corrective action in response to the actual or alleged presence,
release or threatened release of any Hazardous Material on, at, under or from any
current or former Real Estate or otherwise related to Environmental Law.
All such notices shall describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and the response thereto. The term
Real Estate shall mean land, buildings and improvements owned or leased by Borrower
60
or any Restricted Subsidiary, but excluding all operating fixtures and equipment, whether or
not incorporated into improvements.
(j)
Other Information
. Promptly upon filing thereof, copies of any filings
(including on Form 10-K, 10-Q or 8-K) or registration statements with, and reports to, the
SEC or any analogous Governmental Authority in any relevant jurisdiction by the Borrower or
any of the Subsidiaries (other than amendments to any registration statement (to the extent
such registration statement, in the form it becomes effective, is delivered to the Lenders
and the Administrative Agent), exhibits to any registration statement and, if applicable,
any registration statements on Form S-8) and copies of all financial statements, proxy
statements, notices and reports that the Borrower or any of the Subsidiaries shall send to
the holders of any publicly issued debt of the Borrower and/or any of the Subsidiaries in
their capacity as such holders (in each case to the extent not theretofore delivered to the
Lenders and the Administrative Agent pursuant to this Agreement) and, with reasonable
promptness, such other information (financial or otherwise) as the Administrative Agent on
its own behalf or on behalf of any Lender (acting through the Administrative Agent) may
reasonably request in writing from time to time.
(k)
Pro Forma Adjustment Certificate
. Not later than any date on which
financial statements are delivered with respect to any Test Period in which a Pro Forma
Adjustment is made as a result of the consummation of the acquisition of any Acquired Entity
or Business by the Borrower or any Restricted Subsidiary for which there shall be a Pro
Forma Adjustment, a certificate of an Authorized Officer of the Borrower setting forth the
amount of such Pro Forma Adjustment and, in reasonable detail, the calculations and basis
therefor.
(l)
Information Regarding Collateral
. Not later than sixty (60) days following
the occurrence of any change referred to in
subclauses
(
i
) through
(
iv
) below, written notice of any change (i) in the legal name of Borrower, (ii) in
the jurisdiction of organization or location of Borrower for purposes of the Uniform
Commercial Code, (iii) in the identity or type of organization of Borrower or (iv) in the
Federal Taxpayer Identification Number or organizational identification number of Borrower.
The Borrower shall also promptly provide the Collateral Agent with certified Organizational
Documents reflecting any of the changes described in the first sentence of this
clause
(1)
.
Notwithstanding the foregoing, the obligations in paragraphs (a) and (b) of this
Section
9.1
may be satisfied with respect to financial information of McJunkin Opco and the Restricted
Subsidiaries by furnishing (A) the applicable financial statements of any direct or indirect parent
of McJunkin Opco or (B) the Borrowers (or any direct or indirect parent thereofs), as applicable,
Form 10-K or 10-Q, as applicable, filed with the SEC;
provided
that
, with respect
to each of clauses (A) and (B) above, to the extent such information relates to a parent of the
Borrower, such information is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to such parent, on the one hand, and the
information relating to McJunkin Opco and the Restricted Subsidiaries on a standalone basis, on the
other hand.
61
9.2
Books, Records and Inspections
. The Borrower will, and will cause each of the
Subsidiaries to, permit officers and designated representatives of the Administrative Agents or the
Required Lenders to visit and inspect any of the properties or assets of the Borrower and any such
Subsidiary in whomsoevers possession to the extent that it is within such partys control to
permit such inspection, and to examine the books and records of the Borrower and any such
Subsidiary and discuss the affairs, finances and accounts of the Borrower and of any such
Subsidiary with, and be advised as to the same by, its and their officers and independent
accountants, all at such reasonable times and intervals and to such reasonable extent as the
Administrative Agents or the Required Lenders may desire;
provided
that
, excluding
any such visits and inspections during the continuation of an Event of Default, only the
Administrative Agent (or any of their respective representatives or independent contractors) on
behalf of the Required Lenders may exercise rights of the Administrative Agent and the Lenders
under this
Section 9.2
and the Administrative Agent shall not exercise such rights more
often than two times during any calendar year absent the existence of an Event of Default and only
one such time shall be at the Borrowers expense; provided further that when an Event of Default
exists, the Administrative Agent (or any of its representatives or independent contractors) or any
representative of the Required Lenders may do any of the foregoing at the expense of the Borrower
at any time during normal business hours and upon reasonable advance notice. The Administrative
Agent and the Required Lenders shall give the Borrower the opportunity to participate in any
discussions with the Borrowers independent public accountants.
9.3
Maintenance of Insurance
. The Borrower will, and will cause each of the Material
Subsidiaries to, at all times maintain in full force and effect, with insurance companies that the
Borrower believes (in the good faith judgment of the management of the Borrower) are financially
sound and responsible at the time the relevant coverage is placed or renewed, insurance in at least
such amounts (after giving effect to any self-insurance which the Borrower believes (in the good
faith judgment of management of the Borrower) is reasonable and prudent in light of the size and
nature of its business) and against at least such risks (and with such risk retentions) as the
Borrower believes (in the good faith judgment of management of the Borrower) is reasonable and
prudent in light of the size and nature of its business; and will furnish to the Administrative
Agent (for deliver to the Lenders), upon written request from the Administrative Agent, information
presented in reasonable detail as to the insurance so carried. Each such policy of insurance shall
(i) name Collateral Agent, on behalf of Secured Parties as an additional insured thereunder as its
interests may appear and (ii) in the case of each casualty insurance policy, contain a loss payable
clause or endorsement reasonably satisfactory in form and substance to Collateral Agent, that names
Collateral Agent, on behalf of Lenders as the loss payee thereunder and provides for at least
thirty days prior written notice to Collateral Agent of any modification or cancellation of such
policy.
9.4
Payment of Taxes
. Borrower and each Restricted Subsidiary will pay and discharge,
and will cause each of the Subsidiaries to pay and discharge, all material taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which material penalties attach thereto, and all
lawful material claims that, if unpaid, could reasonably be expected to become a material Lien upon
any properties of Borrower or any of the Restricted Subsidiaries,
provided
that neither
Borrower nor any Restricted Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim that is being contested in good faith and by proper proceedings if it has
62
maintained adequate reserves (in the good faith judgment of the management of the Borrower)
with respect thereto in accordance with GAAP and the failure to pay could not reasonably be
expected to result in a Material Adverse Effect.
9.5
Consolidated Corporate Franchises
. The Borrower will do, and will cause each
Material Subsidiary to do, or cause to be done, all things necessary to preserve and keep in full
force and effect its existence, corporate rights and authority, except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse Effect;
provided
,
however
, that the Borrower and its Subsidiaries may consummate any
transaction permitted under
Sections 10.3
,
10.4
or
10.5
of the McJunkin
Opco Credit Agreements.
9.6
Compliance with Statutes, Regulations, etc
. The Borrower will, and will cause
each Subsidiary to, comply with all applicable laws, rules, regulations and orders applicable to it
or its property, including all governmental approvals or authorizations required to conduct its
business, and to maintain all such governmental approvals or authorizations in full force and
effect, in each case except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
9.7
ERISA
. Promptly after the Borrower or any Subsidiary or any ERISA Affiliate knows
or has reason to know of the occurrence of any of the following events that, individually or in the
aggregate (including in the aggregate such events previously disclosed or exempt from disclosure
hereunder, to the extent the liability therefor remains outstanding), would be reasonably likely to
have a Material Adverse Effect, the Borrower will deliver to each of the Lenders a certificate of
an Authorized Officer or any other senior officer of the Borrower setting forth details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is
required or proposes to take, together with any notices (required, proposed or otherwise) given to
or filed with or by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant (other than notices relating to an individual participants benefits) or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that an accumulated
funding deficiency has been incurred or an application is to be made to the Secretary of the
Treasury for a waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under
Section 412
of the
Code with respect to a Plan; that a Plan having an Unfunded Current Liability has been or is to be
terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA (including the
giving of written notice thereof); that a Plan has an Unfunded Current Liability that has or will
result in a lien under ERISA or the Code; that proceedings will be or have been instituted to
terminate a Plan having an Unfunded Current Liability (including the giving of written notice
thereof); that a proceeding has been instituted against the Borrower, a Subsidiary or an ERISA
Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the
PBGC has notified the Borrower, any Subsidiary or any ERISA Affiliate of its intention to appoint a
trustee to administer any Plan; that the Borrower, any Subsidiary or any ERISA Affiliate has failed
to make a required installment or other payment pursuant to Section 412 of the Code with respect to
a Plan; or that the Borrower, any Subsidiary or any ERISA Affiliate has incurred or will incur (or
has been notified in writing that it will incur) any liability (including any contingent or
secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code.
63
9.8
Maintenance of Properties
. The Borrower will, and will cause each of the
Restricted Subsidiaries to, keep and maintain all property material to the conduct of its business
in good working order and condition, ordinary wear and tear excepted, except to the extent that the
failure to do so could reasonably be expected to have a Material Adverse Effect.
9.9
Transactions with Affiliates
. The Borrower will conduct, and cause each of the
Restricted Subsidiaries to conduct, all transactions with any of its Affiliates (other than the
Borrower or the Restricted Subsidiaries) on terms that are substantially as favorable to the
Borrower or such Restricted Subsidiary as it would obtain in a comparable arms-length transaction
with a Person that is not an Affiliate,
provided
that the foregoing restrictions shall not
apply to (a) the payment of customary fees to the Sponsor for management, consulting and financial
services rendered to the Borrower and the Subsidiaries and customary investment banking fees paid
to the Sponsor for services rendered to the Borrower and the Subsidiaries in connection with
divestitures, acquisitions, financings and other transactions, (b) transactions permitted by
Section 10.6
of the McJunkin Opco Credit Agreements or
Section 10.4
hereof, (c)
Dividend Transaction Expenses, (d) the issuance of Stock or Stock Equivalents of the Borrower
pursuant to arrangements described in clause (f) of this
Section 9.9
, (e) loans and other
transactions by the Borrower and the Restricted Subsidiaries to the extent permitted under
Section 10
of the McJunkin Opco Credit Agreements and
Section 10.4
hereof, (f)
employment and severance arrangements between the Borrower and the Restricted Subsidiaries and
their respective officers and employees in the ordinary course of business, (g) payments by the
Borrower (and any direct or indirect parent thereof) and the Restricted Subsidiaries pursuant to
the tax sharing agreements among the Borrower (and any such parent) and the Restricted Subsidiaries
on customary terms to the extent attributable to the ownership or operation of the Borrower and the
Restricted Subsidiaries, (h) the payment of customary fees and reasonable out of pocket costs to,
and indemnities provided on behalf of, directors, managers, consultants, officers and employees of
the Borrower and the Restricted Subsidiaries in the ordinary course of business to the extent
attributable to the ownership or operation of the Borrower and the Restricted Subsidiaries, (i)
transactions pursuant to permitted agreements in existence on the Closing Date and set forth on
Schedule 9.9
or any amendment thereto to the extent such an amendment is not adverse, taken
as a whole, to the Lenders in any material respect, and (j) customary payments by the Borrower and
any Restricted Subsidiaries to the Sponsor made for any financial advisory, financing, underwriting
or placement services or in respect of other investment banking activities (including in connection
with acquisitions or divestitures), which payments are approved by the majority of the members of
the board of directors or a majority of the disinterested members of the board of directors of the
Borrower (or any direct or indirect parent thereof), in good faith.
9.10
End of Fiscal Years; Fiscal Quarters
. The Borrower will, for financial reporting
purposes, cause (a) each of its, and each of its Subsidiaries, fiscal years to end on December 31
of each year and (b) each of its, and each of its Subsidiaries, fiscal quarters to end on dates
consistent with such fiscal year-end and the Borrowers past practice;
provided
,
however
, that the Borrower may, upon written notice to the Administrative Agent, change the
financial reporting convention specified above to any other financial reporting convention
reasonably acceptable to the Administrative Agent, in which case the Borrower and the
Administrative Agent will, and are hereby authorized by the Lenders to, make any adjustments to
this Agreement that are necessary in order to reflect such change in financial reporting.
64
9.11
[Intentionally Omitted].
9.12
[Intentionally Omitted]
9.13
Use of Proceeds
. The Borrower will use the proceeds of all Term Loans made
on the Closing Date to effect the Special Equity Dividend.
9.14
[Intentionally Omitted].
9.15
[Intentionally Omitted].
9.16
[Intentionally Omitted].
9.17
Further Assurances
. (a) The Borrower will execute any and all further
documents, financing statements, agreements and instruments, and take all such further actions
(including the filing and recording of financing statements and other documents), which may be
required under any applicable law, or which the Collateral Agent or the Required Lenders may
reasonably request, in order to grant, preserve, protect and perfect the validity and priority of
the security interests created or intended to be created by the Security Documents, all at the
expense of the Borrower.
(b) The Borrower agrees that it will, or will cause its relevant Subsidiaries to, complete
each of the actions described on
Schedule 9.17(b)
as soon as commercially reasonable and
by no later than the date set forth in
Schedule 9.17(b)
with respect to such action or
such later date as the Administrative Agent may reasonably agree.
SECTION 10.
Negative Covenants
The Borrower (for itself and each of its Restricted Subsidiaries) hereby covenants and agrees
that on the Closing Date and thereafter, until the Commitments have terminated and the Loans,
together with interest, Fees and all other Obligations incurred hereunder, are paid in full:
10.1
Consolidated Total Debt to Consolidated EBITDA Ratio
The Borrower will not permit the Consolidated Total Debt to Consolidated EBITDA Ratio for any
Test Period ending during any period set forth below to be greater than the ratio set forth below
opposite such period:
|
|
|
|
|
Period
|
|
Ratio
|
June 30, 2008
|
|
|
4.75:1.00
|
|
September 30, 2008
|
|
|
4.75:1.00
|
|
December 31, 2008
|
|
|
4.75:1.00
|
|
March 31, 2009
|
|
|
4.00:1.00
|
|
June 30, 2009
|
|
|
4.00:1.00
|
|
September 30, 2009
|
|
|
4.00:1.00
|
|
December 31, 2009
|
|
|
4.00:1.00
|
|
65
|
|
|
|
|
Period
|
|
Ratio
|
March 31, 2010
|
|
|
3.25:1.00
|
|
June 30, 2010
|
|
|
3.25:1.00
|
|
September 30, 2010
|
|
|
3.25:1.00
|
|
December 31, 2010
|
|
|
3.25:1.00
|
|
March 31, 2011
|
|
|
3.00:1.00
|
|
June 30, 2011
|
|
|
3.00:1.00
|
|
September 30, 2011
|
|
|
3.00:1.00
|
|
December 31, 2011
|
|
|
3.00:1.00
|
|
March 31, 2012
|
|
|
3.00:1.00
|
|
June 30, 2012
|
|
|
3.00:1.00
|
|
September 30, 2012
|
|
|
3.00:1.00
|
|
December 31, 2012
|
|
|
3.00:1.00
|
|
March 31, 2013
|
|
|
3.00:1.00
|
|
June 30, 2013
|
|
|
3.00:1.00
|
|
September 30, 2013
|
|
|
3.00:1.00
|
|
December 31, 2013
|
|
|
3.00:1.00
|
|
10.2
Consolidated EBITDA to Consolidated Interest Expense Ratio.
The Borrower will not permit the Consolidated EBITDA to Consolidated Interest Expense Ratio
for any Test Period ending during any period set forth below to be less than the ratio set forth
below opposite such period:
|
|
|
|
|
Period
|
|
Ratio
|
June 30, 2008
|
|
|
2.50:1.00
|
|
September 30, 2008
|
|
|
2.50:1.00
|
|
December 31, 2008
|
|
|
2.50:1.00
|
|
March 31, 2009
|
|
|
2.75:1.00
|
|
June 30, 2009
|
|
|
2.75:1.00
|
|
September 30, 2009
|
|
|
2.75:1.00
|
|
December 31, 2009
|
|
|
2.75:1.00
|
|
March 31, 2010
|
|
|
2.75:1.00
|
|
June 30, 2010
|
|
|
2.75:1.00
|
|
September 30, 2010
|
|
|
2.75:1.00
|
|
December 31, 2010
|
|
|
2.75:1.00
|
|
March 31, 2011
|
|
|
2.75:1.00
|
|
June 30, 2011
|
|
|
2.75:1.00
|
|
September 30, 2011
|
|
|
2.75:1.00
|
|
December 31, 2011
|
|
|
2.75:1.00
|
|
March 31, 2012
|
|
|
3.00:1.00
|
|
June 30, 2012
|
|
|
3.00:1.00
|
|
September 30, 2012
|
|
|
3.00:1.00
|
|
December 31, 2012
|
|
|
3.00:1.00
|
|
March 31, 2013
|
|
|
3.00:1.00
|
|
June 30, 2013
|
|
|
3.00:1.00
|
|
September 30, 2013
|
|
|
3.00:1.00
|
|
December 31, 2013
|
|
|
3.00:1.00
|
|
66
10.3
Capital Expenditures:
The Borrower will not, and will not permit any of its Restricted Subsidiaries to, make, or be
committed to make, Capital Expenditures which in the aggregate in any Fiscal Year set forth below
exceed the amount set forth below for such Fiscal Year:
|
|
|
|
|
Fiscal Year
|
|
Amount
|
2008
|
|
$
|
30,000,000
|
|
2009
|
|
$
|
30,000,000
|
|
2010
|
|
$
|
30,000,000
|
|
2011
|
|
$
|
30,000,000
|
|
2012
|
|
$
|
30,000,000
|
|
The amount of permitted Capital Expenditures set forth above in respect of any Fiscal Year
commencing with Fiscal Year 2009 shall be increased by 100% of the amount of unused permitted
Capital Expenditures for the immediately preceding Fiscal Year (such
amount, a
carry-forward
amount
)
without giving effect to any carry-forward amount that was added in such preceding
Fiscal Year and assuming any such carry-forward amount is utilized first.
10.4
Permitted Activities of Borrower
. Borrower shall not (a) incur, directly or
indirectly, any Indebtedness or any other obligation or liability whatsoever other than (i)
Indebtedness and obligations under this Agreement and the other Credit Documents, (ii) Guarantee
Obligations in respect of Indebtedness or other obligations or liabilities of McJunkin Opco or any
Restricted Subsidiary permitted to be incurred pursuant to the terms of the McJunkin Opco Credit
Agreements, and (iii) Indebtedness in respect of unsecured Hedging Agreements; (b) create or suffer
to exist any Lien upon any property or assets now owned or hereafter acquired by it other than the
Liens created under the Security Documents to which it is a party or nonconsensual Liens imposed by
operation of law; and (c) engage in any business or activity or own any assets other than (i) the
Stock and Stock Equivalents of McJunkin Opco and those incidental to its ownership of the Stock and
Stock Equivalents of McJunkin Opco; (ii) additional Investments in McJunkin Opco in an amount not
to exceed the net cash proceeds of any equity contribution to, or equity issuance by, McJunkin Opco
and any amount retained by Borrower pursuant to
Section 5.2(h)
; (iii) activities required
to be taken to consummate any IPO; (iv) any transaction that Borrower is permitted to enter into or
consummate under this
Section 10.4
, (v) performing its obligations and activities
incidental thereto under the Credit Documents; (vi) Investments constituting Permitted Investments;
(vii) making Borrower Purchases in compliance with Section 3; (viii) making the Special Equity
Dividend; (ix) (A) redeeming in whole or in part any of its Stock or Stock Equivalents for another
class of its Stock or Stock Equivalents or with proceeds from substantially concurrent equity
contributions or issuances of new Stock or Stock Equivalents,
provided
that such new Stock
or Stock Equivalents contain terms and provisions at least as advantageous to the Lenders in all
respects material to their interests as those contained in the Stock or Stock Equivalents redeemed
thereby; (B) it may (or may make dividends, distributions or any other return of capital to permit
any direct or indirect parent thereof to) repurchase shares of its (or such parents) Stock or
Stock Equivalents held by
67
officers, directors and employees of the Borrower and its Subsidiaries, so long as such
repurchase is pursuant to, and in accordance with the terms of, management and/or employee stock
plans, stock subscription agreements or shareholder agreements; and (C) making other dividends,
distribution or any other return of capital with the proceeds of dividends, distribution or any
other return of capital received from McJunkin Opco in compliance with the terms of the McJunkin
Opco Loan Documents (it being understood that if the McJunkin Opco Loan Documents are no longer in
effect, then Borrower shall be permitted to make other dividends, distributions or any other return
of capital with the proceeds of dividends, distributions or any other return of capital received
from McJunkin Opco, in each case to the extent such dividend, distribution or other return of
capital would have been permitted to be made by McJunkin Opco under the McJunkin Opco Term Loan
Credit Agreement) or for amounts retained by Borrower pursuant to
Section 5.2(h)
; and (x)
create or acquire any Subsidiary or make or own any Investment in any Person other than McJunkin
Opco.
SECTION 11.
Events of Default
Upon the occurrence of any of the following specified events (each an
Event of
Default
):
11.1
Payments
. The Borrower shall (a) default in the payment when due of any
principal of the Loans or (b) default, and such default shall continue for five or more days, in
the payment when due of any interest or stamping fees on the Loans or any Fees or of any other
amounts owing hereunder or under any other Credit Document; or
11.2
Representations, etc
. Any representation, warranty or statement made or deemed
made by Borrower herein or in any Security Document or any certificate, statement, report or other
document delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue
in any material respect on the date as of which made or deemed made; or
11.3
Covenants
. Borrower or any Restricted Subsidiary shall:
(a) default in the due performance or observance by it of any term, covenant or
agreement contained in
Section 9.1(h)
or
Section 10
; or
(b) default in the due performance or observance by it of any term, covenant or
agreement (other than those referred to in
Section 11.1
or
11.2
or clause
(a) of this
Section 11.3
) contained in this Agreement, any Security Document or the
Engagement Letter and such default shall continue unremedied for a period of at least thirty
(30) days after receipt of written notice by the Borrower from the Administrative Agent or
the Required Lenders; or
11.4
Default Under Other Agreements
(a) The Borrower or any of the Restricted
Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the
Obligations) in excess of $15,000,000 in the aggregate, for the Borrower and such Restricted
Subsidiaries, beyond the period of grace, if any, provided in the instrument or agreement under
which such Indebtedness was created or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall occur or
68
condition exist (other than, with respect to Indebtedness consisting of any Hedge
Agreements, termination events or equivalent events pursuant to the terms of such Hedge
Agreements), the effect of which default or other event or condition is to cause, or to permit
the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, any such Indebtedness to become due prior to its stated maturity; or (b)
without limiting the provisions of clause (a) above, any such Indebtedness shall be declared to
be due and payable, or required to be prepaid other than by a regularly scheduled required
prepayment or as a mandatory prepayment (and, with respect to Indebtedness consisting of any
Hedge Agreements, other than due to a termination event or equivalent event pursuant to the terms
of such Hedge Agreements), prior to the stated maturity thereof; or
11.5
Bankruptcy, etc
. The Borrower or any Specified Subsidiary shall commence a
voluntary case, proceeding or action concerning itself under (a) Title 11 of the United States Code
entitled Bankruptcy, or (b) in the case of any Foreign Subsidiary that is a Specified Subsidiary,
any domestic or foreign law relating to bankruptcy, judicial management, insolvency reorganization
or relief of debtors legislation of its jurisdiction of incorporation, in each case as now or
hereafter in effect, or any successor thereto (collectively, the
Bankruptcy Code
); or an
involuntary case, proceeding or action is commenced against the Borrower or any Specified
Subsidiary and the petition is not controverted within 10 days after commencement of the case,
proceeding or action; or an involuntary case, proceeding or action is commenced against the
Borrower or any Specified Subsidiary and the petition is not dismissed within 60 days after
commencement of the case, proceeding or action; or a custodian (as defined in the Bankruptcy Code),
judicial manager, receiver, receiver manager, trustee or similar person is appointed for, or takes
charge of, all or substantially all of the property of the Borrower or any Specified Subsidiary; or
the Borrower or any Specified Subsidiary commences any other proceeding or action under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the
Borrower or any Specified Subsidiary; or there is commenced against the Borrower or any Specified
Subsidiary any such proceeding or action that remains undismissed for a period of 60 days; or the
Borrower or any Specified Subsidiary is adjudicated insolvent or bankrupt; or any order of relief
or other order approving any such case or proceeding or action is entered; or the Borrower or any
Specified Subsidiary suffers any appointment of any custodian receiver, receiver manager, trustee
or the like for it or any substantial part of its property to continue undischarged or unstayed for
a period of 60 days; or the Borrower or any Specified Subsidiary makes a general assignment for the
benefit of creditors; or any corporate action is taken by the Borrower or any Specified Subsidiary
for the purpose of effecting any of the foregoing; or
11.6
ERISA
. (a) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code; any Plan is or shall have
been terminated or is the subject of termination proceedings under ERISA (including the giving of
written notice thereof); an event shall have occurred or a condition shall exist in either case
entitling the PBGC to terminate any Plan or to appoint a trustee to administer any Plan
(including the giving of written notice thereof); any Plan shall have an accumulated funding
deficiency (whether or not waived); the Borrower or any Subsidiary or any ERISA Affiliate has
incurred or is likely to incur a liability to or on account of a Plan under Section 409,
69
502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975
of the Code (including the giving of written notice thereof); (b) there could result from any
event or events set forth in clause (a) of this
Section 11.6
the imposition of a lien,
the granting of a security interest, or a liability, or the reasonable likelihood of incurring a
lien, security interest or liability; and (c) such lien, security interest or liability will or
would be reasonably likely to have a Material Adverse Effect; or
11.7 [
Intentionally Omitted
].
11.8
Pledge Agreement
. The Pledge Agreement or any material provision thereof shall
cease to be in full force or effect (other than pursuant to the terms hereof or thereof or as a
result of acts or omissions of the Collateral Agent or any Lender) or Borrower shall deny or
disaffirm in writing its obligations under the Pledge Agreement; or
11.9
Security Agreement
. The Security Agreement or any material provision thereof
shall cease to be in full force or effect (other than pursuant to the terms hereof or thereof or as
a result of acts or omissions of the Collateral Agent or any Lender) or Borrower shall deny or
disaffirm in writing any of its obligations under the Security Agreement; or
11.10 [
Intentionally Omitted
].
11.11
Judgments
. One or more judgments or decrees shall be entered against the
Borrower or any of the Restricted Subsidiaries involving a liability of
$
15,000,000 or more in the
aggregate for all such judgments and decrees for the Borrower and the Restricted Subsidiaries (to
the extent not paid or fully covered by insurance provided by a carrier not disputing coverage) and
any such judgments or decrees shall not have been satisfied, vacated, discharged or stayed or
bonded pending appeal within 60 days from the entry thereof; or
11.12
Change of Control
. A Change of Control shall occur;
then, (1) upon the occurrence of any Event of Default described in Section 11.5,
automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or
with the consent of) Required Lenders, upon notice to the Borrower by Administrative Agent, (A)
each of the following shall immediately become due and payable, in each case without presentment,
demand, protest or other requirements of any kind, all of which are hereby expressly waived by
Borrower: (I) the unpaid principal amount of and accrued interest on the Loans, and (II) all other
Obligations; (B) Administrative Agent may cause Collateral Agent to enforce any and all Liens and
security interests created pursuant to Security Documents.
SECTION 12.
Investors Right to Cure
. Notwithstanding anything to the contrary
contained in
Section 11.3(a)
, in the event that the Borrower fails to comply with the
requirement of the covenant set forth in
Section 10.1
, until the expiration of the tenth
day after the date on which
Section 9.1
Financials with respect to the Test Period in which
the covenant set forth in such Section is being measured are required to be delivered pursuant to
Section 9.1
, any of the Investors shall have the right to make a direct or indirect equity
investment in the Borrower or any Restricted Subsidiary in cash (the
Cure Right
), and
upon the receipt by such Person of net cash proceeds pursuant to the exercise of the Cure Right
(including through the capital contribution of any such Net Cash proceeds to such person, the
Cure Amount
), the
70
covenant set forth in such Section shall be recalculated, giving effect to a pro forma
increase to Consolidated EBITDA for such Test Period in an amount equal to such net cash proceeds;
provided
that such pro forma adjustment to Consolidated EBITDA shall be given solely for
the purpose of determining the existence of a Default or an Event of Default under the covenant set
forth in such Section with respect to any Test Period that includes the fiscal quarter for which
such Cure Right was exercised and not for any other purpose under any Credit Document.
If, after the exercise of the Cure Right and the recalculations pursuant to the preceding
paragraph, the Borrower shall then be in compliance with the requirements of the covenant set forth
in
Section 10.1
during such Test Period (including for purposes of
Section 7.1
),
the Borrower shall be deemed to have satisfied the requirements of such covenant as of the relevant
date of determination with the same effect as though there had been no failure to comply therewith
at such date, and the applicable Default or Event of Default under
Section 11.3
that had
occurred shall be deemed cured;
provided
that (i) in each Test Period there shall be at
least one fiscal quarter in which no Cure Right is exercised and (ii) with respect to any exercise
of the Cure Right, the Cure Amount shall be no greater than the amount required to cause the
Borrower to be in compliance with the covenant set forth in
Section 10.1
.
In the event that any of the Investors elect to exercise a Cure Right (as defined in the
McJunkin Opco Term Loan Credit Agreement) (such Cure Right, a
McJunkin Opco Cure Right
)
pursuant to the McJunkin Opco Term Loan Credit Agreement and the Borrower is in compliance with the
requirement of covenant set forth in
Section 10.1
without giving effect to the Cure Amount
(as defined in the McJunkin Opco Term Loan Credit Agreement) (such Cure Amount, the
McJunkin
Opco Cure Amount
) of such McJunkin Opco Cure Right, then the exercise of such McJunkin Opco
Cure Right shall not be deemed an exercise of a Cure Right under this Agreement.
In the event that any of the Investors elect to exercise both a Cure Right pursuant to this
Section 12.1 and a McJunkin Cure Right pursuant to the McJunkin Opco Term Loan Credit Agreement,
then the McJunkin Cure Amount of such McJunkin Cure Right shall be deemed to be the Cure Amount of
such Cure Right and such deemed Cure Amount shall not breach clause (ii) of the proviso in the
second paragraph of this Section 12.
SECTION 13.
The Administrative Agent
13.1
Appointment
. (a) Each Lender hereby irrevocably designates and appoints
the Administrative Agent as the agent of such Lender under this Agreement and the other Credit
Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such
capacity, to take such action on its behalf under the provisions of this Agreement and the other
Credit Documents and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Credit Documents,
together with such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have
any duties or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Credit Document or
otherwise exist against the Administrative Agent. The
71
provisions of this Section 13 are solely for the benefit of the Agents, any sub-agent and
the Lenders and Borrower shall not have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties hereunder, each Agent shall act solely
as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation
towards or relationship of agency or trust with or for Borrower or any of its Subsidiaries.
(b) The Administrative Agent and each Lender hereby irrevocably designate and appoint the
Collateral Agent as its agent under this Agreement and the other Credit Documents, and the
Administrative Agent and each Lender irrevocably authorize the Collateral Agent, in such
capacity, (i) to take such action on their behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as are expressly
delegated to the Collateral Agent by the terms of this Agreement and the other Credit Documents,
together with such other powers as are reasonably incidental thereto and (ii) to enter into any
and all of the Security Documents (including, for the avoidance of doubt, the Intercreditor
Agreement) together with such other documents as shall be necessary to give effect to (x) the
ranking and priority of Indebtedness contemplated by the Intercreditor Agreement and (y) the
Collateral contemplated by the other Security Documents, on its behalf. For the avoidance of
doubt, each Lender agrees to be bound by the terms of the Intercreditor Agreement to the same
extent as if it were a party thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Collateral Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with the Administrative Agent, and no
implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Credit Document or otherwise exist against the Collateral Agent.
(c) The Syndication Agent, in its capacity as such, shall not have any obligations, duties
or responsibilities under this Agreement but shall be entitled to all benefits of this
Section 13
.
13.2
Delegation of Duties
. Administrative Agent may perform any and all of its duties
and exercise its rights and powers under this Agreement or under any other Credit Document by or
through any one or more sub-agents appointed by Administrative Agent. 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 Affiliates. The exculpatory, indemnification and other provisions of this
Section 13.2 and of Section 13.7 shall apply to any of the Affiliates of Administrative 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
.
All of the rights,
benefits, and privileges (including the exculpatory and indemnification provisions) of this Section
13 and Section 14.5 shall apply to any such sub-agent and to the Affiliates of any such sub-agent,
and shall apply to their respective activities as sub-agent as if such sub-agent and Affiliates
were named herein. Notwithstanding anything herein to the contrary, with respect to each sub-agent
appointed by the Administrative Agent, (i) such sub-agent shall be a third party beneficiary under
this Agreement with respect to all such rights, benefits and privileges (including exculpatory
rights and rights to indemnification) and shall have all of the rights and benefits of a third
party beneficiary, including an independent right of action to enforce such rights, benefits and
privileges (including exculpatory rights and rights to
72
indemnification) directly, without the consent or joinder of any other Person, against any or
all of the Borrower and the Lenders, (ii) such rights, benefits and privileges (including
exculpatory rights and rights to indemnification) shall not be modified or amended without the
consent of such sub-agent, and (iii) such sub-agent shall only have obligations to Administrative
Agent and not to Borrower, Lender or any other Person and neither Borrower nor any Lender or any
other Person shall have any rights, directly or indirectly, as a third party beneficiary or
otherwise, against such sub-agent
.
13.3
General Immunity
. (a)
No Responsibility for Certain Matters
. No Agent
shall be responsible to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency hereof or any other Credit Document or for any
representations, warranties, recitals or statements made herein or therein or made in any written
or oral statements or in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by any Agent to Lenders or by or on behalf of Borrower, or
for the financial condition or business affairs of Borrower, nor shall any Agent be required to
ascertain or inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the Credit Documents or as to the use of
the proceeds of the Loans or as to the existence or possible existence of any Event of Default or
Default or to make any disclosures with respect to the foregoing other than to the extent required
under this Agreement. Anything contained herein to the contrary notwithstanding, Administrative
Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or
the component amount thereof.
(b)
Exculpatory Provisions
. No Agent nor any of its officers, partners, directors,
employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under
or in connection with any of the Credit Documents except to the extent caused by such Agents gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the
taking of any action (including the failure to take an action) in connection herewith or any of the
other Credit Documents or from the exercise of any power, discretion or authority vested in it
hereunder or thereunder unless and until such Agent shall have received instructions in respect
thereof from Required Lenders (or such other Lenders as may be required to give such instructions
under Section 14.1) and, upon receipt of such instructions from Required Lenders (or such other
Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain
from acting, or to exercise such power, discretion or authority, in accordance with such
instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any communication, instrument or
document believed by it to be genuine and correct and to have been signed or sent by the proper
Person or Persons and shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Borrower and its Subsidiaries), accountants,
experts and other professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against any Agent as a result of such Agent acting or (where so instructed)
refraining from acting hereunder or any of the other Credit Documents in accordance with the
instructions of Required Lenders (or such other Lenders as may be required to give such
instructions under Section 14.1)
13.4
Reliance by Agents
. The Administrative Agent and the Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice,
73
consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order
or other document or conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts selected by the
Administrative Agent or the Collateral Agent. The Administrative Agent may deem and treat the
Lender specified in the Register with respect to any amount owing hereunder as the owner thereof
for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have
been filed with the Administrative Agent. The Administrative Agent and the Collateral Agent shall
be fully justified in failing or refusing to take any action under this Agreement or any other
Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as
it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against
any and all liability and expense that may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent and the Collateral Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future
holders of the Loans.
13.5
Notice of Default
. Neither the Administrative Agent nor the Collateral Agent
shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a notice of default.
In the event that the Administrative Agent receives such a notice, it shall give notice thereof to
the Lenders. The Administrative Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders,
provided
that unless
and until the Administrative Agent shall have received such directions, the Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the best interests of the
Lenders (except to the extent that this Agreement requires that such action be taken only with the
approval of the Required Lenders or each of the Lenders, as applicable).
13.6
Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders
. Each
Lender expressly acknowledges that neither the Administrative Agent nor the Collateral Agent nor
any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the Administrative Agent or the
Collateral Agent hereinafter taken, including any review of the affairs of the Borrower, shall be
deemed to constitute any representation or warranty by the Administrative Agent or the Collateral
Agent to any Lender. Each Lender represents to the Administrative Agent and the Collateral Agent
that it has, independently and without reliance upon the Administrative Agent, the Collateral Agent
or any other Lender, and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it will, independently
and without reliance upon the Administrative Agent, the Collateral Agent 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 analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Credit Documents, and to make
74
such investigation as it deems necessary to inform itself as to the business, operations,
property, financial and other condition and creditworthiness of the Borrower. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by the Administrative
Agent hereunder, neither the Administrative Agent nor the Collateral Agent shall have any duty or
responsibility to provide any Lender with any credit or other information concerning the business,
assets, operations, properties, financial condition, prospects or creditworthiness of the Borrower
that may come into the possession of the Administrative Agent or the Collateral Agent any of their
respective officers, directors, employees, agents, attorneys-in-fact or Affiliate.
13.7
Indemnification
. The Lenders agree to indemnify the Administrative Agent and the
Collateral Agent and any sub-agent thereof, each in its capacity as such (to the extent not
reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably
according to their respective portions of the Total Credit Exposure in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance
with their respective portions of the Total Credit Exposure in effect immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs (including legal fees and costs), expenses or disbursements of any kind
whatsoever that may at any time (including at any time following the payment of the Loans) be
imposed on, incurred by or asserted against the Administrative Agent or the Collateral Agent or
such sub-agent in any way relating to or arising out of, the Commitments, this Agreement, any of
the other Credit Documents or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by the Administrative
Agent or the Collateral Agent or such sub-agent under or in connection with any of the foregoing,
provided
that no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agents or the Collateral Agents or such
sub-agents gross negligence or willful misconduct. The agreements in this Section 13.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
13.8
Agents in their Individual Capacity
. The agency hereby created shall in no way
impair or affect any of the rights and powers of, or impose any duties or obligations upon, any
Agent or any sub-agent thereof in its individual capacity as a Lender hereunder. With respect to
its participation in the Loans and the Letters of Credit, each Agent and any sub-agent thereof
shall have the same rights and powers hereunder as any other Lender and may exercise the same as if
it were not performing the duties and functions delegated to it hereunder, and the term Lender
shall, unless the context clearly otherwise indicates, include each Agent or any sub-agent thereof
in its individual capacity. Any Agent or any sub-agent thereof and its respective Affiliates may
accept deposits from, lend money to, own securities of, and generally engage in any kind of
banking, trust, financial advisory or other business with Borrower or any of its Affiliates as if
it were not performing the duties specified herein, and may accept fees and other consideration
from the Borrower for services in connection herewith and otherwise without having to account for
the same to Lenders.
13.9
Successor Agents
. The Administrative Agent may resign as Administrative Agent
and the Collateral Agent may resign as Collateral Agent upon 20 days prior written notice to the
75
Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent or
the Collateral Agent shall resign as Collateral Agent under this Agreement and the other Credit
Documents, then the Required Lenders shall appoint from among the Lenders a successor
Administrative Agent or successor Collateral Agent, as applicable, which successor agent in each
case, shall be approved by the Borrower (which approval shall not be unreasonably withheld) so long
as no Default or Event of Default is continuing, whereupon such successor agent shall succeed to
the rights, powers and duties of the Administrative Agent or the Collateral Agent, as the case may
be, and the term Administrative Agent or Collateral Agent, as the case may be, shall mean such
successor agent effective upon such appointment and approval, and the former Administrative Agents
or Collateral Agents rights, powers and duties as Administrative Agent or Collateral Agent, as the
case may be, shall be terminated, without any other or further act or deed on the part of such
former Administrative Agent or Collateral Agent, as the case may be, or any of the parties to this
Agreement or any holders of the Loans. After any retiring Administrative Agents or Collateral
Agents resignation as Administrative Agent or Collateral Agent, as the case may be, the provisions
of this
Section 13
shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent or Collateral Agent under this Agreement and the
other Credit Documents.
13.10
Withholding Tax
. To the extent required by any applicable law, the
Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to
any applicable withholding tax. If the Internal Revenue Service or any authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the appropriate form
was not delivered, was not properly executed, or because such Lender failed to notify the
Administrative Agent of a change in circumstances which rendered the exemption from, or reduction
of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the
Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed
by the Borrower and without limiting the obligation of the Borrower to do so) fully for all amounts
paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties
and interest, together with all expenses incurred, including legal expenses, allocated staff costs
and any out of pocket expenses.
13.11
REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS
. By signing this
Agreement, each Lender:
(a) is deemed to have requested that the Agents furnish such Lender, promptly after it
becomes available, (i) a copy of all financial statements to be delivered by the Borrower
hereunder, (ii) a copy of any notice of Default or Event of Default received by such Agent
and (iii) a copy of each Report;
(b) expressly agrees and acknowledges that no Agent (i) makes any representation or
warranty as to the accuracy of any Report, or (ii) shall be liable for any information
contained in any Report;
76
(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that the Agent or other party performing any audit or examination will inspect
only specific information regarding the Borrower and will rely significantly upon the
Borrowers books and records, as well as on representations of the Borrowers personnel;
(d) agrees to keep all Reports confidential in accordance with
Section 14.16
;
and
without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold the Agents and any such other Person or Lender preparing a Report
harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may
reach or draw from any Report in connection with any loans or other credit accommodations that the
indemnifying Lender has made or may make to the Borrower, or the indemnifying Lenders
participation in, or the indemnifying Lenders purchase of, a loan or loans of the Borrower; and
(ii) to pay and protect, and indemnify, defend, and hold the Agents and any such other Person or
Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages,
costs, expenses, and other amounts (including reasonable costs of counsel) incurred by the Agents
and any such other Lender preparing a Report as the direct or indirect result of any third parties
who might obtain all or part of any Report through the indemnifying Lender.
SECTION 14.
Miscellaneous
14.1
Amendments and Waivers
. Neither this Agreement nor any other Credit Document,
nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with
the provisions of this
Section 14.1
. The Required Lenders may, or, with the written
consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into
with Borrower written amendments, supplements or modifications hereto and to the other Credit
Documents for the purpose of adding any provisions to this Agreement or the other Credit Documents
or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or
(b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this Agreement or the other
Credit Documents or any Default or Event of Default and its consequences;
provided
,
however
, that no such waiver and no such amendment, supplement or modification shall
directly (i) forgive or reduce any portion of any Loan or extend the final scheduled maturity date
of any Loan or reduce the stated rate (it being understood that only the consent of the Required
Lenders shall be necessary to waive any obligation of the Borrower to pay interest at the default
rate or amend
Section 2.8(c)
), or forgive or reduce any portion, or extend the date for
the payment, of any interest or fee payable hereunder (other than as a result of waiving the
applicability of any post-default increase in interest rates), or extend the final expiration date
of any Lenders Commitment, or increase the aggregate amount of the Commitments of any Lender, or
amend or modify any provisions of
Section 5.3(a)
(with respect to the ratable allocation of
any payments only),
2.4
(with respect to the ratable disbursement of funds),
3
and
14.8(a)
, in each case without the written consent of each Lender directly and adversely
affected thereby, or (ii) amend, modify or waive any provision of this
Section 14.1
or
77
reduce the percentages specified in the definitions of the term Required Lenders or consent
to the assignment or transfer by the Borrower of its rights and obligations under any Credit
Document to which it is a party, in each case without the written consent of each Lender directly
and adversely affected thereby, or (iii) amend, modify or waive any provision of
Section 13
without the written consent of the then-current Administrative Agent, or, (iv) release all or
substantially all of the Collateral under the Security Agreement or the Pledge Agreement without
the prior written consent of each Lender, or (v) amend
Section 2.9
so as to permit Interest
Period intervals greater than six months without regard to availability to Lenders, without the
written consent of each Lender directly and adversely affected thereby; or (vi) amend, modify or
waive any provisions hereof relating to the Administrative Agent in a manner that directly and
adversely affects it rights and obligations hereunder without the written consent of the
Administrative Agent; or (x) amend, modify or waive any provisions hereof relating to the
Collateral Agent in a manner that directly and adversely affects it rights and obligations
hereunder without the written consent of the Collateral Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the affected Lenders and shall
be binding upon the Borrower, such Lenders, the Administrative Agent and all future holders of the
affected Loans. In the case of any waiver, the Borrower, the Lenders and the Administrative Agent
shall be restored to their former positions and rights hereunder and under the other Credit
Documents, and any Default or Event of Default waived shall be deemed to be cured and not
continuing, it being understood that no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any right consequent thereon.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of
such Lender may not be increased or extended without the consent of such Lender (it being
understood that any Commitments or Loans held or deemed held by any Defaulting Lender shall be
excluded for a vote of the Lenders hereunder requiring any consent of the Lenders).
Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with
the written consent of the Required Lenders, the Administrative Agent and the Borrower (a) to add
one or more additional credit facilities to this Agreement and to permit the extensions of credit
from time to time outstanding thereunder and the accrued interest and fees in respect thereof to
share ratably in the benefits of this Agreement and the other Credit Documents with the Term Loans
and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders
holding such credit facilities in any determination of the Required Lenders and other definitions
related to such new Term Loans.
In addition, notwithstanding the foregoing, this Agreement may be amended with the written
consent of the Administrative Agent, the Borrower and the Lenders providing the relevant
Replacement Term Loans (as defined below) to permit the refinancing of all outstanding Term Loans
(
Refinanced Term Loans
) with a replacement term loan tranche (
Replacement Term
Loans
) hereunder;
provided
that (a) the aggregate principal amount of such Replacement
Term Loans shall not exceed the aggregate principal amount of such Refinanced Term Loans, (b) the
Applicable Margin for such Replacement Term Loans shall not be higher than the Applicable Margin
for such Refinanced Term Loans, (c) the weighted average life to maturity of such Replacement Term
Loans shall not be shorter than the weighted average life to maturity of such
78
Refinanced Term Loans at the time of such refinancing (except to the extent of nominal
amortization for periods where amortization has been eliminated as a result of prepayment of the
applicable Term Loans) and (d) all other terms applicable to such Replacement Term Loans shall be
substantially identical to, or less favorable to the Lenders providing such Replacement Term Loans
than those applicable to such Refinanced Term Loans, except to the extent necessary to provide for
covenants and other terms applicable to any period after the latest final maturity of the Term
Loans in effect immediately prior to such refinancing.
14.2
Notices
. Unless otherwise expressly provided herein, all notices and other
communications provided for hereunder or under any other Credit Document shall be in writing
(including by facsimile transmission). All such written notices shall be mailed, faxed or
delivered to the applicable address, facsimile number or electronic mail address, and all notices
and other communications expressly permitted hereunder to be given by telephone shall be made to
the applicable telephone number, as follows:
(a) if to the Borrower or the Administrative Agent, to the address, facsimile number,
electronic mail address or telephone number specified for such Person on
Schedule
14.2
or to such other address, facsimile number, electronic mail address or telephone
number as shall be designated by such party in a notice to the other parties; and
(b) if to any other Lender, to the address, facsimile number, electronic mail address
or telephone number specified in its Administrative Questionnaire or to such other address,
facsimile number, electronic mail address or telephone number as shall be designated by such
party in a notice to the Borrower or the Administrative Agent.
All such notices and other communications shall be deemed to be given or made upon the earlier to
occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by
courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail,
three (3) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile,
when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail,
when delivered;
provided
that notices and other communications to the Administrative Agent
or the Lenders pursuant to Sections 2.3, 2.6, 2.9, and 5.1 shall not be effective until received.
14.3
No Waiver; Cumulative Remedies
. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent, the Collateral Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
14.4
Survival of Representations and Warranties
. All representations and warranties
made hereunder, in the other Credit Documents and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the making of the Loans hereunder.
79
14.5
Payment of Expenses and Taxes
. The Borrower agrees (a) to pay or reimburse the
Agents for all their reasonable and documented out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Credit Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including the reasonable fees, disbursements and other charges of
Latham & Watkins LLP, one local counsel in each relevant local jurisdiction and such additional
counsel to the extent consented to by the Borrower, (b) to pay or reimburse each Lender, and Agent
for all its reasonable and documented costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, the other Credit Documents and any
such other documents, including the reasonable fees, disbursements and other charges of one counsel
to the Administrative Agent, Collateral Agent and the other Agents (unless there is an actual or
perceived conflict of interest in which case each such Person may retain its own counsel), (c) to
pay, indemnify, and hold harmless each Lender, and Agent from, any and all recording and filing
fees and (d) to pay, indemnify, and hold harmless each Lender, and Agent and their respective
directors, officers, employees, trustees, investment advisors and agents from and against any and
all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever, including reasonable and documented
fees, disbursements and other charges of one primary counsel and one local counsel in each relevant
jurisdiction to such indemnified Persons (unless there is an actual or perceived conflict of
interest or the availability of different claims or defenses in which case each such Person may
retain its own counsel), related to the Dividend Transactions or with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the other Credit Documents
and any such other documents, including, without limitation, any of the foregoing relating to the
violation of, noncompliance with or liability under, any Environmental Law or to any actual or
alleged presence, release or threatened release of Hazardous Materials or any other Environmental
Claims involving or attributable to the operations of the Borrower, any of its Subsidiaries or any
of the Real Estate (all the foregoing in this clause (d), collectively, the
indemnified
liabilities
),
provided
that the Borrower shall have no obligation hereunder to the
Administrative Agent or any Lender nor any of their Related Parties with respect to indemnified
liabilities to the extent attributable to the bad faith, gross negligence or willful misconduct of,
or material breach of the Credit Documents by, the party to be indemnified or any of its Related
Parties. All amounts payable under this Section 14.5 shall be paid within ten (10) Business Days
of receipt by the Borrower of an invoice relating thereto setting forth such expense in reasonable
detail. No Person indemnified under this Section 14.5 shall be liable for any special, indirect,
consequential or punitive damages relating to this Agreement or any other Credit Document or
arising out of its activities in connection herewith or therewith. The agreements in this Section
14.5 shall survive repayment of the Loans and all other amounts payable hereunder
14.6
Successors and Assigns; Participations and Assignments
(a) . (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that (i) the Borrower may
not assign or otherwise transfer any of its rights or obligations hereunder without the prior
written consent of each Lender (and any attempted assignment or transfer by the Borrower or
without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer
its rights or obligations hereunder except in accordance with this
Section 14.6
. Nothing
in this
80
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 paragraph (c) of this
Section 14.6
), pledges to the extent
provided in paragraph (d) of this Section 14.6 and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent, and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any
Lender may 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 Commitments and
the Loans at the time owing to it) with the prior written consent of:
(A) the Borrower (which consent shall not be unreasonably withheld or
delayed;
provided
that it being understood that, without limitation,
the Borrower shall have the right to withhold its consent to any assignment
if, in order for such assignment to comply with applicable law, the Borrower
would be required to obtain the consent of, or make any filing or
registration with, any Governmental Authority),
provided
that no
consent of the Borrower shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund (unless increased costs would result
therefrom at any time when no Event of Default under
Section 11.1
or
Section 11.5
is continuing) or, if an Event of Default under
Section 11.1
or
Section 11.5
has occurred and is continuing,
any other assignee;
(B) the Administrative Agent (which consent shall not be unreasonably
withheld or delayed);
provided
that no consent of the Administrative
Agent shall be required for an assignment to a Lender, an Affiliate of a
Lender, or an Approved Fund, or, in the case of assignments in connection
with the initial syndication of Commitments and Loans only, the Co-Lead
Arrangers.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an Affiliate of a
Lender or an Approved Fund or an assignment of the entire remaining amount
of the assigning Lenders Commitment or Loans, or assignments in connection
with the initial syndication of Commitments and Loans (in amounts, and to
such Persons, as previously agreed between the Borrower and the Co-Lead
Arrangers), the amount of the Commitment or Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $1,000,000, and increments of
$1,000,000 in excess thereof, unless each of the Borrower and the
Administrative Agent otherwise consents (which consents shall not be
unreasonably withheld or delayed),
provided
that
no such
consent of the Borrower shall be required if an Event of Default
81
under
Section 11.1
or
Section 11.5
has occurred and is
continuing;
provided
,
further
, that contemporaneous
assignments to a single assignee made by Affiliates of Lenders and related
Approved Funds or by a single assignor made to Affiliates or related
Approved Funds shall be aggregated for purposes of meeting the minimum
assignment amount requirements stated above;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lenders rights and obligations
under this Agreement;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500,
provided
that only one
such fee shall be payable in the event of simultaneous assignments to or
from two or more Approved Funds;
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an administrative questionnaire in a form approved by
the Administrative Agent (the
Administrative Questionnaire
);
(E) neither Sponsor nor any Affiliate of Borrower or Sponsor other than
any Sponsor Affiliated Lender or Sponsor Affiliated Institutional Lender may
be a permitted assignee (and Administrative Agent shall not consent to any
such other Person); and
(F) the Assignment and Acceptance with respect to each assignment
involving a Sponsor Affiliated Lender or a Sponsor Affiliated Institutional
Lender shall include the provisions described in the definitions thereof;
and
(G) the Assignment and Acceptance with respect to each Borrower
Purchase and each Sponsor Purchase shall include a representation that
Borrower or Sponsor Affiliated Lender shall comply with the provisions of
Section 3 hereof.
For the purpose of this
Section 14.6(b)
, the term Approved Fund means
any Person (other than a natural person) that is engaged in making, purchasing,
holding or investing in bank loans and similar extensions of credit in the ordinary
course and that is administered, advised or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that
administers, advises or manages a Lender.
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(v)
of this
Section 14.6
, from and after the effective date specified in each
Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement, and the assigning
82
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lenders rights and obligations under this Agreement, such Lender shall cease to be
a party hereto but shall continue to be entitled to the benefits of
Sections
2.10, 2.11, 5.4
and
14.5
). Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this
Section 14.6
shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
paragraph (c) of this
Section 14.6
.
(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower shall maintain at the Administrative Agents Office a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of the
names and addresses of the Lenders, and the Commitments of, and principal amount of
the Loans, each Lender pursuant to the terms hereof from time to time (the
Register
). Further, the Register shall contain the name and address of
the Administrative Agent and the lending office through which each such Person acts
under this Agreement. 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. The Register shall
be available for inspection by the Borrower or any Lender (with respect to any entry
relating to such Lenders Loans) at any reasonable time and from time to time upon
reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Acceptance executed by
an assigning Lender and an assignee, the assignees completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this
Section
14.6
, and any written consent to such assignment required by paragraph (b) of
this
Section 14.
6, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register.
(c) (i) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(each, a
Participant
) in all or a portion of such Lenders rights and
obligations under this Agreement (including all or a portion of its Commitments and
the Loans owing to it),
provided
that (A) such Lenders obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations and
(C) the Borrower, the Administrative Agent, and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lenders rights
and obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain the
sole right to enforce this Agreement and to approve any amendment, modification or
waiver of any provision of this Agreement or any other Credit Document,
provided
that such agreement or instrument may provide
83
that such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to
Section
14.1
under subsections (i) and (iv) that affects such Participant. Subject to
paragraph (c)(ii) of this
Section 14.6
, the Borrower agrees that each
Participant shall be entitled to the benefits of
Sections 2.10
,
2.11
and
5.4
to the same extent as if it were a Lender (subject to the
requirements of those Sections) and had acquired its interest by assignment pursuant
to paragraph (b) of this
Section 14.6
. To the extent permitted by law, each
Participant also shall be entitled to the benefits of
Section 14.8(b)
as
though it were a Lender, provided such Participant agrees to be subject to
Section 14.8(a)
as though it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment under
Section 2.10 or 5.4
than the applicable Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the sale
of the participation to such Participant is made with the Borrowers prior written
consent (which consent shall not be unreasonably withheld).
(d) Any Lender may, without the consent of the Borrower or the Administrative Agent, at any
time pledge or assign a security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this
Section 14.6
shall not apply to any such
pledge or assignment of a security interest,
provided
that no such pledge or assignment
of a security interest shall release a Lender from any of its obligations hereunder or substitute
any such pledgee or assignee for such Lender as a party hereto. In order to facilitate such
pledge or assignment, the Borrower hereby agrees that, upon request of any Lender at any time and
from time to time after the Borrower has made its initial borrowing hereunder, the Borrower shall
provide to such Lender, at the Borrowers own expense, a promissory note, substantially in the
form of
Exhibit L
evidencing the Term Loans, respectively, owing to such Lender.
(e) Subject to
Section 14.16
, the Borrower authorizes each Lender to disclose to any
Participant, secured creditor of such Lender or assignee (each, a
Transferee
) and any
prospective Transferee any and all financial information in such Lenders possession concerning
the Borrower and its Affiliates that has been delivered to such Lender by or on behalf of the
Borrower and its Affiliates pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower and its Affiliates in connection with such Lenders credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement.
14.7
Replacements of Lenders under Certain Circumstances
(a) . (a) The Borrower
shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing
pursuant to
Section 2.10, 3.5
or
5.4
, (b) is affected in the manner described in
Section 2.10(a)(iii)
and as a result thereof any of the actions described in such Section
is required to be taken or (c) becomes a Defaulting Lender, with a replacement bank or other
financial institution,
provided
that (i) such replacement does not conflict with any
Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of
such replacement, (iii) the Borrower shall repay (or the replacement bank or institution shall
purchase, at par) all Loans and other amounts (other than any disputed amounts), pursuant to
Section 2.10, 2.11
or
5.4
, as
84
the case may be) owing to such replaced Lender prior to the date of replacement, (iv) the
replacement bank or institution, if not already a Lender, and the terms and conditions of such
replacement, shall be reasonably satisfactory to the Administrative Agent, (v) the replaced
Lender shall be obligated to make such replacement in accordance with the provisions of
Section 14.6
(
provided
that
the Borrower shall be obligated to pay the
registration and processing fee referred to therein) and (vi) any such replacement shall not be
deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other
Lender shall have against the replaced Lender.
(b) If any Lender (such Lender, a
Non-Consenting Lender
) has failed to consent to
a proposed amendment, waiver, discharge or termination which pursuant to the terms of
Section
14.1
requires the consent of all of the Lenders affected and with respect to which the
Required Lenders shall have granted their consent, then provided no Event of Default then exists,
the Borrower shall have the right (unless such Non-Consenting Lender grants such consent) to
replace such Non-Consenting Lender by requiring such Non-Consenting Lender to assign its Loans,
and its Commitments hereunder to one or more assignees reasonably acceptable to the
Administrative Agent,
provided
that: (a) all Obligations of the Borrower owing to such
Non-Consenting Lender being replaced shall be paid in full to such Non-Consenting Lender
concurrently with such assignment, (b) the replacement Lender shall purchase the foregoing by
paying to such Non-Consenting Lender a price equal to the principal amount thereof plus accrued
and unpaid interest thereon and (c) the replacement Lender shall grant such consent. In
connection with any such assignment, the Borrower, Administrative Agent, such Non-Consenting
Lender and the replacement Lender shall otherwise comply with
Section 14.6
;
provided
, that the Borrower or replacement Lender shall be obligated to pay the
registration and processing fee referred to therein.
14.8
Adjustments; Set-off
(a) . (a) If any Lender (a
benefited Lender
)
shall at any time receive any payment of all or part of its Loans, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in
Section 11.5
, or
otherwise), in a greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lenders Loans, or interest thereon, such benefited
Lender shall purchase for cash from the other Lenders a participating interest in such portion of
each such other Lenders Loan, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to
share the excess payment or benefits of such collateral or proceeds ratably with each of the
Lenders;
provided
,
however
, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded,
and the purchase price and benefits returned, to the extent of such recovery, but without
interest. For the avoidance of doubt, the parties hereto agree that the provisions of this
Section 14.8(a) shall not be construed to apply to (i) any payment made by Borrower pursuant to
and in accordance with
Section 3
of this Agreement and (ii) any payment obtained by any
Lender as consideration for the assignment or sale of a participation in any of its Loans or
other Obligations owed to it.
(b) After the occurrence and during the continuance of an Event of Default, in addition to
any rights and remedies of the Lenders provided by law, each Lender shall have the right, without
prior notice to the Borrower, any such notice being expressly waived by the
85
Borrower to the extent permitted by applicable law, subject to the consent of the
Administrative Agent (such consent not to be unreasonably withheld) upon any amount becoming due
and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of the Borrower. Each Lender agrees promptly
to notify the Borrower and the Administrative Agent after any such set-off and application made
by such Lender,
provided
that the failure to give such notice shall not affect the
validity of such set-off and application.
14.9
Counterparts
. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts (including by facsimile or other electronic
transmission), and all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the parties shall be
lodged with the Borrower and the Administrative Agent.
14.10
Severability
. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.11
Integration
. This Agreement and the other Credit Documents represent the
agreement of the Borrower, the Collateral Agent, the Administrative Agent and the Lenders with
respect to the subject matter hereof, and there are no promises, undertakings, representations or
warranties by the Borrower, the Administrative Agent, the Collateral Agent or any Lender relative
to subject matter hereof not expressly set forth or referred to herein or in the other Credit
Documents.
14.12
GOVERNING LAW
. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
14.13
Submission to Jurisdiction; Waivers
. Each party hereto hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the courts of the United States of America for the
Southern District of New York and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such
86
action or proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Person at its address set forth on
Schedule 14.2
at
such other address of which the Administrative Agent shall have been notified pursuant to
Section 14.2
;
(d) agrees that nothing herein shall affect the right to effect service of process in
any other manner permitted by law or shall limit the right to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this
Section 14.13
any
special, exemplary, punitive or consequential damages.
14.14
Acknowledgments
. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Credit Documents;
(b) neither the Administrative Agent nor the Collateral Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in connection with
this Agreement or any of the other Credit Documents, and the relationship between
Administrative Agent, the Collateral Agent and Lenders, on one hand, and the Borrower, on
the other hand, in connection herewith or therewith is solely that of debtor and creditor;
and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Lenders or among the
Borrower and the Lenders.
14.15
WAIVERS OF JURY TRIAL
. THE BORROWER, EACH AGENT AND EACH LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
14.16
Confidentiality
. The Administrative Agent and each Lender shall hold all
non-public information furnished by or on behalf of the Borrower in connection with such Lenders
evaluation of whether to become a Lender hereunder or obtained by such Lender or the Administrative
Agent pursuant to the requirements of this Agreement (
Confidential Information
),
confidential in accordance with its customary procedure for handling confidential information of
this nature and (in the case of a Lender that is a bank) in accordance with safe and sound banking
practices and in any event may (i) make disclosure as required or requested by any governmental
agency or representative thereof or pursuant to legal process or to such Lenders or the
Administrative Agents attorneys, professional advisors or independent auditors
87
or Affiliates,
provided
that unless specifically prohibited by applicable law or court
order, each Lender and the Administrative Agent shall notify the Borrower of any request by any
governmental agency or representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental agency or other routine
examinations of such Lender by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information, and
provided
,
further
, that in no event shall
any Lender or the Administrative Agent be obligated or required to return any materials furnished
by the Borrower or any Subsidiary of the Borrower, (ii) make disclosures of such information
reasonably required by any bona fide or potential assignee, transferee or participant in connection
with the contemplated assignment, transfer or participation by such Lender of any Loans or any
participations therein or by any pledgees referred to in Section 14.16(d) or by direct or indirect
contractual counterparties (or the professional advisors thereto) in Hedge Agreements (provided,
such assignees, transferees, participants, pledgees, counterparties and advisors are advised of and
agree to be bound by provisions that in substance are the equivalent to those in this Section
14.16), (iii) make disclosure of such information reasonably required by any lender or other Person
providing financing to such Lender (provided such lenders or other Persons are advised of the
confidential nature of such information and agree to keep such information confidential on terms
consistent with this Section 14.16), and (iv) make disclosure to any rating agency,
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 Agents
or any Lender.
14.17
Direct Website Communications
.
(a)
(i) The Borrower may, at its option, provide to the Administrative Agent
any information, documents and other materials that it is obligated to furnish
to the Administrative Agent pursuant to the Credit Documents, including, without
limitation, all notices, requests, financial statements, financial and other
reports, certificates and other information materials, but excluding any such
communication that (A) relates to a request for a new, or a conversion of an
existing, borrowing or other extension of credit (including any election of an
interest rate or interest period relating thereto), (B) relates to the payment of
any principal or other amount due under the Credit Agreement prior to the scheduled
date therefor, (C) provides notice of any default or event of default under the
Credit Agreement or (D) is required to be delivered to satisfy any condition
precedent to the effectiveness of the Credit Agreement and/or any borrowing or other
extension of credit thereunder (all such non-excluded communications being referred
to herein collectively as
Communications
), by transmitting the
Communications in an electronic/soft medium in a format reasonably acceptable to the
Administrative Agent to lpgloans@lehman.com or such other email address as disclosed
in writing to the Borrower. Nothing in this
Section 14.17
shall prejudice
the right of the Borrower, the Administrative Agent or any Lender to give any notice
or other communication pursuant to any Credit Document in any other manner specified
in such Credit Document.
(ii) The Administrative Agent agrees that the receipt of the Communications by
the Administrative Agent at its e-mail address set forth above
88
shall constitute effective delivery of the Communications to the Administrative
Agent for purposes of the Credit Documents. Each Lender agrees that notice to it
(as provided in the next sentence) specifying that the Communications have been
posted to the Platform shall constitute effective delivery of the Communications to
such Lender for purposes of the Credit Documents. Each Lender agrees (A) to notify
the Administrative Agent in writing (including by electronic communication) from
time to time of such Lenders e-mail address to which the foregoing notice may be
sent by electronic transmission and (B) that the foregoing notice may be sent to
such e-mail address.
(b) The Borrower further agrees that the Administrative Agent may make the Communications
available to the Lenders by posting the Communications on Intralinks or a substantially similar
electronic transmission system (the
Platform
), so long as the access to such Platform
is limited (i) to the Agents and the Lenders and (ii) remains subject the confidentiality
requirements set forth in
Section 14.16
.
(c) The Platform is provided as is and as available. The Agent Parties do not warrant
the accuracy or completeness of the Communications, or the adequacy of the platform and expressly
disclaim liability for errors or omissions in the Communications. No warranty of any kind,
express, implied or statutory, including, without limitation, 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 the Agent Parties in connection with the Communications or the
platform. In no event shall the Administrative Agent, the Collateral Agent or any of its
affiliates or any of their respective officers, directors, employees, agents, advisors or
representatives (collectively,
Agent Parties
) have any liability to the Borrower, any
Lender or any other person or entity for damages of any kind, including, without limitation,
direct or indirect, special, incidental or consequential damages, losses or expenses (whether in
tort, contract or otherwise) arising out of the Borrowers or the Administrative Agents
transmission of Communications through the internet, except to the extent the liability of any
Agent Party resulted from such Agent Partys (or any of its Related Parties) gross negligence,
bad faith or willful misconduct or material breach of the Credit Documents.
(d) The Borrower and each Lender acknowledge that certain of the Lenders may be
public-side Lenders (Lenders that do not wish to receive material non-public information with
respect to the Borrower, its Subsidiaries or their securities) and, if documents or notices
required to be delivered pursuant to the Credit Documents or otherwise are being distributed
through the Platform, any document or notice that the Borrower has indicated contains only
publicly available information with respect to the Borrower may be posted on that portion of the
Platform designated for such public-side Lenders. If the Borrower has not indicated whether a
document or notice delivered contains only publicly available information, the Administrative
Agent shall post such document or notice solely on that portion of the Platform designated for
Lenders who wish to receive material nonpublic information with respect to the Borrower, its
Subsidiaries and their securities. Notwithstanding the foregoing, the Borrower shall be under no
obligation under this Section 14.17 (d) to indicate any document or notice as containing only
publicly available information.
89
14.18
USA Patriot Act
. Each 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, which information includes the name and address of the Borrower and other
information that will allow such Lender to identify the Borrower in accordance with the Patriot
Act.
[Signature Pages Follow]
90
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to
be duly executed and delivered as of the date first above written.
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MCJUNKIN RED MAN HOLDING CORPORATION
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By:
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/s/
CRAIG KETCHUM
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Name:
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Craig Ketchum
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Title:
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Chief Executive
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MCJUNKIN
RED MAN HOLDING CORPORATION
Credit Agreement
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LEHMAN COMMERCIAL PAPER INC., as Administrative
Agent and as Collateral Agent
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By:
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/s/
LAURIE PERPER
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Name:
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Laurie Perper
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Title:
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Managing Director
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MCJUNKIN RED
MAN HOLDING CORPORATION
Credit Agreement
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GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Co-Lead Arranger, Joint Bookrunner and Syndication Agent
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By:
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/s/
BRUCE MENDELSOHN
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Name:
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Bruce H. Mendelsohn
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Title:
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By:
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Name:
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Title:
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MCJUNKIN RED
MAN HOLDING CORPORATION
Credit Agreement
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LEHMAN BROTHERS INC., as Co-Lead Arranger and Joint
Bookrunner
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By:
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/s/
LAURIE PERPER
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Name:
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Laurie Perper
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Title:
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Managing Director
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MCJUNKIN RED
MAN HOLDING CORPORATION
Credit Agreement
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LEHMAN BROTHERS COMMERCIAL BANK, as a Lender
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By:
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/s/ DARREN S. LANE
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Name:
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Darren S. Lane
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Title:
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Operations Officer
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MCJUNKIN RED MAN HOLDING CORPORATION
Credit Agreement
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as a Lender
Name: BRUCE H. MENDELSOHN
Title: AUTHORIZED SIGNATORY
Name:
Title:
MCJUNKIN RED MAN HOLDING CORPORATION
Credit Agreement
SCHEDULE
1.1(C) COMMITMENTS OF LENDERS
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Lender
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Commitment
Amount
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LEHMAN BROTHERS COMMERCIAL BANK
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$
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157,500,000
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GOLDMAN SACHS CREDIT PARTNERS L.P.
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$
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292,500,000
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Total: $
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450,000,000
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SCHEDULE
1.1(D) EXCLUDED SUBSIDIARIES
McJunkin
Receivables Corporation
Red Man Pipe & Supply International, Ltd.
SCHEDULE
1.1(E) COST SAVINGS
Not
Applicable.
SCHEDULE 8.12 SUBSIDIARIES
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Material
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Subsidiary
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Name
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Owner
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Type
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(Y/N)
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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McJunkin Red Man Holding
Corporation
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corporation
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Y
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MRM West Virginia Management Company
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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N
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MRM Oklahoma Management LLC
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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limited
liability
company
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N
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McJunkin Appalachian Oilfield
Supply Company
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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Y
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McJunkin Nigeria Limited
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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N
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McJunkin Development Corporation
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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N
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McJunkin-Puerto Rico Corporation
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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N
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McJunkin Receivables Corporation
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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N
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McJunkin-West Africa Corporation
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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N
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Milton Oil & Gas Company
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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N
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Greenbrier Petroleum Corporation
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Milton Oil & Gas Company
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corporation
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N
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Ruffner Realty Company
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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N
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Midway-Tristate Corporation
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McJunkin Appalachian
Oilfield Supply Company
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corporation
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Y
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West Oklahoma PVF Company
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McJunkin Red Man Corporation
(f/k/a McJunkin Corporation)
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corporation
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Y
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McJunkin de Angola, Lda
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McJunkin West Africa
Corporation (49%)/McJunkin
Development Corporation
(51%)
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limited
liability
company
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N
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Red Man Pipe & Supply Co.
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West Oklahoma PVF Company
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corporation
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Y
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Wesco Acquisition Partners, Inc.
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Red Man Pipe & Supply Co.
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corporation
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N
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Red Man Pipe and Supply Canada, Ltd.
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Red Man Pipe & Supply Co.
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corporation
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Y
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Midfield Supply ULC
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Red Man Pipe and Supply
Canada, Ltd.
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corporation
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Y
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Midfield Supply USA, Ltd.
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Midfield Supply ULC
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corporation
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N
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Mega Production Testing Inc.
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Midfield Supply ULC
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corporation
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N
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Northern Boreal Supply Ltd.
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Midfield Supply ULC
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corporation
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N
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Red Man Pipe & Supply
International, Ltd.
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Red Man Pipe & Supply Co.
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corporation
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N
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Hagan Oilfield Supply Ltd.
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Midfield Supply ULC
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corporation
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N
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1048025 Alberta Ltd.
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Midfield Supply ULC
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corporation
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N
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1236564 Alberta Ltd.
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Midfield Supply ULC
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corporation
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N
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SCHEDULE 9.9
CLOSING DATE AFFILIATE TRANSACTIONS
None.
SCHEDULE 9.17(B)
POST CLOSING ITEMS
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1.
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The Borrower shall deliver to the Collateral Agent within five
(5) Business Days after the Closing Date an original share
certificate for 100 shares of McJunkin Red Man Corporation
issued in favor of McJunkin Red Man Holding Corporation and, to
the extent the stock power delivered to the Collateral Agent on
the Closing Date does not accurately describe such share
certificates, an executed stock power with respect to such share
certificate.
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2.
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Concurrently with the delivery of the share certificate
described in paragraph 1 above, the Borrower shall deliver to
the Collateral Agent an updated Perfection Certificate and
Schedule 1 to the Pledge Agreement to reflect the new
certificate number, in form and substance reasonably acceptable
to Collateral Agent.
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Exhibit 10.9
Execution Copy
MIDFIELD SUPPLY ULC,
as Borrower
LOAN AND SECURITY AGREEMENT
Dated as of November 2, 2006
CDN$150,000,000
BANK OF AMERICA, N.A. (acting through its Canada branch),
and
CERTAIN FINANCIAL INSTITUTIONS FROM TIME TO
TIME OR AT ANY TIME NAMED HEREIN AS LENDERS,
as Lenders
BANK OF AMERICA, N.A. (acting through its Canada branch),
as Agent
TABLE OF CONTENTS
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SECTION 1 DEFINITIONS; RULES OF CONSTRUCTION
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1
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1.1 Definitions
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1
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1.2 Accounting Terms
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28
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1.3 Certain Matters of Construction
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28
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1.4 Interest Calculations and Payments
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29
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1.5 Interest Act (Canada)
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29
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1.6 Equivalent Amount
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30
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SECTION 2 CREDIT FACILITIES
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30
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2.1 Revolver Commitment
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30
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2.2 Letter of Credit Facility
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32
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SECTION 3 INTEREST, FEES AND CHARGES
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35
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3.1 Interest
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35
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3.2 Fees
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37
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3.3 Computation of Interest, Fees, Yield Protection
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37
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3.4 Overdraft Loans
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38
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3.5 Illegality
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38
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3.6 Increased Costs
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38
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3.7 Capital Adequacy
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39
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3.8 Mitigation
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39
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3.9 Funding Losses
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40
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3.10 Maximum Interest
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40
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SECTION 4 LOAN ADMINISTRATION
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41
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4.1 Manner of Borrowing and Funding Revolver Loans
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41
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4.2 Defaulting Lender
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42
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4.3 Number and Amount of BA Equivalent Loans; Determination of Rate
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43
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4.4 Effect of Termination
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43
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SECTION 5 PAYMENTS
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43
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5.1 General Payment Provisions
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43
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5.2 Repayment of Revolver Loans
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44
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5.3 Payment of Other Obligations
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44
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5.4 Marshalling; Payments Set Aside
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44
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5.5 Post-Default Allocation of Payments
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44
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5.6 Application of Payments
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45
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5.7 Loan Account; Account Stated
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46
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5.8 Taxes
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46
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SECTION 6 CONDITIONS PRECEDENT
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47
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6.1 Conditions Precedent to Initial Loans
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47
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6.2 Conditions Precedent to All Credit Extensions
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50
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6.3 Limited Waiver of Conditions Precedent
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51
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SECTION 7 COLLATERAL
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51
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7.1 Grant of Security Interest
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51
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7.2 Lien on Deposit Accounts/Dominion Accounts; Cash Collateral
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52
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7.3 Other Collateral
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52
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- i -
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7.4 No Assumption of Liability
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53
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7.5 Further Assurances
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53
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SECTION 8 COLLATERAL ADMINISTRATION
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53
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8.1 Borrowing Base Certificates
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53
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8.2 Administration of Accounts
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53
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8.3 Administration of Inventory
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54
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8.4 Administration of Equipment and Real Estate
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55
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8.5 Administration of Deposit Accounts
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55
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8.6 General Provisions
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56
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8.7 Power of Attorney
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57
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SECTION 9 REPRESENTATIONS AND WARRANTIES
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58
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9.1 General Representations and Warranties
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58
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9.2 Complete Disclosure
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65
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SECTION 10 COVENANTS AND CONTINUING AGREEMENTS
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65
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10.1 Affirmative Covenants
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65
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10.2 Negative Covenants
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70
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10.3 Financial Covenants
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76
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SECTION 11 EVENTS OF DEFAULT; REMEDIES ON DEFAULT
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76
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11.1 Events of Default
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76
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11.2 Remedies upon Default
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78
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11.3 License
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79
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11.4 Setoff
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79
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11.5 Remedies Cumulative; No Waiver
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80
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SECTION 12 AGENT
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80
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12.1 Appointment, Authority and Duties of Agent
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80
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12.2 Agreements Regarding Collateral and Field Examination Reports
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82
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12.3 Reliance By Agent
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82
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12.4 Action Upon Default
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83
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12.5 Ratable Sharing
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83
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12.6 Indemnification of Agent Indemnitees
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83
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12.7 Limitation on Responsibilities of Agent
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84
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12.8 Successor Agent and Co-Agents
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84
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12.9 Due Diligence and Non-Reliance
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86
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12.10 Replacement of Certain Lenders
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86
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12.11 Remittance of Payments and Collections
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86
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12.12 Agent in its Individual Capacity
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87
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12.13 Agent Titles
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87
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12.14 No Third Party Beneficiaries
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88
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SECTION 13 BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
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88
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13.1 Successors and Assigns
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88
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13.2 Participations
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88
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13.3 Assignments
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89
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13.4 Representation of Lenders
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89
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SECTION 14 GUARANTEES
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90
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14.1 The Guarantees
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90
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- ii -
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14.2 Guarantee Absolute
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90
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14.3 Consents, Waivers and Renewals
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91
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14.4 Subrogation
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92
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14.5 Subordination
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92
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14.6 Protection Clause
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92
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14.7 Limitation on Guarantee of Obligations
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92
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14.8 Guarantee of Payment
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94
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SECTION 15 MISCELLANEOUS
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94
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15.1 Consents, Amendments and Waivers
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94
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15.2 Indemnity
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95
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15.3 Notices and Communications
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95
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15.4 Performance of Obligors Obligations
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96
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15.5 Credit Inquiries
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96
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15.6 Severability
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96
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15.7 Cumulative Effect; Conflict of Terms
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97
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15.8 Counterparts; Facsimile Signatures
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97
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15.9 Entire Agreement
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97
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15.10 Obligations of Lenders
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97
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15.11 Confidentiality
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97
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15.12 Governing Law; Choice of Forum; Service of Process
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98
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15.13 Waivers by Obligors
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99
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15.14 Survival of Representations and Warranties
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100
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15.15 Fees and Expenses
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100
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15.16 Limitation of Liability
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100
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15.17 Final Agreement
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101
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15.18 Precedence
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101
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15.19 Judgment Currency
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101
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- iii -
LIST OF EXHIBITS AND SCHEDULES
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Exhibit A
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Revolver Note
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Exhibit B
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Intentionally Deleted
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Exhibit C
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Assignment and Acceptance
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Exhibit D
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Assignment Notice
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Exhibit E
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Borrowing Base Certificate
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Exhibit F
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Notice of Continuation/Conversion
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Exhibit G
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Compliance Certificate
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Exhibit H
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Notice of Borrowing
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Schedule 1.1
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Commitments of Lenders
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Schedule 8.5
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Dominion Accounts
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Schedule 8.6.1
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Business Locations
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Schedule 9.1.4
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Names and Capital Structure
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Schedule 9.1.5
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Former Names and Companies
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Schedule 9.1.12
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Patents, Trademarks, Copyrights and Licenses
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Schedule 9.1.15
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Environmental Matters
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Schedule 9.1.16
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Restrictive Agreements
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Schedule 9.1.17
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Litigation
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Schedule 9.1.19
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Pension Compliance
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Schedule 9.1.21
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Labour Contracts
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Schedule 9.1.29
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Real Estate
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Schedule 10.2.2
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Existing Liens
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Schedule 10.2.4
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Distributions
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Schedule 10.2.17
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Existing Affiliate Transactions
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT
is dated as of November 2, 2006, among
MIDFIELD SUPPLY ULC,
an unlimited liability company incorporated under the laws of Alberta (the Borrower), Mega
Production Testing Inc., as guarantor, the financial institutions party to this Agreement from
time to time as lenders (collectively, the Lenders) and
BANK OF AMERICA,
N.A. (acting through
its Canada branch), as agent for the Lenders (the Agent).
RECITALS:
Borrower has requested that Lenders make available a credit facility, to be used by Borrower
to finance its working capital needs, capital expenditure needs and general corporate purposes and
to refinance its existing debt. Lenders are willing to provide such credit facility on the terms
and conditions set forth in this Agreement.
NOW, THEREFORE,
for valuable consideration hereby acknowledged, the parties agree as follows:
SECTION 1 DEFINITIONS; RULES OF CONSTRUCTION
1.1
Definitions.
As used herein, the following terms have the meanings set forth below:
331562
331562 Alberta Ltd.
331562 Debt
(i) the loan, in the principal amount of $2,000,000, currently owing and
made in favour of TSS Tubular & Sales and Service Ltd. by 331562, and (ii) the obligation of TSS
Tubular & Sales and Service Ltd. to pay to 331562 an amount equal to 51% of the net revenues of TSS
Tubular & Sales and Service Ltd. for the period commencing on May 1, 2006 and ending at midnight on
August 31, 2006, which amount shall not exceed the aggregate amount of $900,000 and which payment
shall be made on or before December 31, 2006; and which loan and obligation to pay shall become a
loan and obligation of the Borrower following completion of the Obligor 2006 Amalgamation.
331562 Estoppel Agreement
an estoppel agreement among the Agent, 331562 and the
Borrower dated as of the date hereof on terms and conditions satisfactory to the Agent.
331562 Reserve
an amount equal to all outstanding indebtedness of the Borrower
under the 331562 Debt.
Account
means all of the Borrowers now owned or hereafter acquired or arising
accounts as defined in the PPSA, including any rights to payment for the sale or lease of goods or
rendition of services, whether or not they have been earned by performance.
Account Debtor
a Person who is obligated under an Account, Chattel Paper or General
Intangible.
- 2 -
Acquisition
any transaction, or any series of related transactions, consummated on
or after the Closing Date, by which an Obligor directly or indirectly (a) acquires debt of another
Person, (b) acquires any ongoing business or all or substantially all of the assets of any Person
engaged in any ongoing business, whether through a purchase of assets, a merger/amalgamation or
otherwise, (c) acquires control of Equity Interests of a Person engaged in an ongoing business
representing more than 50% of the ordinary voting power for the election of directors or other
governing position if the business affairs of such Person are managed by a board of directors or
other governing body or (d) acquires control of more than 50% of the Equity Interests in any
partnership, joint venture, limited liability company, unlimited liability company, business trust
or other Person engaged in an ongoing business that is not managed by a board of directors or other
governing body.
Adjusted EBITDA
for the period then calculated, means, EBITDA
plus
Bonuses,
to the extent deducted in calculating EBITDA,
plus
the EPSPs, to the extent deducted in
calculating EBITDA.
Affiliate
with respect to any Person, another Person (a) who directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under common control with such
first Person; (b) who beneficially owns 10% or more of the voting securities or any class of Equity
Interests of such first Person; (c) at least 10% of whose voting securities or any class of Equity
Interests is beneficially owned, directly or indirectly, by such first Person; or (d) who is an
officer, director, partner or managing member of such first Person. Control means the possession,
directly or indirectly, of the power to direct or cause direction of the management and policies of
a Person, whether through ownership of Equity Interests, by contract or otherwise.
Agent
Agent in its capacity as agent for the Lenders and in its capacity as
collateral agent for the Secured Parties under the Security Documents, together with any successor
in that capacity appointed pursuant to Section 12.8.
Agent Indemnitees
Agent and its officers, directors, employees, Affiliates, agents,
mandataries and attorneys.
Agent Professionals
attorneys, accountants, appraisers, auditors, business
valuation experts, environmental engineers or consultants, turnaround consultants, and other
professionals and experts retained by Agent.
Agreement
this Loan and Security Agreement and all Exhibits and Schedules thereto.
Allocable
Amount
as defined in Section 14.7.
Anti-Terrorism Laws
any laws relating to terrorism or money laundering, including,
without limitation, the Patriot Act and the Proceeds of Crime Act.
Applicable Law
all laws, rules, regulations and governmental guidelines applicable
to the Person, conduct, transaction, agreement or matter in question, including all applicable
statutory law, common law and equitable principles, and all provisions of constitutions, treaties,
statutes, rules, regulations, orders and decrees of Governmental Authorities.
- 3 -
Applicable Margin
with respect to any Type of Loan, the margin set forth below, as
determined by the Average Daily Availability of the Borrower for the last Fiscal Quarter:
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Average Daily
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Availability for
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previous Fiscal
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Level
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Quarter
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Prime Rate Loans
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BA Equivalent Loans
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I
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<$30,000,000
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0.25%
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1.75%
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II
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≥$30,000,000 and
<$60,000,000
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0.0%
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1.50%
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III
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≥$60,000,000
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0.0%
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1.25%
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Until
the later of (a) May 1, 2007, or (b) the first Business Day of the calendar month
immediately preceding the date of receipt by the Agent of the Borrowers Compliance Certificate for
the Fiscal Quarter ended March 31, 2007, the margins shall be determined as if Level II were
applicable. Thereafter, the margins shall be subject to increase or decrease upon receipt by Agent,
pursuant to Section 10.1.2, of the financial statements and corresponding Compliance Certificate
for the last Fiscal Quarter, which change shall be effective on the first Business Day of the
calendar month immediately preceding the date of receipt by the Agent of such Compliance
Certificate for such Fiscal Quarter. If Borrower shall fail to deliver a Compliance Certificate by
the date required pursuant to Section 10.1.2, then effective as of the date such Compliance
Certificate becomes delinquent, the Applicable Margin shall be determined as if Level I were
applicable, such automatic adjustment to remain in effect until the first Business Day of the
calendar month immediately preceding receipt by the Agent of the requisite Compliance Certificate.
Asset Disposition
a sale, lease, license, consignment, transfer, alienation or
other disposition of Property of an Obligor, including a disposition of Property in connection
with a sale-leaseback transaction or synthetic lease.
Assignment and Acceptance
an assignment agreement between a Lender and Eligible
Assignee and accepted by Agent, in the form of Exhibit C.
ATB Financial
Alberta Treasury Branches.
ATB
Financial Debt
a fixed asset revolving term loan facility to be made by ATB
Financial in favour of the Borrower and its Subsidiaries, in the aggregate amount of $15,000,000
(the ATB Principal), and to be secured by the Borrowers Real Estate and fixed assets only, the
whole in form and in substance and on terms and conditions satisfactory to the Agent. At all times
after the execution of the ATB Financial Debt, and for so long as any Commitments or Obligations
are outstanding, each Obligor shall not, and shall cause each Subsidiary not to, agree to the
increase of the principal amount of the ATB Financial Debt in excess of the ATB Principal, nor
agree to the increase of any interest rates or any fees, premiums, commissions or other payments
except as provided for in the initial ATB Financial Debt or make any covenants and terms more
restrictive than those provided for in the initial ATB Financial Debt, unless the Agents prior
written consent, in its discretion, has been obtained in each such case.
- 4 -
ATB
Intelcreditor Agreement
an Intercreditor Agreement among the Agent, ATB
Financial and the Borrower to be executed concurrently with the execution of the ATB Financial
Debt in form and in substance and on terms and conditions satisfactory to the Agent (such terms
and conditions to include,
inter alia,
standstill provisions and grant to Agent of a licence to
use
the Equipment in an enforcement scenario).
ATB Principal
as defined in the definition of ATB Financial Debt.
Availability
determined as of any date, the amount that Borrower is entitled to
borrow as Revolver Loans, being the Borrowing Base minus the principal balance of all Revolver
Loans.
Availability Reserve
the sum (without duplication) of (a) the Rent and Charges
Reserve; (b) the LC Reserve; (c) the aggregate amount of liabilities secured by Liens upon
Collateral that are senior to Agents Liens (but imposition of any such reserve shall not waive an
Event of Default arising therefrom); (d) the Priority Payable Reserve, (e) the 331562 Reserve, and
(f) such additional reserves, in such amounts and with respect to such matters, as Agent in its
discretion may elect to impose from time to time.
Average Daily Availability
the amount obtained by adding the difference between the
Borrowing Base and the aggregate unpaid balance of the Revolver Loans and Swingline Loans owing by
Borrower to Agent and Lenders at the end of each day during the period in question and by dividing
such sum by the number of days in such period;
provided, however,
that for purposes of
determining Average Daily Availability as such term is used in the definition of Applicable
Margin of this Agreement, Borrowing Base shall be determined without regard to clause (a) of
the definition of Borrowing Base.
BA Equivalent Loan
-each set of BA Equivalent Revolver Loans having a common length
and commencement of Interest Period.
BA Equivalent Rate
for the Interest Period of each BA Equivalent Loan, the rate of
interest per annum equal to the annual rates applicable to Canadian Dollar Bankers Acceptances
having an identical or comparable term as the proposed BA Equivalent Loan displayed and identified
as such on the display referred to as the CDOR Page (or any display substituted therefor) of
Reuter Monitor Money Rates Service as at approximately 10:00 A.M. Eastern time on such day (or, if
such day is not a Business Day, as of 10:00 A.M. Eastern time on the immediately preceding
Business Day), plus five (5) basis points, provided that if such rates do not appear on the CDOR
Page at such time on such date, the rate for such date will be the annual discount rate (rounded
upward to the nearest whole multiple of 1/100 of 1%) as of 10:00 A.M. Eastern time on such day at
which a Canadian chartered bank listed on Schedule 1 of the
Bank Act
(Canada) as selected by Agent
is then offering to purchase Canadian Dollar Bankers Acceptances accepted by it having such
specified term (or a term as closely as possible comparable to such specified term), plus five (5)
basis points.
BA
Equivalent Revolver Loan
a Revolver Loan, in Canadian Dollars, that bears
interest at a rate determined by reference to the BA Equivalent Rate.
Bank
Bank of America, N.A. (acting through its Canada branch) or any successor or assign
thereof.
- 5 -
Bank of America Indemnitees
Bank and all of its present and future officers,
directors, employees, Affiliates, agents, mandataries and attorneys.
Bank Product
any of the following products, services or facilities extended to
Borrower or Canadian Subsidiary by Bank, any Lender or any of its Affiliates: (a) Cash Management
Services; (b) products under Hedging Agreements; (c) commercial credit card and merchant card
services; and (d) leases and other banking products or services as may be requested by Borrower or
Canadian Subsidiary, other than Letters of Credit; provided, however, that for any of the foregoing
to be included as an Obligation for purposes of a distribution under Section 5.5.1, the
applicable Secured Party and Obligor must have previously provided written notice to Agent of (i)
the existence of such Bank Product, (ii) the maximum dollar amount of obligations arising
thereunder (Bank Product Amount), and (iii) the methodology to be used by such parties in
determining the Bank Product Debt owing from time to time. The Bank Product Amount may be changed
from time to time upon written notice to Agent by the Secured Party and Obligor. No Bank Product
Amount may be established or increased at any time that a Default or Event of Default exists.
Bank
Product Amount
as defined in the definition of Bank Product.
Bank Product Debt
Debt and other obligations of an Obligor relating to Bank
Products.
Bankruptcy Code
Title 11 of the United States Code (or any successor statute), as
amended from time to time, and includes all regulations thereunder.
BIA
The Bankruptcy and Insolvency Act
(Canada) (or any successor statute), as amended from
time to time, and includes all regulations thereunder.
Board of Governors
the Board of Governors of the Federal Reserve System.
Bonuses
bonuses payable by the Borrower to its employees in respect of the
Borrowers then most recently ended Fiscal Year, which bonuses are calculated in accordance with
the Shareholders Agreement (such calculations being so set forth on Schedule 10.2.4); provided,
however, that the Borrower may make a one time bonus payment, for the Fiscal Year 2006, to its
former employees, who are no longer employees as a result of the sale of the Nusco manufacturing
business in June of 2006.
Borrowed Money
with respect to any Obligor, without duplication, its (a) Debt that
(i) arises from the lending of money by any Person to such Obligor, (ii) is evidenced by notes,
drafts, bonds, debentures, credit documents or similar instruments, (iii) accrues interest or is a
type upon which interest charges are customarily paid (excluding trade payables owing in the
Ordinary Course of Business), or (iv) was issued or assumed as full or partial payment for
Property; (b) Capital Leases; (c) reimbursement obligations with respect to letters of credit; and
(d) guaranties of any Debt of the foregoing types owing by another Person.
Borrowing
a group of Loans of one Type that are made on the same day or are
converted into Loans of one Type on the same day.
Borrowing Base
on any date of determination, an amount equal to the lesser of (a)
the aggregate amount of Revolver Commitments,
minus
the LC Reserve; and (b) the sum of up
to
- 6 -
85% of the Value of Eligible Accounts,
plus
the lessor of (i) the sum of up to 60% of the
Value of Eligible Inventory, and (ii) $80,000,000,
minus
the Availability Reserve.
Borrowing Base Certificate
a certificate, in the form of Exhibit E, in form and
substance satisfactory to Agent, by which Borrower certifies calculation of the Borrowing Base.
Business Day
(a) any day excluding Saturday, Sunday and any other day on which banks
are permitted to be closed under the laws of the Province of Ontario or the Province of Quebec.
Capital Adequacy Regulation
any law, rule, regulation, guideline, request or
directive of any central bank or other Governmental Authority, whether or not having the force of
law, regarding capital adequacy of a bank or any Person controlling a bank.
Capital Expenditures
all liabilities incurred, expenditures made or payments due
(whether or not made) by Borrower or Subsidiary for the acquisition of any fixed assets, or any
improvements, replacements, substitutions or additions thereto with a useful life of more than one
year, including the principal portion of Capital Leases.
Capital Lease
any lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP.
Cash Collateral
cash, and any interest or other income earned thereon, that is
delivered to Agent to Cash Collateralize any Obligations.
Cash Collateral Account
a demand deposit, money market or other account established
by Agent at such financial institution as Agent may select in its discretion, which account shall
be subject to Agents Liens for the benefit of Secured Parties.
Cash Collateralize
the delivery of cash to Agent, as security for the payment of
Obligations, in an amount equal to (a) with respect to LC Obligations, 105% of the aggregate LC
Obligations, and (b) with respect to any inchoate or contingent Obligations (including Obligations
arising under Bank Products), Agents good faith estimate of the amount due or to become due,
including all fees and other amounts relating to such Obligations.
Cash
Collateralization
has a correlative meaning.
Cash Equivalents
(a) marketable obligations issued or unconditionally guaranteed
by, and backed by the full faith and credit of, the Canadian or United States government, maturing
within 12 months of the date of acquisition; (b) certificates of deposit, guaranteed investment
certificates, time deposits and bankers acceptances maturing within 12 months of the date of
acquisition, and overnight bank deposits, in each case which are issued by a commercial bank
organized under the laws of Canada or the United States or any province, state or district
thereof, rated A-1 (or better) by S&P or P-1 (or better) by Moodys at the time of acquisition,
and (unless issued by a Lender) not subject to offset rights; (c) repurchase obligations with a
term of not more than 30 days for underlying investments of the types described in clauses (a) and
(b) entered into with any bank meeting the qualifications specified in clause (b); (d) commercial
paper rated A-1 (or better) by S&P or P-1 (or better) by Moodys, and maturing within nine months
of the date of acquisition; and (e) shares of any money market fund that has substantially
- 7 -
all of its assets invested continuously in the types of investments referred to above, has net
assets of at least $500,000,000 and has the highest rating obtainable from either Moodys or S&P.
Cash Management Services
any services provided from time to time by Bank or any of
its Affiliates to Borrower or a Canadian Subsidiary in connection with operating, collections,
payroll, trust, or other depository or disbursement accounts, including automatic clearinghouse,
controlled disbursement, depository, electronic funds transfer, information reporting, lockbox,
stop payment, overdraft and/or wire transfer services.
CCAA
Companies Creditors Arrangement Act
(Canada), (or any successor statute), as amended
from time to time, and includes all regulations thereunder.
CERCLA
the
Comprehensive Environmental Response Compensation and Liability Act
(42
U.S.C. § 9601 et seq.), (or any successor statute), as amended from time to time, and includes all
regulations thereunder.
Change of Control
(a) Red Man Pipe & Supply Canada Ltd. ceases to own and control,
beneficially and of record, directly or indirectly, 51% of the voting Equity Interests in
Borrower; (b) a change in the majority of directors of Borrower, unless approved by the then
majority of directors; or (c) all or substantially all of Borrowers assets are sold or
transferred.
Chattel Paper
as defined in the PPSA.
Civil Code
the
Civil Code
(Quebec) (or any successor statute), as amended from time to time,
and includes all regulations thereunder.
Claims
all liabilities, obligations, losses, damages, penalties, judgments,
actions, suites, proceedings, awards, costs and expenses of any kind (including remedial response
costs, reasonable attorneys fees and Extraordinary Expenses) at any time (including after Full
Payment of the Obligations, resignation or replacement of Agent, or replacement of any Lender)
incurred by or asserted against any Indemnitee in any way relating to (a) any Loan Documents or
transactions relating thereto, (b) any action taken or omitted to be taken by any Indemnitee in
connection with any Loan Documents, (c) the existence, perfection, opposability or enforcement of
any Liens, or realization upon any Collateral, (d) exercise of any rights or remedies under any
Loan Documents or Applicable Law, or (e) failure by any Obligor to perform or observe any terms of
any Loan Document, in each case including all costs and expenses relating to any investigation,
litigation, arbitration or other proceeding (including an Insolvency Proceeding or appellate
proceedings), whether or not the applicable Indemnitee is a party thereto.
Class R Note
unsecured subordinated demand promissory note, classified as the Class
R Note, dated as of June 15, 2005, issued to Red Man Pipe Canada by the Borrower in the amount of
$37,283,833, bearing interest at the rate of 12% per annum (which interest is payable annually in
the month of April).
Closing Date
as defined in Section 6.1.
Closing Date Debt Repayments
The repayment of the existing indebtedness owing to
ATB Financial, HSBC Bank Canada, Royal Bank of Canada and NPS Ventures Ltd., and the partial
repayments of the shareholder loans owing to each of Red Man Pipe Canada and Midfield
- 8 -
Holdings, all as more particularly set forth in a letter of direction executed by the Borrower to
the Agent and dated the date hereof.
Code
the
Internal Revenue Code
of 1986, as amended from time to time and includes all
regulations thereunder.
Collateral
all Property described in Section 7.1, all Property described in any
Security Documents as security for any Obligations, and all other
Property that now or hereafter
secures (or is intended to secure) any Obligations.
Commitment
for any Lender, the aggregate amount of such Lenders Revolver
Commitment. Commitments means the aggregate amount of all Revolver Commitments.
Commitment Reduction Amount
as defined in Section 2.1.7.
Commitment Reduction Date
as defined in Section 2.1.7.
Commitment Reduction Notice
as defined in Section 2.1.7.
Commitment Termination Date
the earliest to occur of (a) the Revolver Termination
Date; (b) the date on which Borrower terminates the Revolver Commitments pursuant to Section
2.1.4; or (c) the date on which the Revolver Commitments are terminated pursuant to Section 11.2.
Compliance Certificate
a certificate, in the form of Exhibit G, by which Borrower
certifies compliance with Sections 10.2.3 and 10.3 and calculate the applicable Level for the
Applicable Margin.
Contaminant
means any waste, pollutant, hazardous substance, toxic substance,
hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos in any
form or condition, polychlorinated biphenyls (PCBs), or any hazardous or toxic constituent of
any such substance or waste.
Contingent Obligation
any obligation of a Person arising from a guarantee, surety,
indemnity or other assurance of payment or performance of any Debt, lease, dividend or other
obligation (primary obligations) of another obligor (primary obligor) in any manner, whether
directly or indirectly, including any obligation of such Person under any (a) guarantee, surety,
endorsement, co-making or sale with recourse of an obligation of a primary obligor; (b) obligation
to make take-or-pay or similar payments regardless of nonperformance by any other party to an
agreement; and (c) arrangement (i) to purchase any primary obligation or security therefor, (ii)
to supply funds for the purchase or payment of any primary obligation, (iii) to maintain or assure
working capital, equity capital, net worth or solvency of the primary obligor, (iv) to purchase
Property or services for the purpose of assuring the ability of the primary obligor to perform a
primary obligation, or (v) otherwise to assure or hold harmless the holder of any primary
obligation against loss in respect thereof. The amount of any Contingent Obligation shall be
deemed to be the stated or determinable amount of the primary obligation (or, if less, the maximum
amount for which such Person may be liable under the instrument evidencing the Contingent
Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability with
respect thereto.
- 9 -
CWA
the
Clean Water Act
(33 U.S.C. §§ 1251 et seq.) (or any successor statute), as
amended from time to time, and includes all regulations thereunder.
Debt
with respect to any Person, without duplication, (a) all items that would be
included as liabilities on a balance sheet in accordance with GAAP, including, without limitation,
Capital Leases, but excluding trade payables incurred and being paid in the Ordinary Course of
Business; (b) all Contingent Obligations; (c) all reimbursement obligations in connection with
letters of credit issued for the account of such Person; and (d) in the case of Borrower, the
Obligations. The Debt of a Person shall include any recourse Debt of any partnership in which such
Person is a general partner or joint venturer.
Default
an event or condition that, with the lapse of time or giving of notice,
would constitute an Event of Default.
Default Rate
for any Obligation (including, to the extent permitted by law,
interest not paid when due), 2% plus the interest rate otherwise applicable thereto.
Deposit
Account
includes any bank account (with deposit functions) maintained or
held with any financial institution.
Distribution
any declaration or payment of a distribution, interest or dividend on
any Equity Interest (other than payment-in-kind); any distribution, advance or repayment of Debt
to a holder of Equity Interests; or any purchase, redemption, or other acquisition or retirement
for value of any Equity Interest.
Dollars
or
Canadian Dollars
or
$
the lawful currency of Canada.
Dominion Account
a special account established by each Obligor at Bank, over which
Agent has exclusive access and control for withdrawal purposes.
EBITDA
determined on a consolidated basis for Borrower and Subsidiaries, net
income, calculated before interest expense, provision for income taxes, depreciation and
amortization expense, gains or losses arising from the sale of capital assets, gains arising from
the write-up of assets, and any extraordinary gains (in each case, to the extent included in
determining net income).
Eligible Account
an Account owing to an Obligor that arises in the Ordinary Course
of Business from the sale of goods, or rendition of services, is payable in Dollars or U.S. Dollars
and is deemed by Agent, in its discretion, to be an Eligible Account. Without limiting the
foregoing, no Account shall be an Eligible Account if:
(a) it is unpaid for more than 90 days after the original invoice date; provided, however,
that in the case of Accounts owing by the Account Debtor known as Paramount Resources Ltd.,
it is unpaid for more than 120 days after the original invoice date;
(b) 30% or more of the Accounts owing by the Account Debtor are not Eligible Accounts
under clause (a) of this definition or otherwise ineligible hereunder;
- 10 -
(c) when aggregated with other Accounts owing by the Account Debtor, it exceeds 20%
of the aggregate Eligible Accounts (or such higher percentage as Agent may establish for the
Account Debtor from time to time);
(d) it does not conform with a covenant or representation herein;
(e) it is owing by a creditor or supplier, or is otherwise subject to a potential offset,
compensation,
counterclaim,
dispute,
deduction,
discount,
recoupment,
reserve,
defense,
chargeback, contra, credit or allowance (but ineligibility shall be limited to the amount
thereof);
(f) an Insolvency Proceeding has been commenced by or against the Account Debtor; or
the Account Debtor has failed, has suspended or ceased doing business, is liquidating,
dissolving
or winding up its affairs, or is not Solvent or, in the case of an individual, death or
judicial
declaration of incompetency;
(g) the
Account Debtor is organized or has its principal chief executive or registered offices or assets outside the United States or Canada;
(h) it is owing by a Government Authority, unless (i) the Account Debtor is the United States
or any department, agency or instrumentality thereof and the Account has been assigned to Agent in
compliance with the Assignment of Claims Act or (ii) the Account Debtor is the government of
Canada and the Account has been assigned to Agent in compliance with the
Financial Administration
Act
(Canada);
(i) it is not subject to a duly perfected, opposable and first priority Lien in favour of
Agent, or is subject to any other Lien, or the Agents right or ability to obtain direct payment to
the Agent of the proceeds of such Account, is governed by any federal, state or provincial
statutory requirements other than those of the UCC, the PPSA or the Civil Code;
(j) the goods giving rise to it have not been delivered to and accepted by the Account
Debtor, the services giving rise to it have not been accepted by the Account Debtor, or it
otherwise does not represent a final sale;
(k) it is evidenced by Chattel Paper or an Instrument of any kind, or has been reduced to
judgment;
(l) its payment has been extended, the Account Debtor has made a partial payment, or it
arises from a sale on a cash-on-delivery basis;
(m) it arises from a sale to an Affiliate, or from a sale on a bill-and-hold, pre-bill,
guaranteed sale, sale or return, sale on approval, consignment, conditional sale or other
repurchase or return basis;
(n) it represents a progress billing or retainage;
(o) it represents an Account belonging to an Account Debtor where an Obligor has suspended
any further sales to such Account Debtor;
- 11 -
(p) it includes a billing for interest, fees or late charges, but ineligibility shall be
limited to the extent thereof;
(q) with respect to which the Account Debtor is located in any state of the United States or
province of Canada which requires the filing of a Notice of Business Activities Report or
registration or licencing to carry on business or similar report, registration or licencing in
order to permit an Obligor to seek judicial enforcement in such state of the United States or
province of Canada of payment of such Account, unless an Obligor has qualified to do business in
such province or state or has filed a Notice of Business Activities Report or registration or
licencing to carry on business or equivalent report, registration or licencing for the then current
year;
(r) it arises from a retail sale to a Person who is purchasing for personal, family or
household purposes; or
(s) such Account is determined by the Agent in its discretion to be ineligible for any other
reason.
In calculating delinquent portions of Accounts under clauses (a) and (b), credit balances
more than 90 days old will be excluded (provided, however, that, in the case of Paramount
Resources Ltd., credit balances more than 120 days old will be excluded). If any Account at any
time ceases to be an Eligible Account, then such Account shall promptly be excluded from the
calculation of Eligible Accounts.
Eligible Assignee
a Canadian based Affiliate of a Lender each of which is resident
in Canada or is deemed to be resident in Canada for purposes of Part XIII of the ITA; (ii) any
other financial institution approved by Agent and Borrower (which approval by Borrower shall not
be unreasonably withheld or delayed, and shall be deemed given if no objection is made within two
Business Days after notice of the proposed assignment), that is organized under the laws of Canada
or any province, has total assets in excess of $5 billion, extends asset-based lending facilities
in its ordinary course of business, whose becoming an assignee would not constitute a prohibited
transaction under Applicable Law and who is resident in Canada or is deemed to be resident in
Canada for purposes of Part XIII of the ITA; and (iii) during any Event of Default, any Person
acceptable to Agent in its discretion.
Eligible Inventory
Inventory owned by an Obligor that Agent, in its discretion,
deems to be Eligible Inventory. Without limiting the foregoing, no Inventory shall be Eligible
Inventory unless it:
(a) is finished goods, and not raw materials, work-in-process, packaging or shipping
materials, labels, samples, display items, bags, replacement parts, spare parts or
manufacturing
supplies;
(b) is not held on consignment, nor subject to any deposit or downpayment;
(c) is in new and saleable condition and is not damaged, defective, shopworn or
otherwise unfit for sale;
(d) is not slow-moving, obsolete or unmerchantable, and does not constitute returned
or repossessed goods;
- 12 -
(e) meets all standards imposed by any Governmental Authority, and does not
constitute hazardous materials under any Environmental Law;
(f) conforms with the covenants and representations herein;
(g) is owned by an Obligor and is maintained or stored at a location of an Obligor
subject to paragraphs (i), (j) and (k) of this definition of Eligible Inventory;
(h) is subject to Agents duly perfected, opposable and first priority Lien, and no other
Lien;
(i) is not located on leased premises unless the lessor has delivered a Lien Waiver or an
appropriate Rent and Charges Reserve at the Agents discretion has been established;
(j) is not in the possession of a warehouseman, processor, repairman, mechanic, shipper,
freight forwarder or other Person, unless such Person has delivered a Lien Waiver;
(k) is
not consigned to any Person,
provided
,
however
, that Inventory in Canada or the
continental United States, on consignment by an Obligor to a Person, shall be considered Eligible
Inventory if (i) Obligor has filed a financing statement against such Person in respect of such
Inventory (insuring a first ranking Lien against such Inventory), (ii) Obligor has assigned the
foregoing financing statement to Agent, (iii) such Person has delivered a consignees consent
letter in form and substance satisfactory to the Agent, and (iv) the Inventory would otherwise
constitute Eligible Inventory hereunder;
(l) is within the continental United States or Canada and is not in transit except between
locations of an Obligor;
(l) is not subject to any warehouse receipt or negotiable Document;
(m) is not subject to any License or other arrangement that restricts an Obligors or Agents
right to dispose of such Inventory, unless Agent has received an appropriate Lien Waiver or
consent to sub-license in form and substance satisfactory to Agent; and
(n) such Inventory is not determined by the Agent in its discretion to be ineligible for any
other reason.
If any Inventory at any time ceases to be Eligible Inventory, such Inventory shall promptly
be excluded from the calculation of Eligible Inventory.
Enforcement Action
any action to enforce any Obligations or Loan Documents or to
realize upon any Collateral (whether by judicial action, self-help, notification of Account
Debtors, exercise of setoff, compensation or recoupment, or otherwise).
Environmental Laws
all Applicable Laws (including all programs, permits,
authorizations, consents, registrations, approvals, ordinances, judgments, injunctions, notices
and guidance promulgated by regulatory agencies or other Governmental Authorities), relating to
public health (but excluding occupational safety and health, to the extent regulated by OSHA) or
- 13 -
the protection or pollution of the environment, including the
Environmental Protection Act
(Canada), CERCLA and CWA.
Environmental Notice
a notice (whether written or oral) from any Governmental
Authority or other Person of any possible noncompliance with, investigation of a possible
violation of, litigation relating to, or potential fine or liability under any Environmental Law,
or with respect to any Environmental Release, environmental pollution or hazardous materials,
including any complaint, summons, citation, order, claim, demand or request for correction,
remediation or otherwise.
Environmental Release
means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a Contaminant into
the indoor or outdoor environment or into or out of any Real Estate or other property, including
the movement of Contaminants through or in the air, soil, surface water, groundwater or Real
Estate or other property or a release as defined in CERCLA or under any other Environmental Law.
EPSPs
means The Employee Profit Sharing Plan distributions made in accordance with
the Shareholders Agreement which are, for greater certainty, (a) the EPSP first allocation which is
an amount equal to the interest payable by the Borrower on the Class R Note in each fiscal year
multiplied by the common stock ownership ratio of the number of shares held by Midfield Holdings,
in the Borrower, divided by the number of shares held by Red Man Pipe Canada, in the Borrower,
outstanding during the Fiscal Year, and (b) the EPSP second allocation which is an amount equal to
taxable earnings of the Borrower before deduction of the EPSP second allocation in each Fiscal Year
multiplied by the common stock ownership ratio of the number of shares held by Midfield Holdings,
in the Borrower, divided by the total number of shares of the Borrower outstanding during the
Fiscal Year.
Equipment
as defined in the PPSA, including all tools, machinery, apparatus,
equipment, fittings, furniture, fixtures, motor vehicles and other tangible (corporeal) personal
(movable) Property (other than Inventory), and all parts, accessories and special tools therefor,
and accessions thereto.
Equity Interest
the interest of any (a) shareholder in corporation or company, (b)
partner in a partnership (whether general, limited, special, limited liability or joint venture),
(c) member in a limited liability company or unlimited liability company, or (d) other Person
having any other form of equity security or ownership interest.
Equivalent Amount
on any date, the amount of Dollars into which an amount of U.S.
Dollars may be converted or the amount of U.S. Dollars into which an amount of Dollars may be
converted, in either case, at the Banks spot buying rate in Toronto, Canada as at approximately
12:00 p.m. (Eastern time) on such date.
ERISA
the Employee Retirement Income Security Act of 1974 (or any successor
statute), as amended from time to time, and includes all regulations thereunder.
Europump
Europump Systems Inc.
Europump Loan
an unsecured loan, in the aggregate principal amount of $5,500,000,
made in favour of Europump by, and currently owing to, the Borrower.
- 14 -
Event of Default
as defined in Section 11.
Excluded Taxes
with respect to the Agent, any Lender or any other recipient of any
payment to be made by or on account of any obligation of an Obligor hereunder, (a) taxes imposed on
or measured by its overall net income (however denominated), and franchise taxes imposed on it (in
lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the
laws of which such recipient is organized or in which its principal office or domicile is located
and (b) any branch profits taxes imposed by the United States, Canada or any similar tax imposed by
any other jurisdiction in which an Obligor is located.
Extraordinary Expenses
all costs, expenses or advances that Agent may incur during a
Default or Event of Default, or during the pendency of an Insolvency Proceeding of an Obligor,
including those relating to (a) any audit, inspection, repossession, storage, repair, appraisal,
insurance, manufacture, preparation or advertising for sale, sale, collection, or other
preservation of or realization upon any Collateral; (b) any action, arbitration or other proceeding
(whether instituted by or against Agent, any Lender, any Obligor, any representative of creditors
of an Obligor or any other Person) in any way relating to any Collateral (including the validity,
perfection, opposability, priority or avoidability of Agents Liens with respect to any
Collateral), Loan Documents or Obligations, including any lender liability or other Claims; (c) the
exercise, protection or enforcement of any rights or remedies of Agent in, or the monitoring of,
any Insolvency Proceeding; (d) settlement or satisfaction of any taxes, charges or Liens with
respect to any Collateral; (e) any Enforcement Action; (f) negotiation and documentation of any
modification, waiver, workout, restructuring or forbearance with respect to any Loan Documents or
Obligations; or (g) Protective Advances. Such costs, expenses and advances include transfer fees,
taxes, storage fees, insurance costs, permit fees, utility reservation and standby fees, legal
fees, appraisal fees, brokers fees and commissions, auctioneers fees and commissions,
accountants fees, environmental study fees, wages and salaries paid to employees of any Obligor or
independent contractors in liquidating any Collateral, and travel expenses.
Fee Letter
the fee letter agreement between Agent, Bank and Borrower.
Fiscal Quarter
each period of three months, commencing on the first day of a Fiscal
Year.
Fiscal Year
the fiscal year of Borrower and Subsidiaries for accounting and tax
purposes, ending on October 31
st
of each year.
Fixed Charge Coverage Ratio
the ratio, determined and calculated on a consolidated
basis for Borrower and Subsidiaries and on a rolling historical twelve month basis, of (a)
Adjusted EBITDA, to (b) Fixed Charges.
Fixed Charges
the sum, when actually paid in the period, of interest expense,
principal payments on Borrowed Money (other than the Revolving Loans and Closing Date Debt
Repayments), income taxes, Capital Expenditures (except those financed with Borrowed Money other
than Revolver Loans), Bonuses and Net Distributions
less
income taxes, EPSPs or other
Distributions paid by Borrower relating to the one time gain resulting from the sale of the Nusco
manufacturing business in June of 2006, provided, that, the Agent has provided its consent to the
amount of such charges being applied.
- 15 -
Foreign Lender
with respect to the Borrower, any Lender that is organized under the
laws of a jurisdiction other than the laws of Canada.
Foreign Plan
any employee benefit plan, pension plan or arrangement maintained or
contributed to by any Person that is not subject to the laws of Canada, or any employee benefit
plan or arrangement mandated by a government other than Canada for employees of any Person.
FSCO
the Financial Services Commission of Ontario and any Person succeeding to the
functions thereof and includes the Superintendent under such statute and any other Governmental
Authority empowered or created by the PBA.
Full Payment
with respect to any Obligations, (a) the full and indefeasible cash
payment thereof, including any interest, fees and other charges accruing during an Insolvency
Proceeding (whether or not allowed in the proceeding); (b) if such Obligations are LC Obligations
or inchoate or contingent in nature, Cash Collateralization thereof (or delivery of a standby
letter of credit acceptable to Agent in its discretion, in the amount of required Cash Collateral);
and (c) a release of any Claims of Obligors against Agent, Lenders and Issuing Bank arising on or
before the payment date. No Loans shall be deemed to have been paid in full until all Commitments
related to such Loans have expired or been terminated.
GAAP
generally accepted accounting principles and practices in effect at such time
in Canada as recognized by the Canadian Institute of Chartered Accountants which are applicable to
the circumstances.
General
Intangibles
including Intangibles as defined in the PPSA and including
choses in action, causes of action, company or other business records, inventions, blueprints,
designs, patents, patent applications, trademarks, trademark applications, trade names, trade
secrets, service marks, goodwill, brand names, copyrights, registrations, licenses, franchises,
customer lists, permits, tax refund claims, computer programs, operational manuals, internet
addresses and domain names, insurance refunds and premium rebates, all rights to indemnification,
and all other intangible and incorporeal Property of any kind.
General Security Agreements
the general security agreements executed by each
Obligor in favour of the Agent dated the date hereof in form and substance satisfactory to the
Agent.
Goods
as defined in the PPSA.
Governmental Approvals
all authorizations, consents, approvals, licenses and
exemptions of, registrations and filings with, and required reports to, all Governmental
Authorities.
Governmental Authority
any federal, provincial, territorial, state, municipal,
foreign or other governmental department, agency, commission, board, bureau, court, tribunal,
instrumentality, political subdivision, or other entity or officer exercising executive,
legislative, judicial, regulatory or administrative functions for or pertaining to any government
or court, and any corporation, Crown corporation or other entity owned or controlled, through
stock or capital in each case whether associated with Canada, the United States, a province,
state, district or territory thereof, or a foreign entity or government.
- 16 -
Guarantee
(i) the guarantee, as set out in Section 14 hereof, and (ii) each
guarantee or surety agreement executed by a Guarantor in favour of Agent.
Guaranteed
Obligations
as defined in Section 14.
Guarantors
Mega Production Testing Inc. and each other Person who guarantees
payment or performance of any Obligations.
Hedging Agreement
an agreement relating to any swap, cap, floor, collar, option,
forward, cross right or obligation, or combination thereof or similar transaction, with respect
to interest rate, foreign exchange, currency, commodity, credit or equity risk.
Indemnified Taxes
all Taxes (including Other Taxes) other than Excluded Taxes.
Indemnitees
Agent Indemnitees, Lender Indemnitees, Issuing Bank Indemnitees and
Bank Indemnitees.
Insolvency Proceeding
(i) The filing by or against an Obligor of a request,
proposal, notice of intent to file a proposal, proceeding, action or petition for liquidation,
reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other
relief under the bankruptcy, insolvency, restructuring, liquidation, winding up, corporate or
similar laws of Canada, the United States, any province, state or territory thereof, or any foreign
jurisdiction, now or hereafter in effect; (ii) the making of any general assignment by an Obligor
for the benefit of creditors; (iii) the appointment of a receiver, trustee, monitor, custodian,
liquidator, administrator, interim receiver, monitor or trustee or other official for an Obligor or
for any of the assets of an Obligor, including, without limitation, the appointment of or taking
possession by a trustee under the BIA or custodian, as defined in the Bankruptcy Code; (iv)
the institution by or against an Obligor of any other type of insolvency, liquidation, bankruptcy,
winding up or reorganization proceeding (under the laws of Canada, including applicable corporate
statutes, the BIA and the CCAA) or of any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against, or winding up of affairs of, an Obligor; (v) the
sale, assignment, or transfer of all or any material part of the assets of an Obligor; (vi) the
nonpayment generally by an Obligor of its debts as they become due; or (vii) the cessation of the
business of an Obligor as a going concern;
Instrument
as defined in the PPSA.
Intellectual Property
all intellectual and similar Property of a Person, including
inventions, designs, patents, patent applications, copyrights, trademarks, service marks, trade
names, trade secrets, confidential or proprietary information, customer lists, know-how, software
and databases; all embodiments or fixations thereof and all related documentation, registrations
and franchises; all books and records describing or used in connection with the foregoing; and all
licenses or other rights to use any of the foregoing.
Intellectual Property Claim
any claim or assertion (whether in writing, by suit or
otherwise) that Borrowers or Subsidiarys ownership, use, marketing, sale or distribution of any
Inventory, Equipment, Intellectual Property or other Property violates another Persons
Intellectual Property.
- 17 -
Interest Period
as defined in Section 3.1.3.
Inventory
as defined in the PPSA, including all goods and other corporeal movable
Property intended for sale, lease, display or demonstration; all work in process; and all raw
materials, and other materials and supplies of any kind that are or could be used in connection
with the manufacture, transformation, printing, packing, shipping, advertising, sale, lease or
furnishing of such goods or Property, or otherwise used or consumed in an Obligors business or
enterprise, in providing a service or otherwise (but excluding Equipment).
Investment
any acquisition of all or substantially all assets of a Person; any
acquisition of record or beneficial ownership of any Equity Interests of a Person; or any advance
or capital contribution to or other investment in a Person.
Investment
Property
all of an Obligors right, title and interest in and to any and
all: (a) securities whether certificated or uncertificated; (b) securities entitlements; (c)
securities accounts; (d) commodity contracts; and (e) commodity accounts.
Issuing Bank
Bank or an Affiliate of Bank.
Issuing Bank Indemnitees
Issuing Bank and its officers, directors, employees,
Affiliates, agents, mandataries and attorneys.
ITA
the
Income Tax Act
(Canada) (or any successor statute), as amended from time to
time, and includes all regulations thereunder.
LC Application
an application by Borrower to Issuing Bank for issuance of a Letter
of Credit, in form and substance satisfactory to Issuing Bank.
LC Conditions
the following conditions necessary for issuance of a Letter of Credit:
(a) each of the conditions set forth in Section 6; (b) after giving effect to such issuance, total
LC Obligations do not exceed the Letter of Credit Subline, no Overadvance exists and, if no
Revolver Loans are outstanding, the LC Obligations do not exceed the Borrowing Base (without giving
effect to the LC Reserve for purposes of this calculation); (c) the expiration date of such Letter
of Credit is (i) no more than 365 days from issuance, in the case of standby Letters of Credit,
(ii) no more than 120 days from issuance, in the case of documentary Letters of Credit, and (iii)
at least 20 Business Days prior to the Revolver Termination Date; (d) the Letter of Credit and
payments thereunder are denominated in Dollars or U.S. Dollars; and (e) the form of the proposed
Letter of Credit is satisfactory to Agent and Issuing Bank in their discretion.
LC Documents
all documents, instruments and agreements (including LC Requests and
LC Applications) delivered by Borrower or any other Person to Issuing Bank or Agent in connection
with issuance, amendment or renewal of, or payment under, any Letter
of Credit.
LC Obligations
the sum (without duplication) of (a) all amounts owing by Borrowers
for any drawings under Letters of Credit; (b) the aggregate undrawn amount of all outstanding
Letters of Credit (which amount shall include, for Letters of Credit denominated in U.S. Dollars,
the Equivalent Amount thereof in Dollars); and (c) all fees and other amounts owing with respect
to Letters of Credit.
- 18 -
LC Request
a request for issuance of a Letter of Credit, to be provided by Borrower
to Issuing Bank, in form satisfactory to Agent and Issuing Bank.
LC Reserve
the aggregate of all LC Obligations.
Lender Indemnitees
Lenders and their officers, directors, employees, Affiliates,
agents, mandataries and attorneys.
Lenders
as defined in the preamble to this Agreement, including Agent in its
capacity as a provider of Swingline Loans and any other Person who hereafter becomes a Lender
pursuant to an Assignment and Acceptance, and their respective successors, and any one of them a
Lender.
Letter of Credit
any standby or documentary letter of credit issued by Issuing Bank
in Dollars or U.S. Dollars for the account of Borrower, or any indemnity, guarantee, exposure
transmittal memorandum or similar form of credit support issued by Agent or Issuing Bank for the
benefit of an Obligor (for the account of the Borrower).
Letter of Credit Subline
$10,000,000, or the Equivalent Amount thereof in U.S.
Dollars.
Leverage Ratio
the ratio, determined as of the end of any calendar month, of (a)
Borrowed Money (other than Contingent Obligations of the Obligors) as of the last day of such
calendar month
less
the Shareholders Notes and the Class R Note outstanding, to (b)
Adjusted EBITDA for the rolling historical twelve month period then ending.
License
any license or agreement under which an Obligor is authorized to use
Intellectual Property in connection with any manufacture, marketing, distribution, transformation
or disposition of Collateral, any use of Property or any other conduct of its business.
Licensor
any Person from whom an Obligor obtains the right to use any Intellectual
Property.
Lien
any Persons interest (choate or inchoate) in Property securing an obligation
owed to, or a claim by, such Person, whether such interest is based on common law, statute or
contract, including liens, assignments, assignments by way of security, security interests,
pledges, hypothecations, statutory trusts, reservations, rights of retention, privileges,
garnishment rights, deemed trusts, exceptions, encroachments, easements, rights-of-way,
servitudes, covenants, conditions, restrictions, leases, and other title exceptions and
encumbrances affecting Property.
Lien Waiver
an agreement, in form and substance satisfactory to Agent, by which (a)
for any material Collateral located on leased premises, the lessor waives or subordinates any Lien
it may have on the Collateral, and agrees to permit Agent to enter upon the premises and remove
the Collateral or to use the premises to store or dispose of the Collateral; (b) for any
Collateral held by a warehouseman, processor, shipper or freight forwarder, such Person waives or
subordinates any Lien it may have on the Collateral, agrees to hold any Documents in its
possession relating to the Collateral as agent for Agent, and agrees to deliver the Collateral to
Agent upon request; (c) for any Collateral held by a repairman, mechanic or bailee, such Person
acknowledges Agents Lien, waives or subordinates any Lien it may have on the Collateral, and
agrees to deliver the Collateral to Agent upon request; and (d) for any Collateral subject to a
- 19 -
Licensors
Intellectual Property rights, the Licensor grants to Agent the right,
vis-à-vis such
Licensor, to enforce Agents Liens with respect to the Collateral, including the right to dispose
of it with the benefit of the Intellectual Property, whether or not a default exists under any
applicable License.
Loan
a Revolver Loan.
Loan Account
the loan account established by each Lender on its books pursuant to
Section 5.7.
Loan Documents
this Agreement, Other Agreements and Security Documents.
Loan Year
each year of 365 or 366 days, as applicable, commencing on the Closing
Date and on each anniversary of the Closing Date.
Margin Stock
as defined in Regulation U of the Board of Governors.
Material Adverse Effect
the effect of any event or circumstance that, taken alone
or in conjunction with other events or circumstances, (a) has or could be reasonably expected to
have a material adverse effect on the business, operations, Properties, prospects or condition
(financial or otherwise) of any Obligor, on the value of any material Collateral, on the
enforceability of any Loan Documents, or on the validity or priority or opposability of Agents
Liens on any Collateral; (b) impairs the ability of any Obligor to perform any obligations under
the Loan Documents, including repayment of any Obligations; or (c) otherwise impairs the ability
of Agent or any Lender to enforce or collect any Obligations or to realize upon any Collateral.
Material Contract
any agreement or arrangement to which Borrower or Subsidiary is
party (other than the Loan Documents) (a) that is deemed to be a material contract under any
securities law applicable to such Obligor, including the Securities Act of 1933, (b) for which
breach, termination, resiliation, nonperformance or failure to renew could reasonably be expected
to have a Material Adverse Effect, or (c) that relates to Subordinated Debt, or Debt in an
aggregate amount of $250,000 or more.
Midfield Holdings
Midfield Holdings (Alberta) Ltd., a Person holding Equity
Interests in the Borrower.
Moodys
Moodys Investors Service, Inc., and its successors.
Multiemployer Plan
any employee benefit plan or arrangement described in Section
4001(a)(3) of the ERISA that is maintained or contributed to by any Obligor or Subsidiary.
Net Distributions
the sum, when actually paid in the period, of EPSPs, dividends
and any other such Distributions (excluding Bonuses and interest on the Shareholders Notes and
the Class R Note) made by the Borrower (all as more particularly set forth on Schedule 10.2.4)
less
Shareholder Reinvestments actually made at the time of such Distributions being made.
Net Proceeds
with respect to an Asset Disposition, proceeds (including, when
received, any deferred or escrowed payments) received by Borrower or Subsidiary in cash from such
disposition, net of (a) reasonable and customary costs and expenses actually incurred in
- 20 -
connection therewith, including legal fees and sales commissions; (b) amounts applied to repayment
of Debt secured by a Permitted Lien senior to Agents Liens on Collateral sold; (c) transfer or
similar taxes; and (d) reserves for indemnities, until such reserves are no longer needed.
Notes
each Revolver Note or other promissory note, as required by any Lender,
executed by Borrower to evidence any Obligations.
Notice of Borrowing
a Notice of Borrowing to be provided by a Senior Officer of
Borrower to request the funding of Borrowing of Revolver Loans, in each case in the form of Exhibit
H.
Notice of Conversion/Continuation
a Notice of Conversion/Continuation to be
provided by a Senior Officer of Borrower to request a conversion or continuation of any Prime Rate
Loans as BA Equivalent Loans, in the form of Exhibit F.
Obligations
all (a) principal of and premium, if any, on the Loans, (b) the LC
Obligations and other liabilities and obligations of Obligors with respect to Letters of Credit,
(c) interest, expenses, fees and other sums payable by Obligors under Loan Documents, (d)
liabilities and obligations of Obligors under any indemnity for Claims, (e) Extraordinary
Expenses, (f) Bank Product Debt, (g) the Guaranteed Obligations, and (h) other Debts, obligations,
covenants, duties and liabilities of any kind owing by Obligors pursuant to the Loan Documents,
whether now existing or hereafter arising, whether evidenced by a note or other writing, whether
or not allowed in any Insolvency Proceeding (including any interest that accrues after the
commencement of any case or proceedings by or against the Borrower under any debtor relief law
(including the BIA and the CCAA)), whether arising from an extension of credit, issuance of a
letter of credit, acceptance, loan, guarantee, covenant, indemnification or otherwise, and whether
direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint
or several.
Obligor
Borrower, Guarantor, or other Person that is liable for payment of any
Obligations or that has granted a Lien in favour of Agent on its assets to secure any Obligations.
Obligor 2006 Amalgamation
the series of amalgamations to be completed on November
1, 2006, in the following order:
|
(a)
|
|
Firstly, the amalgamation of Jac-Brie Holdings Ltd. with its wholly owned
subsidiary, Joes Supply Ltd. under the name Joes Supply Ltd. (New Joes Supply
Ltd.);
|
|
|
(b)
|
|
Secondly, the amalgamation of 365465 Alberta Ltd. with its wholly owned
subsidiary, TSS Tubular Sales & Service Ltd. under the name TSS Tubular Sale & Service
Ltd. (New TSS Tubular Ltd.);
|
|
|
(c)
|
|
Thirdly, the amalgamation of Nusco Pipe and Supply ULC with its wholly owned
subsidiaries, Brittania Industries Inc. and New TSS Tubular Ltd. under the name Nusco
Pipe and Supply ULC (New Nusco ULC); and
|
- 21 -
|
(d)
|
|
Fourthly, the amalgamation of Midfield Supply ULC with its wholly owned
subsidiaries, Boost Energy Systems Inc., New Joes Supply Ltd., and New Nusco
ULC under the name Midfield Supply ULC to create the Borrower.
|
Ordinary Course of Business
the ordinary course of business of Borrower or
Subsidiary, consistent with past practices and undertaken in good faith.
Organic Documents
with respect to any Person, its charter, certificate or articles
of incorporation, articles of amalgamation, articles of amendment, certificates or articles of
constitution, letters patent, certificates and articles of continuation, bylaws, articles of
organization, limited liability agreement, operating agreement, members agreement, shareholders
agreement, partnership agreement, limited partnership agreement, certificate of partnership,
memoranda of association, certificate of formation, voting trust agreement, or similar agreement or
instrument governing the formation or operation of such Person.
OSHA
the Occupational Safety and Hazard Act of 1970 (or any successor statute), as
amended from time to time, and includes all regulations thereunder.
Other Agreements
each Note; LC Document; Fee Letter; Lien Waiver; ATB Intercreditor
Agreement, Shareholder Subordination Agreements, 331562 Estoppel Agreement, Borrowing Base
Certificate, Compliance Certificate, financial statement or report delivered hereunder; or other
document, instrument or agreement (other than this Agreement or a Security Document) now or
hereafter delivered by an Obligor or other Person to Agent or a Lender in connection with any
transactions relating hereto or any other Loan Document.
Other Taxes
all present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies arising from any payment made hereunder or under any
other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect
to, this Loan and Security Agreement or any other Loan Document.
Overadvance
as defined in Section 2.1.5.
Overadvance Loan
a Prime Rate Revolver Loan made when an Overadvance exists or is
caused by the funding thereof.
Overdraft
Loan
as defined in Section 3.4.
Participant
as defined in Section
13.2.
Patriot Act
the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001)
(or any successor statute), as amended from time to time, and includes all regulations thereunder.
Payment Item
each check, draft or other item of payment payable to Borrower,
including those constituting proceeds of any Collateral.
- 22 -
PBA
Pensions Benefit Act
(Ontario) or similar legislation of any other federal or
provincial jurisdiction (or any successor statute), as amended from
time to time, and includes all
regulations thereunder.
PBGF
the Pension Benefit Guarantee Fund of Ontario or any Governmental Authority of
any other jurisdiction exercising similar functions in respect of any Plan or Foreign Plan of an
Obligor and any Governmental Authority succeeding to the functions thereof.
Pension Event
(a) the whole or partial withdrawal of an Obligor or any of its
Subsidiaries from a Plan or Foreign Plan during a plan year; or (b) the filing of a notice of
interest to terminate in whole or in part a Plan or Foreign Plan or the treatment of a Plan or
Foreign Plan amendment as a termination of partial termination; or (c) the institution of
proceedings by any Governmental Authority to terminate in whole or in part or have a trustee
appointed to administer a Plan or Foreign Plan; or (d) any other event or condition which might
constitute grounds for the termination of, winding up or partial termination of winding up or the
appointment of trustee to administer, any Plan or Foreign Plan.
Permitted Asset Disposition
as long as no Default or Event of Default exists and
all Net Proceeds are remitted to Agent, an Asset Disposition that is (a) a sale of Inventory in
the Ordinary Course of Business; (b) a disposition of Equipment in the Ordinary Course of
Business; (c) a disposition of Inventory that is obsolete, unmerchantable or otherwise unsalable
in the Ordinary Course of Business; (d) termination of lease of a real (immovable) or personal
(movable) Property that is not necessary for the Ordinary Course of Business, could not reasonably
be expected to have a Material Adverse Effect and does not result from an Obligors default; or
(e) approved in writing by Agent and Required Lenders.
Permitted Contingent Obligations
Contingent Obligations (a) arising from
endorsements of Payment Items for collection or deposit in the Ordinary Course of Business; (b)
arising from Hedging Agreements permitted hereunder; (c) existing on the Closing Date, and any
extension or renewal thereof that does not increase the amount of such Contingent Obligation when
extended or renewed; (d) incurred in the Ordinary Course of Business with respect to surety,
appeal or performance bonds, or other similar obligations; (e) arising from customary
indemnification obligations in favour of purchasers in connection with dispositions of Equipment
permitted hereunder; (f) arising under the Loan Documents; or (g) in an aggregate amount of
$250,000 or less at any time.
Permitted Lien
as defined in Section 10.2.2.
Permitted Purchase Money Debt
Purchase Money Debt of Borrower and Subsidiaries that
is unsecured or secured only by a Purchase Money Lien, as long as the aggregate amount does not
exceed $500,000 at any time and its incurrence does not violate
Section 10.2.3.
Person
any individual, corporation, limited liability company, unlimited liability
company, partnership, limited liability partnership, joint venture, joint stock company, land
trust, business trust, unincorporated organization, Governmental Authority or other entity.
Plan
an employee pension benefit plan or pension plan that is covered by the
Applicable Laws of any jurisdiction in Canada including the PBA and the ITA or subject to minimum
funding standards and that is either (a) maintained or sponsored by Borrower or Subsidiary for
- 23 -
employees or (b) maintained pursuant to a collective bargaining agreement, or other arrangement
under which more than one employer makes contributions and to which Borrower or Subsidiary is
making or accruing an obligation to make contributions or has within the preceding five years made
or accrued such contributions.
PPSA the
Personal Property Security Act
(Ontario) (or any successor statute) or similar
legislation (including, without limitation, the Civil Code) of any other jurisdiction, the laws of
which are required by such legislation to be applied in connection with the issue, perfection,
effect of perfection, enforcement, enforceability, opposability, validity or effect of security
interests or other applicable Lien.
Prime Rate
the rate of interest publicly announced from time to time by the Bank as
its reference rate of interest for loans made in Canadian Dollars and designated as its prime
rate. The Prime Rate is a rate set by Bank based upon various factors, including Banks costs and
desired return, general economic conditions and other factors and is used as a reference point for
pricing some loans. Any change in the prime rate announced by the Bank shall take effect at the
opening of business on the day specified in the public announcement of such change. Each interest
rate based on the Prime Rate hereunder, shall be adjusted simultaneously with any change in the
Prime Rate. In the event that the Bank (including any successor or assignor) does not at any time
publicly announce a prime rate, the Prime Rate shall mean the prime rate publicly announced by
a Schedule 1 chartered bank in Canada selected by the Bank.
Prime Rate Loan
any Loan that bears interest based on the Prime Rate.
Prime Rate Revolver Loan
a Revolver Loan that bears interest based on the Prime
Rate.
Priority Payable Reserve
reserves established in the good faith credit discretion
of the Agent for amounts secured by any Liens, choate or inchoate, which rank or are capable of
ranking in priority to the Agents and/or Lenders Liens and/or for amounts which may represent
costs relating to the enforcement of the Agents Liens including, without limitation, in the good
faith credit discretion of the Agent, any such amounts due and not paid for vacation pay, amounts
due and not paid under any legislation relating to workers compensation or to employment
insurance, all amounts deducted or withheld and not paid and remitted when due under the ITA,
amounts currently or past due and not paid for realty, municipal or similar taxes (to the extent
impacting personal or moveable property) and all amounts currently or past due and not
contributed, remitted or paid to any Plan or under the Canada Pension Plan, the PBA or any similar
legislation.
Pro Rata
with respect to any Lender, a percentage (expressed as a decimal, rounded
to the ninth decimal place) determined (a) while Revolver Commitments are outstanding, by dividing
the amount of such Lenders Revolver Commitment by the aggregate amount of all Revolver
Commitments; and (b) at any other time, by dividing the amount of such Lenders Loans and LC
Obligations by the aggregate amount of all outstanding Loans and LC Obligations.
Proceeds
of Crime Act
Proceeds of Crime (Money Laundering) and Terrorist Financing
Act
(Canada) (or any successor statute), as amended from time to time, and includes all
regulations thereunder.
- 24 -
Properly Contested
with respect to any obligation of an Obligor, (a) the obligation
is subject to a bona fide dispute regarding amount or the Obligors liability to pay; (b) the
obligation is being properly contested in good faith by appropriate proceedings promptly instituted
and diligently pursued; (c) appropriate reserves have been established in accordance with GAAP; (d)
non-payment could not have a Material Adverse Effect, nor result in forfeiture or sale of any
assets of the Obligor; (e) no Lien is imposed on assets of the Obligor, unless bonded and stayed to
the satisfaction of Agent; and (f) if the obligation results from entry of a judgment or other
order, such judgment or order is stayed pending appeal or other judicial review.
Property
any interest in any kind of property or asset, whether real (immovable),
personal (movable) or mixed, or tangible (corporeal) or intangible (incorporeal).
Protective Advances
as defined in Section 2.1.6.
Purchase Money Debt
(a) Debt (other than the Obligations) for payment of any of the
purchase price of fixed assets; (b) Debt (other than the Obligations) incurred within 10 days
before or after acquisition of any fixed assets, for the purpose of financing any of the purchase
price thereof; and (c) any renewals, extensions or refinancings (but not increases) thereof, or
constitution of a vendors hypothec under the Civil Code.
Purchase Money Lien
a Lien that secures Purchase Money Debt, encumbering only the
fixed assets acquired with such Debt and constituting a Capital Lease or a purchase money security
interest under the PPSA or the UCC, as applicable.
RCRA
the
Resource Conservation and Recovery Act
(42 U.S.C.
§§ 6991-6991i) (or any
successor statute), as amended from time to time, and includes all regulations thereunder.
Real Estate
(a) all lands, tenements, hereditaments, real (immovable) Property and
any estate, right, title or interest therein, rights of way, easements, licenses, rights, options
and privileges appurtenant or appertaining thereto, now owned or hereafter acquired, and all
beneficial interest therein and thereto, together with all buildings, erections, structures,
improvements, fixed plant, fixed machinery, fixed equipment and other fixtures now or hereafter
constructed or placed thereon or used in connection therewith, and (b) all leasehold,
sub-leasehold, license, concession, tenancy, occupancy or other such right, title and interest now
or hereafter acquired, together with all buildings, improvements, erections, structures, fixed
plant, fixed machinery, fixed equipment and other fixtures now or hereafter constructed or placed
thereon and all its right, title and interest in and to the agreements relating thereto and all
benefits, powers, covenants and advantages derived therefrom.
Red Man Pipe Canada
Red Man Pipe and Supply Canada Ltd., a Person holding Equity
Interests in the Borrower.
Reimbursement Date
as defined in Section 2.2.2.
Rent and Charges Reserve
the aggregate of (a) all past due rent and other amounts
owing by an Obligor to any landlord, warehouseman, processor, repairman, mechanic, shipper,
freight forwarder or other Person who possesses any Collateral or could assert a Lien on any
- 25 -
Collateral; and (b) a reserve at least equal to three months rent and other charges that could be
payable to any such Person, unless it has executed a Lien Waiver.
Report
as defined in Section 12.2.3.
Reportable Event
any event set forth in Section 4043(b) of ERISA.
Required Lenders
Lenders (subject to Section 4.2) having Commitments in excess of
50% of the aggregate Commitments.
Reserve Percentage
the reserve percentage (expressed as a decimal, rounded upward
to the nearest 1/8th of 1%) applicable to member banks under regulations issued from time to time
by the Board of Governors for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as Eurocurrency liabilities).
Restricted Investment
any Investment by Borrower or Subsidiary, other than (a)
Investments in Subsidiaries to the extent existing on the Closing Date; (b) Cash Equivalents that
are subject to Agents Lien and control, pursuant to documentation in form and substance
satisfactory to Agent; and (c) loans and advances permitted under Section 10.2.7.
Restrictive Agreement
an agreement (other than a Loan Document) that conditions or
restricts the right of Borrower, Subsidiary or other Obligor to incur or repay Borrowed Money, to
grant Liens on any assets, to declare or make Distributions, to modify, extend or renew any
agreement evidencing Borrowed Money, or to repay any intercompany
Debt.
Revolver Commitment
for any Lender, its obligation to make Revolver Loans and to
participate in LC Obligations, up to the maximum principal amount shown on Schedule 1.1, or as
specified hereafter in the most recent Assignment and Acceptance to which it is a party. Revolver
Commitments means the aggregate amount of such commitments of all Lenders.
Revolver Loan
a loan made pursuant to Section 2.1, and any Swingline Loan,
Overadvance Loan or Protective Advance.
Revolver Note
a promissory note to be executed by Borrower in favour of a Lender,
if required by such Lender, in form and substance satisfactory to Agent, which shall be in the
amount of such Lenders Revolver Commitment and shall evidence the Revolver Loans made by such
Lender.
Revolver
Termination Date
November 2, 2010.
Royalties
all royalties, fees, expense reimbursement and other amounts payable by
an Obligor under a License.
S&P
Standard & Poors Ratings Services, a division of The McGraw-Hill Companies,
Inc., and its successors.
Section 427 Security
(a) Agreement as to Powers, (b) Application for Credit and
Promise to Give Bills of Lading, Warehouse Receipts or Security, (c) Special Security in Respect
- 26 -
of Specified Property and (d) Notice of Intention to Give Security, all as executed by the
Borrower in favour of the Agent in form and substance satisfactory to the Agent.
Secured Parties
Agent, Issuing Bank, Lenders and providers of Bank Products, and
any one of them a Secured Party.
Security Documents
the Guarantees, Deposit Account Control Agreements, Section 427
Security, the General Security Agreements and all other documents, instruments and agreements now
or hereafter securing (or given with the intent to secure) any Obligations.
Senior Officer
the chairman of the board, president, chief executive officer,
treasurer or chief financial officer of Borrower or, if the context requires, an Obligor.
Settlement Report
a report delivered by Agent to Lenders summarizing the Revolver
Loans and participations in LC Obligations outstanding as of a given settlement date, allocated to
Lenders on a Pro Rata basis in accordance with their Revolver Commitments.
Shareholder
Reinvestments
the annual loans (required pursuant to the Shareholders
Agreement) to be made to the Borrower by each of the Persons having an Equity Interest in the
Borrower in the amounts calculated and set forth in the Shareholders Agreement and further
detailed in Schedule 10.2.4.
Shareholders
Agreement
the shareholders agreement among the Borrower, Red Man Pipe
& Supply Canada Ltd. and Midfield Holdings dated as of June 15, 2005, as amended by a Shareholders
Amending Agreement among the same parties dated as of December 28, 2005.
Shareholders Notes
collectively (a) the unsecured demand promissory note, dated as
of June 15, 2005, issued to Red Man Pipe Canada by the Borrower in the amount of $9,855,750,
bearing interest at 8% per annum (which interest is payable annually in the month of January); (b)
the unsecured demand promissory note dated as of April 25, 2006, issued to Red Man Pipe Canada by
the Borrower in the amount of $14,818,915, bearing interest at 8% per annum (which interest is
payable annually in the month of January); (c) the unsecured demand promissory note dated as of
April 25, 2006, issued to Midfield Holdings by the Borrower in the amount of $31,389,499, bearing
interest at 8% per annum (which interest is payable annually in the month of January); and (d)
shall include all promissory notes issued to any shareholder of, or Person holding an Equity
Interest in, the Borrower during the term of this Agreement.
Shareholder Subordination Agreement
the Subordination Agreements of even date
herewith, between Red Man Pipe Canada and Midfield Holdings, respectively, and Agent, relating to
the Shareholders Notes and the Class R Note.
Solvent
as to any Person, such Person (a) owns Property whose fair salable value is
greater than the amount required to pay all of its debts (including contingent, subordinated,
unmatured and unliquidated liabilities); (b) owns Property whose present fair salable value (as
defined below) is greater than the probable total liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities) of such Person as they become absolute and matured; (c) is
able to pay all of its debts as they mature; (d) has capital that is not unreasonably small for
its business and is sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage; (e) is not insolvent within the meaning of Section
- 27 -
101(32) of the Bankruptcy Code and is not an insolvent person within the meaning of such term in
the BIA, as applicable;; and (f) has not incurred (by way of assumption or otherwise) any
obligations or liabilities (contingent or otherwise) under any Loan Documents, or made any
conveyance in connection therewith, with actual intent to hinder, delay or defraud either present
or future creditors of such Person or any of its Affiliates. Fair salable value means the amount
that could be obtained for assets within a reasonable time, either through collection or through
sale under ordinary selling conditions by a capable and diligent seller to an interested buyer who
is willing (but under no compulsion) to purchase.
Statutory Reserves
the percentage (expressed as a decimal) established by the Board
of Governors as the then stated maximum rate for all reserves (including those imposed by
Regulation D of the Board of Governors, all basic, emergency, supplemental or other marginal
reserve requirements, and any transitional adjustments or other scheduled changes in reserve
requirements) applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency Liabilities (or any successor category of liabilities under Regulation D).
Subordinated Debt
Debt incurred by an Obligor that is expressly subordinate and
junior in right of payment to Full Payment of all Obligations, and is on terms (including
maturity, interest, fees, repayment, covenants and subordination) satisfactory to Agent.
Subordination Agreement
a subordination agreement, in favour of the Agent and the
Lenders, in form and substance satisfactory to Agent, whereby the holder of Subordinated Debt
subordinates such Debt to the Obligations and disclaims any Liens on the Collateral.
Subsidiary
any Person at least 50% of whose voting securities or Equity Interests
is owned or controlled by another Person (including indirect ownership or control by such Person,
through other Persons, in which such Person directly or indirectly owns or controls 50% of the
voting securities or Equity Interests). Unless the context otherwise clearly requires, references
herein to a subsidiary refer to a Subsidiary of the Borrower.
Swingline Loan
any Borrowing of Loans funded with Agents funds.
Taxes
any taxes, levies, imposts, duties, fees, assessments, deductions,
withholdings or other charges of whatever nature, including income, receipts, excise, property,
sales, use, transfer, license, payroll, withholding, social security, franchise, intangibles,
stamp or recording taxes imposed by any Governmental Authority, and all interest, penalties and
similar liabilities relating thereto.
Transferee
any actual or potential Eligible Assignee, Participant or other Person
acquiring an interest in any Obligations.
Type
any type of a Loan (i.e. Prime Rate Loan or BA Equivalent Loan) that has the
same interest option and, in the case of BA Equivalent Loans, the same Interest Period.
UCC
the Uniform Commercial Code as in effect in the State of Texas or, when the
laws of any other jurisdiction govern the perfection or enforcement of any Lien, the Uniform
Commercial Code of such jurisdiction.
- 28 -
Unfunded Pension Liability
at a point in time, the excess of a Plans benefit
liabilities, over the current value of that Plans assets, determined in accordance with the
assumptions used for funding the Plan pursuant to applicable laws for the applicable plan year and
includes any unfunded liability or solvency deficiency as determined for the purposes of the PBA.
U.S.
Dollars
or
U.S.$
or
United States Dollars
the lawful currency
of the United States of America.
Upstream Payment
a Distribution by a Subsidiary of Borrower to Borrower.
Value
(a) for Inventory, its value determined on the basis of the lower of cost or
market, calculated on a first-in, first out basis or weighted average cost basis; and (b) for an
Account, its face amount, net of any returns, rebates, discounts (calculated on the shortest
terms), credits, allowances or Taxes (including sales, excise or other taxes) that have been or
could be claimed by the Account Debtor or any other Person.
1.2
Accounting Terms.
Under the Loan Documents (except as otherwise specified herein), all accounting terms shall
be interpreted, all accounting determinations shall be made, and all financial statements shall be
prepared, in accordance with GAAP applied on a basis consistent with the most recent audited
financial statements of Borrower delivered to Agent before the Closing Date and using the same
inventory valuation method as used in such financial statements, except for any change required or
permitted by GAAP if Borrowers chartered accountants concur in such change, the change is
disclosed to Agent, and Section 10.3 is amended in a manner satisfactory to Required Lenders to
take into account the effects of the change.
1.3
Certain Matters of Construction.
The terms herein, hereof, hereunder and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. In the computation of periods of time from a specified date
to a later specified date, from means from and including, and to and until each mean to
but excluding. The terms including and include shall mean including, without limitation and,
for purposes of each Loan Document, the parties agree that the rule of
ejusdem generis
shall not be
applicable to limit any provision. Section titles appear as a matter of convenience only and shall
not affect the interpretation of any Loan Document. All references to (a) laws or statutes include
all related rules, regulations, interpretations, amendments and successor provisions; (b) any
document, instrument or agreement include any amendments, waivers and other modifications,
extensions or renewals (to the extent permitted by the Loan Documents); (c) any section mean,
unless the context otherwise requires, a section of this Agreement; (d) any exhibits or schedules
mean, unless the context otherwise requires, exhibits and schedules attached hereto, which are
hereby incorporated by reference; (e) any Person include successors and assigns; (f) time of day
mean time of day at Agents notice address under Section 15.3.1; or (g) discretion of Agent,
Issuing Bank or any Lender mean the sole and absolute discretion of such Person. All calculations
of Value, fundings of Loans, issuances of Letters of Credit and payments of Obligations shall be in
Dollars and, unless the context otherwise requires, all determinations (including calculations of
Borrowing Base and financial covenants) made from time to time under the Loan Documents shall be
made in light of the
- 29 -
circumstances existing at such time. Borrowing Base calculations shall be consistent with
historical methods of valuation and calculation, and otherwise satisfactory to Agent (and not
necessarily calculated in accordance with GAAP). Borrower shall have the burden of establishing any
alleged negligence, misconduct or lack of good faith by Agent, Issuing Bank or any Lender under any
Loan Documents. No provision of any Loan Documents shall be construed against any party by reason
of such party having, or being deemed to have, drafted the provision. Whenever the phrase to the
best of Borrowers knowledge or words of similar import
are used in any Loan Documents, it means
actual knowledge of a Senior Officer, or knowledge that a Senior Officer would have obtained if he
or she had engaged in good faith and diligent performance of his or her duties, including
reasonably specific inquiries of employees or agents and a good faith attempt to ascertain the
matter to which such phrase relates. For purposes of any Collateral located in the Province of
Quebec or charged by any deed of hypothec (or any other Loan Document) and for all other purposes
pursuant to which the interpretation or construction of a Loan Document may be subject to the laws
of the Province of Quebec or a court or tribunal exercising jurisdiction in the Province of Quebec,
(q) personal property shall be deemed to include movable property, (r) real property shall be
deemed to include immovable property, (s) tangible property shall be deemed to include
corporeal property, (t) intangible property shall be deemed to include incorporeal property,
(u) security interest and mortgage shall be deemed to include a hypothec, (v) all references
to filing, registering or recording under the UCC or the PPSA shall be deemed to include
publication under the Civil Code of Quebec, (w) all references to perfection of or perfected
Liens shall be deemed to include a reference to the opposability of such Liens to third parties,
(x) any right of offset, right of setoff or similar expression shall be deemed to include a
right of compensation, (y) goods shall be deemed to include corporeal movable property other
than chattel paper, documents of title, instruments, money and securities, and (z) an agent shall
be deemed to include a mandatary.
1.4
Interest Calculations and Payments
Unless otherwise stated (as with the case of the unused line fee and the LC facility fees,
which shall be calculated at an interest per annum based on a year of three hundred and sixty
(360) days), wherever in this Agreement reference is made to a rate of interest per annum or a
similar expression is used, such interest will be calculated on the basis of a calendar year of
three hundred and sixty-five (365) days or three hundred and sixty-six (366) days, as the case may
be. Calculations of interest shall be made using the nominal rate method of calculation, and will
not be calculated using the effective rate method of calculation or on any other basis that gives
effect to the principle of deemed reinvestment of interest. All payments of interest to be made
hereunder will be paid both before and after maturity and before and after default and/or
judgment, if any, until payment thereof, and interest will accrue on overdue interest, if any.
1.5
Interest Act (Canada)
For the purposes of this Agreement, whenever interest to be paid hereunder is to be
calculated on the basis of a year of three hundred and sixty (360) days, as in the case of the
unused line fee and the LC facility fees, or any other period of time that is less than a calendar
year, the yearly rate of interest to which the rate determined pursuant to such calculation is
equivalent is the rate so determined multiplied by the actual number of days in the calendar year
- 30 -
in which the same is to be ascertained and divided by either three hundred and sixty (360) or such
other period of time, as the case may be.
1.6
Equivalent Amount
For the purpose of determining compliance with covenant and default limitations set forth in
the Agreement, amounts expressed in U.S. Dollars shall be measured by aggregating the Equivalent
Amount of the applicable items denominated in U.S. Dollars with the items in Canadian Dollars.
SECTION 2 CREDIT FACILITIES
2.1
Revolver Commitment.
2.1.1
Revolver Loans.
Each Lender agrees, severally on a Pro Rata basis up to its Revolver Commitment, on the terms
set forth herein, to make Revolver Loans to Borrower from time to time through the Commitment
Termination Date. The Revolver Loans may be repaid and reborrowed as provided herein. In no event
shall Lenders have any obligation to honour a request for a Revolver Loan in excess of
Availability.
2.1.2
Revolver Notes.
The Revolver Loans made by each Lender and interest accruing thereon shall be evidenced by
the records of Agent and such Lender. At the request of any Lender, Borrower shall deliver a
Revolver Note to such Lender.
2.1.3
Use of Proceeds.
The proceeds of Revolver Loans shall be used by Borrower solely (a) to satisfy existing Debt;
(b) to pay fees and transaction expenses associated with the closing of this credit facility; (c)
to pay Obligations in accordance with this Agreement; and (d) for working capital and other lawful
general corporate purposes of Borrower, including those set out in the recitals to this Agreement.
2.1.4
Voluntary Termination of Revolver Commitments.
The Revolver Commitments shall terminate on the Revolver Termination Date, unless sooner
terminated in accordance with this Agreement. Upon at least 90 days prior written notice to Agent
at any time after the first Loan Year, Borrower may, at its option, terminate, without premium or
penalty, the Revolver Commitments and this credit facility. Any notice of termination given by
Borrower shall be irrevocable. On the termination date, Borrower shall make Full Payment of all
Obligations.
2.1.5
Overadvances.
If the aggregate Revolver Loans exceed the Borrowing Base (Overadvance) or the aggregate
Revolver Commitments at any time, the excess amount shall be payable by Borrower on demand by
Agent, but all such Revolver Loans shall nevertheless constitute Obligations
- 31 -
secured by the Collateral and entitled to all benefits of the Loan Documents. Unless its authority
has been revoked in writing by Required Lenders, Agent may require Lenders to honour requests for
Overadvance Loans and to forbear from requiring Borrower to cure an Overadvance, (a) when no other
Event of Default is known to Agent, as long as (i) the Overadvance does not continue for more than
30 consecutive days (and no Overadvance may exist for at least five consecutive days thereafter
before further Overadvance Loans are required), and (ii) the Overadvance is not known by Agent to
exceed $10,000,000; and (b) regardless of whether an Event of Default exists, if Agent discovers an
Overadvance not previously known by it to exist, as long as from the date of such discovery the
Overadvance does not continue for more than 30 consecutive days. In no event shall Overadvance
Loans be required that would cause the outstanding Revolver Loans and LC Obligations to exceed the
aggregate Revolver Commitments. Any funding of an Overadvance Loan or sufferance of an Overadvance
shall not constitute a waiver by Agent or Lenders of the Event of Default caused thereby. In no
event shall Borrower or other Obligor be deemed a beneficiary of this Section nor authorized to
enforce any of its terms.
2.1.6
Protective Advances.
Agent shall be authorized, in its discretion, at any time that a Default or Event of Default
exists or any conditions in Section 6 are not satisfied, and without regard to the aggregate
Commitments, to make Prime Rate Revolver Loans (Protective Advances) (a) if Agent deems such
Loans necessary or desirable to preserve or protect any Collateral, or to enhance the
collectibility or repayment of Obligations; or (b) to pay any other amounts chargeable to Obligors
under any Loan Documents, including costs, fees and expenses. All Protective Advances shall be
Obligations, secured by the Collateral, and shall be treated for all purposes as Extraordinary
Expenses. Each Lender shall participate in each Protective Advance on a Pro Rata basis. Required
Lenders may at any time revoke Agents authorization to make further Protective Advances by written
notice to Agent. Absent such revocation, Agents determination that funding of a Protective Advance
is appropriate shall be conclusive.
2.1.7
Decrease in Revolver Commitments.
Notwithstanding anything to the contrary contained in this Agreement, so long as no Default
or Event of Default has occurred and is continuing or would occur as a result thereof, and subject
to the terms and conditions of this Section 2.1.7, Borrower shall have the right (which may be
exercised only once during the term of this Agreement) after the Closing Date and before the end
of the Commitment Termination Date, upon not less than thirty (30) Business Days prior written
notice to Agent (such written notice being herein referred to as a
Commitment Reduction
Notice
), to reduce, without premium or penalty, on the date specified in the Commitment
Reduction Notice (the
Commitment Reduction Date
) the amount of the Commitments by an
amount equal to $25,000,000 (the
Commitment Reduction
Amount
); provided, however, that
in no event shall the amount of the Commitments be reduced to an amount less than $125,000,000.
Subject to the preceding sentence, on the Commitment Reduction Date, (i) the Commitments shall be
reduced by the Commitment Reduction Amount and each Lenders Commitment shall be reduced by such
Lenders Pro Rata share of the Commitments, and (ii) Borrower shall pay to Agent, in immediately
available funds, for application to the Loans owed to relevant Lenders, the dollar amount
necessary so that after giving effect to Commitment Reduction Amount the outstanding Loans and
Letters of Credit do
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not exceed the Commitments; provided, however, any such reduction is subject to the following
additional conditions being satisfied in form and substance satisfactory to Agent and its counsel:
(a) Borrower shall have delivered to Agent an Amended and Restated Revolver Note, payable to the
order of the relevant Lender, reflecting the reduced Commitment of such Lender, duly executed by
Borrower; and (b) Borrower shall have delivered to Agent an amendment to this Agreement evidencing
this Commitment Reduction Amount, duly executed by Borrower, with Agent being hereby authorized by
each Lender to execute such an amendment on behalf of such Lender.
2.2
Letter of Credit Facility.
2.2.1
Issuance of Letters of Credit.
Issuing Bank agrees to issue Letters of Credit from time to time until 30 days prior to the
Revolver Termination Date (or until the Commitment Termination Date, if earlier), on the terms set
forth herein, including the following:
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(a)
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Borrower acknowledges that Issuing Banks willingness to issue any Letter of
Credit is conditioned upon Issuing Banks receipt of a LC Application with respect to
the requested Letter of Credit, as well as such other instruments and agreements as
Issuing Bank may customarily require for issuance of a letter of credit of similar
type and amount. Issuing Bank shall have no obligation to issue any Letter of Credit
unless (i) Issuing Bank receives a LC Request and LC Application at least three
Business Days prior to the requested date of issuance; and (ii) each LC Condition is
satisfied. If Issuing Bank receives written notice from a Lender at least one
Business Day before issuance of a Letter of Credit that any LC Condition has not been
satisfied, Issuing Bank shall have no obligation to issue the requested Letter of
Credit (or any other) until such notice is withdrawn in writing by that Lender or
until Required Lenders have waived such condition in accordance with this Agreement.
Prior to receipt of any such notice, Issuing Bank shall not be deemed to have
knowledge of any failure of LC Conditions.
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(b)
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Letters of Credit may be requested by Borrower only (i) to support obligations
of Borrower incurred in the Ordinary Course of Business; or (ii) for other purposes as
Agent and Lenders may approve from time to time in writing. The renewal or extension
of any Letter of Credit shall be treated as the issuance of a new Letter of Credit,
except that delivery of a new LC Application shall be required at the discretion of
Issuing Bank.
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(c)
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Borrower assumes all risks of the acts, omissions or misuses of any Letter of
Credit by the beneficiary. In connection with issuance of any Letter of Credit, none
of Agent, Issuing Bank or any Lender shall be responsible for the existence,
character, quality, quantity, condition, packing, value or delivery of any goods
purported to be represented by any Documents; any differences or variation in the
character, quality, quantity, condition, packing, value or delivery of any goods from
that expressed in any Documents; the form, validity, sufficiency, accuracy,
genuineness or legal effect of any Documents or of any endorsements thereon; the time,
place, manner or order in which
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shipment of goods is made; partial or incomplete shipment of, or failure to ship, any
goods referred to in a Letter of Credit or Documents; any deviation from instructions,
delay, default or fraud by any shipper or other Person in connection with any goods,
shipment or delivery; any breach of contract between a shipper or vendor and Borrower;
errors, omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex, telecopy, e-mail, telephone or otherwise; errors in
interpretation of technical terms; the misapplication by a beneficiary of any Letter of
Credit or the proceeds thereof; or any consequences arising from causes beyond the
control of Issuing Bank, Agent or any Lender, including any act or omission of a
Governmental Authority. The rights and remedies of Issuing Bank under the Loan
Documents shall be cumulative. Issuing Bank shall be fully subrogated to the rights and
remedies of each beneficiary whose claims against Borrower are discharged with proceeds
of any Letter of Credit.
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(d)
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In connection with its administration of and enforcement of rights or remedies
under any Letters of Credit or LC Documents, Issuing Bank shall be entitled to act,
and shall be fully protected in acting, upon any certification, notice or other
communication in whatever form believed by Issuing Bank, in good faith, to be genuine
and correct and to have been signed, sent or made by a proper Person. Issuing Bank may
consult with and employ legal counsel, accountants and other experts to advise it
concerning its obligations, rights and remedies, and shall be entitled to act upon,
and shall be fully protected in any action taken in good faith reliance upon, any
advice given by such experts. Issuing Bank may employ agents and attorneys in
connection with any matter relating to Letters of Credit or LC Documents, and shall
not be liable for the negligence or misconduct of any such agents or attorneys
selected with reasonable care.
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2.2.2
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Reimbursement; Participations.
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(a)
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If Issuing Bank honours any request for payment under a Letter of Credit,
Borrower shall pay to Issuing Bank, on the same day (Reimbursement Date), the amount
paid by Issuing Bank under such Letter of Credit, together with interest at the
interest rate for Prime Rate Revolver Loans from the Reimbursement Date until payment
by Borrower. The obligation of Borrower to reimburse Issuing Bank for any payment made
under a Letter of Credit shall be absolute, unconditional and irrevocable, and shall
be paid without regard to any lack of validity or enforceability of any Letter of
Credit or the existence of any claim, setoff, defense or other right that Borrower may
have at any time against the beneficiary. Whether or not Borrower submits a Notice of
Borrowing, Borrower shall be deemed to have requested a Borrowing of Prime Rate
Revolver Loans, in an amount necessary to pay all amounts due Issuing Bank on any
Reimbursement Date and each Lender agrees to fund its Pro Rata share of such Borrowing
whether or not the Commitments have terminated, an Overadvance exists or is created
thereby, or the conditions in Section 6 are satisfied. The amount of any request for
payment under a Letter of Credit denominated in a currency other than Dollars
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shall be converted into Dollars at the Agents spot buying rate in Toronto at
approximately 12:00 p.m. (Eastern time) on the date of such drawing/request for
payment.
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(b)
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Upon issuance of a Letter of Credit, each Lender shall be deemed to have
irrevocably and unconditionally purchased from Issuing Bank, without
recourse or warranty, an undivided Pro Rata interest and participation in all
LC Obligations relating to the Letter of Credit. If Issuing Bank makes any
payment under a Letter of Credit and Borrower does not reimburse such
payment on the Reimbursement Date, Agent shall promptly notify Lenders
and each Lender shall promptly (within one Business Day) and
unconditionally pay to Agent, for the benefit of Issuing Bank, the Lenders Pro
Rata share of such payment. Upon request by a Lender, Issuing Bank shall
furnish copies of any Letters of Credit and LC Documents in its possession at
such time.
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(c)
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The obligation of each Lender to make payments to Agent for the account of Issuing Bank in
connection with Issuing Banks payment under a Letter of Credit shall be absolute,
unconditional and irrevocable, not subject to any counterclaim, setoff, compensation,
qualification or exception whatsoever, and shall be made in accordance with this Agreement
under all circumstances, irrespective of any lack of validity or unenforceability of
any Loan Documents; any draft, certificate or other document presented under a Letter of
Credit having been determined to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect; or the existence
of any setoff, compensation or defense that any Obligor may have with respect to any
Obligations. Issuing Bank does not assume any responsibility for any failure or delay in
performance or any breach by Borrower or other Person of any obligations under any LC
Documents. Issuing Bank does not make to Lenders any express or implied warranty,
representation or guarantee with respect to the Collateral, LC Documents or any Obligor.
Issuing Bank shall not be responsible to any Lender for any recitals, statements,
information, representations or warranties contained in, or for the execution, validity,
genuineness, effectiveness or enforceability of any LC Documents; the validity, genuineness,
enforceability, collectibility, value or sufficiency of any Collateral or the perfection of
any Lien therein; or the assets, liabilities, financial condition, results of operations,
business, creditworthiness or legal status of any Obligor.
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(d)
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No Issuing Bank Indemnitee shall be liable to any Lender or other Person for any action
taken or omitted to be taken in connection with any LC Documents except as a result of its
actual gross negligence or wilful misconduct. Issuing Bank shall not have any liability to
any Lender if Issuing Bank refrains from any action under any Letter
of Credit or LC
Documents until it receives written instructions from Required Lenders.
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- 35 -
2.2.3
Cash Collateral.
If any LC Obligations, whether or not then due or payable, shall for any reason be
outstanding at any time (a) that an Event of Default exists, (b) that Availability is less than
zero, (c) after the Commitment Termination Date, or (d) within 20 Business Days prior to the
Revolver Termination Date, then Borrower shall, at Issuing Banks or Agents request, Cash
Collateralize all outstanding LC Obligations. If Borrower fails to Cash Collateralize the
outstanding LC Obligations as required herein, Lenders may (and shall upon direction of Agent)
advance, as Revolver Loans, the amount of the Cash Collateral required (whether or not the
Commitments have terminated, an Overadvance exists, or the conditions in Section 6 are
satisfied).
SECTION 3 INTEREST, FEES AND CHARGES
3.1
Interest.
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3.1.1
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Rates and Payment of Interest.
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(a)
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The Obligations shall bear interest (i) if a Prime Rate Loan, at the Prime Rate
in effect from time to time, plus the Applicable Margin for Prime Rate Revolver Loans;
(ii) if a BA Equivalent Loan, at the BA Equivalent Rate for the applicable Interest
Period, plus the Applicable Margin for BA Equivalent Revolver Loans; and (iii) if any
other Obligation (including, to the extent permitted by law, interest not paid when
due), at the Prime Rate in effect from time to time, plus the Applicable Margin for
Prime Rate Revolver Loans. Interest shall accrue from the date the Loan is advanced or
the Obligation is incurred or payable, until paid by Borrower. If a Loan is repaid on
the same day made, one days interest shall accrue.
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(b)
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During any Default or Event of Default, if Agent or Required Lenders in their
discretion so elect, Obligations shall bear interest at the Default Rate. Borrower
acknowledges that the cost and expense to Agent and each Lender due to a Default or an
Event of Default are difficult to ascertain and that the Default Rate is a fair and
reasonable estimate to compensate Agent and Lenders for such added cost and expense.
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(c)
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Interest accrued on the Loans shall be due and payable in arrears, (i) on the
first day of each month and, for any BA Equivalent Loan, the last day of its Interest
Period; and (ii) on the Commitment Termination Date. Interest accrued on any other
Obligations shall be due and payable as provided in the Loan Documents and, if no
payment date is specified, shall be due and payable on demand. Notwithstanding the
foregoing, interest accrued at the Default Rate shall be due and payable on demand.
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3.1.2
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Application of BA Equivalent Rate to Outstanding Loans.
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(a)
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Borrower may on any Business Day, subject to delivery of a Notice of
Conversion/Continuation, elect to convert any portion of the Prime Rate Loans to, or
to continue any BA Equivalent Loan at the end of its Interest
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Period as, a BA Equivalent Loan. During any Default or Event of Default, Agent
may (and shall at the direction of Required Lenders) declare that no Loan may
be made, converted or continued as a BA Equivalent Loan.
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(b)
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Whenever Borrower desires to convert or continue Loans as BA Equivalent
Loans, Borrower shall give Agent a Notice of Conversion/Continuation, no later
than 12:00 p.m. (Eastern time) at least three Business Days before the requested
conversion or continuation date. Promptly after receiving any such notice, Agent
shall notify each Lender thereof. Each Notice of Conversion/Continuation shall
be irrevocable, and shall specify the aggregate principal amount of Loans to be
converted or continued, the conversion or continuation date (which shall be a
Business Day), and the duration of the Interest Period (which shall be deemed to
be one month if not specified). If, upon the expiration of any Interest Period
in respect of any BA Equivalent Loans, Borrower shall have failed to deliver a
Notice of Conversion/Continuation, it shall be deemed to have elected to convert
such Loans into Prime Rate Loans.
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3.1.3
Interest Periods.
In connection with the making, conversion or continuation of any BA Equivalent Loans,
Borrower shall select an interest period (Interest Period) to apply, which interest period shall
be one, two, three or six months; provided, however, that:
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(a)
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the Interest Period shall commence on the date the Loan is made or continued
as, or converted into, a BA Equivalent Loan, and shall expire on the
numerically corresponding day in the calendar month at its end;
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(b)
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if any Interest Period commences on a day for which there is no
corresponding day in the calendar month at its end or if such corresponding
day falls after the last Business Day of such month, then the Interest Period
shall expire on the last Business Day of such month; and if any Interest Period
would expire on a day that is not a Business Day, the period shall expire on
the next Business Day; and
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(c)
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no Interest Period shall extend beyond the Revolver Termination Date.
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3.1.4
Interest Rate Not Ascertainable.
If Agent shall determine that on any date for determining BA Equivalent Rate, adequate and
fair means do not exist for ascertaining such rates on the basis provided herein, then Agent shall
immediately notify Borrower of such determination. Until Agent notifies Borrower that such
circumstance no longer exists, the obligation of Lenders to make further BA Equivalent Loans shall
be suspended, and no further Loans may be converted into or continued as BA Equivalent Loans, as
applicable.
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3.2
Fees.
3.2.1
Unused Line Fee.
Borrower shall pay to Agent, for the Pro Rata benefit of Lenders, a fee equal to the (a) (i)
0.25% (if the outstanding amount of all Borrowings under this Agreement, for the immediately
preceding Fiscal Quarter, are greater than 50% of the Revolver Commitments), or (ii) 0.375% (if
the outstanding amount of all Borrowings under this Agreement, for the immediately preceding
Fiscal Quarter, are equal to or less than 50% of the Revolver Commitments)
times
(b) the
amount by which the Revolver Commitments exceed the average daily balance of Loans during any
month. Such fee shall be payable in arrears, on the first day of each month and on the Commitment
Termination Date.
The Agent shall pay to each Lender, on or before the third Business Day of each month and on
the Commitment Termination Date, the foregoing unused line fee based on each Lenders Revolver
Commitment and each Lenders respective Pro Rata share of the Revolver Loans during the applicable
month.
3.2.2
LC Facility Fees.
Borrower shall pay (a) to Agent, for the Pro Rata benefit of Lenders, a fee equal to the
Applicable Margin in effect for BA Equivalent Revolver Loans times the average daily stated amount
of Letters of Credit (which amount shall include, for Letters of Credit denominated in U.S.
Dollars, the Equivalent Amount thereof in Dollars), which fee shall be payable monthly in arrears,
on the first day of each month; (b) Borrower shall pay to Issuing Bank, for its own account, a
fronting fee equal to 0.125% per annum of the stated amount of each Letter of Credit issued, which
fee shall be payable monthly in arrears, on the first day of each month; and (c) Borrower shall
pay to Issuing Bank, for its own account, all customary charges associated with the issuance,
amending, negotiating, payment, processing, transfer and administration of Letters of Credit,
which charges shall be paid as and when incurred. During an Event of Default, the fee payable
under clause (a) shall be increased by 2% per annum.
3.2.3
Closing Fee.
Borrower shall pay to Agent, for the Pro Rata benefit of the Lenders, a closing fee of
$295,000, which shall be paid concurrently with the funding of the initial Loans hereunder.
3.2.4
Administrative Fees.
In consideration of Agents administration of the Loans hereunder, Borrower shall pay to
Agent, for its own account, the fees described in the Fee Letter.
3.3
Computation of Interest, Fees, Yield Protection.
In addition to Section 1.4 hereof or as otherwise set forth herein, interest, as well as fees
and other charges calculated on a per annum basis, shall be computed for the actual days elapsed,
based on a year of 365 or 366 days, as the case may be.
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Each determination by Agent of any interest, fees or interest rate hereunder shall be final,
conclusive and binding for all purposes, absent manifest error. All fees shall be fully earned
when due and shall not be subject to rebate or refund, nor subject to proration except as
specifically provided herein. All fees payable under Section 3.2 and in the Fee Letter are
compensation for services and are not, and shall not be deemed to be, interest or any other charge
for the use, forbearance or detention of money. A certificate, calculated in accordance with the
terms of this Agreement, as to amounts payable by Borrower under Section 3.6, 3.7, 3.9 or 5.8,
submitted to Borrower by Agent or the affected Lender, as applicable, shall be final, conclusive
and binding for all purposes, absent manifest error.
3.4
Overdraft Loans.
In respect of the accounts of an Obligor opened and maintained with the Bank, whenever a
cheque or other item is presented for payment against such account in an amount greater than the
then available balance in such account (an Overdraft Loan), such presentation shall be deemed to
constitute a Notice of Borrowing for a Loan on the date of such notice in the amount of such
Overdraft Loan (or the Equivalent Amount thereof), bearing interest by reference to the Prime Rate
Revolving Loan.
3.5
Illegality.
Notwithstanding anything to the contrary herein, if (a) any change in any law or
interpretation thereof by any Governmental Authority makes it unlawful for a Lender to make or
maintain a BA Equivalent Loan or to maintain any Commitment with respect to BA Equivalent Loans or
(b) a Lender determines that the making or continuance of a BA Equivalent Loan has become
impracticable as a result of a circumstance that adversely affects the determination of the BA
Equivalent Rate, then such Lender shall give notice thereof to Agent and Borrower and may (i)
declare that BA Equivalent Loans, as applicable, will not thereafter be made by such Lender,
whereupon any request for a BA Equivalent Loan, from such Lender shall be deemed to be a request
for a Prime Rate Loan, as applicable, unless such Lenders declaration has been withdrawn (and it
shall be withdrawn promptly upon cessation of the circumstances described in clause (a) or (b)
above); and/or (ii) require that all outstanding BA Equivalent Loans, as applicable, made by such
Lender be converted to Prime Rate Loan, as applicable, immediately, in which event all outstanding
BA Equivalent Loans, as applicable, of such Lender shall be immediately converted to Prime Rate
Loans.
3.6
Increased Costs.
If, by reason of (a) the introduction of or any change (including any change by way of
imposition or increase of Statutory Reserves or other reserve requirements) in any law or
interpretation thereof, or (b) the compliance with any guideline or request from any Governmental
Authority or other Person exercising control over banks or financial institutions generally
(whether or not having the force of law):
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(i)
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a Lender shall be subject to any Tax with respect to any BA
Equivalent Loan or Letter of Credit or its obligation to make BA Equivalent
Loans, issue Letters of Credit or participate in LC Obligations, or a change
shall result in the basis of taxation of any payment to a Lender with respect
to its BA Equivalent Loans, or its obligation to make BA Equivalent Loans,
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issue Letters of Credit or participate in LC Obligations (except for
Excluded Taxes); or
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(ii)
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any reserve (including any imposed by the Board of Governors
or any other Governmental Authority), special deposits or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
a Lender shall be imposed or deemed applicable, or any other condition
affecting a Lenders BA Equivalent Loans or obligation to make BA Equivalent
Loans, issue Letters of Credit or participate in LC Obligations shall be
imposed on such Lender;
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and as a result there shall be an increase in the cost to such Lender of agreeing to make or
making, funding or maintaining, BA Equivalent Loans, Letters of Credit or participations in LC
Obligations, or there shall be a reduction in the amount receivable by such Lender, then the
Lender shall promptly notify Borrower and Agent of such event, and Borrower shall, within five
days following demand therefor, pay such Lender the amount of such increased costs or reduced
amounts.
If a Lender determines that, because of circumstances described above or any other
circumstances arising hereafter affecting such Lender or the Lenders position in any market, BA
Equivalent Rate or the Applicable Margin applicable thereto, as applicable, will not adequately and
fairly reflect the cost to such Lender of funding BA Equivalent Loans, issuing Letters of Credit or
participating in LC Obligations, then (A) the Lender shall promptly notify Borrower and Agent of
such event; (B) such Lenders obligation to make BA Equivalent Loans, issue Letters of Credit or
participate in LC Obligations shall be immediately suspended, until each condition giving rise to
such suspension no longer exists; and (C) such Lender shall make a Prime Rate Loan as part of any
requested Borrowing of BA Equivalent Loans, as applicable, which Prime Rate Loan shall, for all
purposes, be considered part of such Borrowing.
3.7
Capital Adequacy.
If a Lender determines that any introduction of or any change in a Capital Adequacy
Regulation, any change in the interpretation or administration of a Capital Adequacy Regulation by
a Governmental Authority charged with interpretation or administration thereof, or any compliance
by such Lender or any Person controlling such Lender with a Capital Adequacy Regulation, increases
the amount of capital required or expected to be maintained by such Lender or Person (taking into
consideration its capital adequacy policies and desired return on capital) as a consequence of
such Lenders Commitments, Loans, participations in LC Obligations or other obligations under the
Loan Documents, then Borrower shall, within five days following demand therefor, pay such Lender
an amount sufficient to compensate for such increase. A Lenders demand for payment shall set
forth the nature of the occurrence giving rise to such compensation and a calculation of the
amount to be paid. In determining such amount, the Lender may use any reasonable averaging and
attribution method.
3.8
Mitigation.
Each Lender agrees that, upon becoming aware that it is subject to Section 3.5, 3.6, 3.7 or
5.8, it will take reasonable measures to reduce Borrowers obligations under such Sections,
including funding or maintaining its Commitments or Loans through another office, as long as
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use of such measures would not adversely affect the Lenders Commitments, Loans, business or
interests, and would not be inconsistent with any internal policy or applicable legal or
regulatory restriction.
3.9
Funding Losses.
If for any reason (other than default by a Lender) (a) any Borrowing of, or conversion to or
continuation of, a BA Equivalent Loan does not occur on the date specified therefor in a Notice of
Borrowing or Notice of Conversion/Continuation (whether or not withdrawn), (b) any repayment or
conversion of a BA Equivalent Loan occurs on a day other than the end of its Interest Period, or
(c) Borrower fail to repay a BA Equivalent Loan when required hereunder, then Borrower shall pay to
Agent its customary administrative charge and to each Lender all losses and expenses that it
sustains as a consequence thereof, including any loss or expense arising from liquidation or
redeployment of funds or from fees payable to terminate deposits of matching funds. Lenders shall
not be required to purchase Dollar deposits in any Dollar market (offshore or otherwise) to fund
any BA Equivalent Loan, but the provisions hereof shall be deemed to apply as if each Lender had
purchased such deposits to fund its BA Equivalent Loans.
3.10
Maximum Interest.
In no event shall interest, charges or other amounts that are contracted for, charged or
received by Agent and Lenders pursuant to any Loan Documents and that are deemed interest under
Applicable Law (interest) exceed the highest rate permissible under Applicable Law (maximum
rate). If, in any month, any interest rate, absent the foregoing limitation, would have exceeded
the maximum rate, then the interest rate for that month shall be the maximum rate and, if in a
future month, that interest rate would otherwise be less than the maximum rate, then the rate
shall remain at the maximum rate until the amount of interest actually paid equals the amount of
interest which would have accrued if it had not been limited by the maximum rate. If, upon Full
Payment of the Obligations, the total amount of interest actually paid under the Loan Documents is
less than the total amount of interest that would, but for this Section, have accrued under the
Loan Documents, then Borrower shall, to the extent permitted by Applicable Law, pay to Agent, for
the account of Lenders, (a) the lesser of (i) the amount of interest that would have been charged
if the maximum rate had been in effect at all times, or (ii) the amount of interest that would
have accrued had the interest rate otherwise set forth in the Loan Documents been in effect, minus
(b) the amount of interest actually paid under the Loan Documents. If a court of competent
jurisdiction determines that Agent or any Lender has received interest in excess of the maximum
amount allowed under Applicable Law, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, Obligations other than interest (regardless of any erroneous
application thereof by Agent or any Lender), and upon Full Payment of the Obligations, any balance
shall be refunded to Borrower. In determining whether any excess interest has been charged or
received by Agent or any Lender, all interest at any time charged or received from Borrower in
connection with the Loan Documents shall, to the extent permitted by Applicable Law, be amortized,
prorated, allocated and spread in equal parts throughout the full term of the Obligations.
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SECTION 4 LOAN ADMINISTRATION
4.1
Manner of Borrowing and Funding Revolver Loans.
4.1.1
Notice of Borrowing.
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(a)
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Whenever Borrower desires funding of a Borrowing of Revolver Loans,
Borrower shall give Agent a Notice of Borrowing. Such notice must be
received by Agent no later than 12:00 p.m. (Eastern time) (i) on the Business
Day of the requested funding date, in the case of Prime Rate Loans, and (ii) at
least three Business Days prior to the requested funding date, in the case of
BA Equivalent Loans. Notices received after 12:00 p.m. (Eastern time) shall
be deemed received on the next Business Day. Each Notice of Borrowing
shall be irrevocable and shall specify (A) the principal amount of the
Borrowing, (B) the requested funding date (which must be a Business Day),
(C) whether the Borrowing is to be made as Prime Rate Loans or BA
Equivalent Loans, and (D) in the case of BA Equivalent Loans, the duration of
the applicable Interest Period (which shall be deemed to be one month if not
specified).
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(b)
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Unless payment is otherwise timely made by Borrower, the becoming due of
any Obligations (whether principal, interest, fees or other charges, including
Extraordinary Expenses, LC Obligations, Cash Collateral and Bank Product
Debt) shall be deemed to be a request for Prime Rate Loans, on the due date,
in the amount of such Obligations. The proceeds of such Loans shall be
disbursed as direct payment of the relevant Obligation.
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(c)
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If Borrower establishes a controlled disbursement account with Agent or any
Affiliate of Agent, then the presentation for payment of any cheque or other
item of payment drawn on such account at a time when there are insufficient
funds to cover it shall be deemed to be a request for Prime Rate Loans, on the
date of such presentation, in the amount of the cheque and items presented for
payment. The proceeds of such Revolver Loans may be disbursed directly to
the controlled disbursement account or other appropriate account.
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4.1.2
Fundings by Lenders.
Each Lender shall timely honour its Revolver Commitment by funding its Pro Rata share of each
Borrowing of Revolver Loans that is properly requested hereunder. Except for Borrowings to be made
as Swingline Loans, Agent shall endeavour to notify Lenders of each Notice of Borrowing (or deemed
request for a Borrowing) by 12:00 p.m. (Eastern time) on the proposed funding date for Prime Rate
Loans or by 3:00 p.m. (Eastern time) at least three Business Days before any proposed funding of
BA Equivalent Loans. Each Lender shall fund to Agent such Lenders Pro Rata share of the Borrowing
to the account specified by Agent in immediately available funds not later than 2:00 p.m. (Eastern
time) on the requested funding date, unless Agents notice is received after the times provided
above, in which event each Lender shall fund its Pro Rata share by 12:00 p.m. (Eastern time) on
the next Business Day. Subject to its receipt of such amounts from Lenders, Agent shall disburse
the proceeds of the Revolver Loans as directed by Borrower. Unless Agent shall have received (in
sufficient time to
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act) written notice from a Lender that it does not intend to fund its Pro Rata share of a
Borrowing, Agent may assume that such Lender has deposited or promptly will deposit its share with
Agent, and Agent may disburse a corresponding amount to Borrower. If a Lenders share of any
Borrowing is not in fact received by Agent, then Borrower agrees to repay to Agent on demand the
amount of such share, together with interest thereon from the date disbursed until repaid, at the
rate applicable to such Borrowing.
4.1.3
Swingline Loans; Settlement.
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(a)
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Agent may, but shall not be obligated to, advance Swingline Loans to
Borrower out of Agents own funds, up to an aggregate outstanding amount of
$15,000,000, unless the funding is specifically required to be made by all
Lenders hereunder. Each Swingline Loan shall constitute a Revolver Loan for
all purposes, except that payments thereon shall be made to Agent for its own
account. The obligation of Borrower to repay Swingline Loans shall be
evidenced by the records of Agent and need not be evidenced by any
promissory note.
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(b)
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To facilitate administration of the Revolver Loans, Lenders and Agent agree
(which agreement is solely among them, and not for the benefit of or
enforceable by Borrower) that settlement among them with respect to
Revolver Loans (other than Swingline Loans) may take place periodically on
a date determined from time to time by Agent, which shall occur at least once
every five Business Days. On each settlement date, settlement shall be made
with each Lender in accordance with the Settlement Report delivered by
Agent to Lenders. Between settlement dates, Agent may in its discretion
apply payments on Revolver Loans to Swingline Loans, regardless of any
designation by Borrower or any provision herein to the contrary. Each
Lenders obligation to make settlements with Agent is absolute and
unconditional, without offset, compensation, counterclaim or other defense,
and whether or not the Commitments have terminated, an Overadvance exists,
or the conditions in Section 6 are satisfied.
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4.1.4
Notices.
Borrower authorizes Agent and Lenders to extend, convert or continue Loans, effect selections
of interest rates, and transfer funds to or on behalf of Borrower based on telephonic or e-mailed
instructions. Borrower shall confirm each such request by prompt delivery to Agent of a Notice of
Borrowing or Notice of Conversion/Continuation, if applicable, but if it differs in any material
respect from the action taken by Agent or Lenders, the records of Agent and Lenders shall govern.
Neither Agent nor any Lender shall have any liability for any loss suffered by Borrower as a
result of Agent or any Lender acting upon its understanding of telephonic or e-mailed instructions
from a person believed in good faith by Agent or any Lender to be a person authorized to give such
instructions on Borrowers behalf.
4.2
Defaulting Lender.
If a Lender fails to make any payment to Agent that is required hereunder, Agent may (but
shall not be required to), in its discretion, retain payments that would otherwise be made to
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such defaulting Lender hereunder, apply the payments to such Lenders defaulted obligations or
readvance the funds to Borrower in accordance with this Agreement. The failure of any Lender to
fund a Loan or to make a payment in respect of a LC Obligation shall not relieve any other Lender
of its obligations hereunder, and no Lender shall be responsible for default by another Lender.
Lenders and Agent agree (which agreement is solely among them, and not for the benefit of or
enforceable by Borrower) that, solely for purposes of determining a defaulting Lenders right to
vote on matters relating to the Loan Documents and to share in payments, fees and Collateral
proceeds thereunder, a defaulting Lender shall not be deemed to be a Lender until all its
defaulted obligations have been cured.
4.3
Number and Amount of BA Equivalent Loans; Determination of Rate.
For ease of administration, all BA Equivalent Revolver Loans having the same length and
beginning date of their Interest Periods shall be aggregated together, and such Loans shall be
allocated among Lenders on a Pro Rata basis. No more than three (3) aggregated BA Equivalent Loans
may be outstanding at any time, and each aggregate BA Equivalent Loan when made, continued or
converted shall be in a minimum amount of $1,000,000, or an increment of $100,000, in excess
thereof. Upon determining BA Equivalent Rate for any Interest Period requested by Borrower, Agent
shall promptly notify Borrower thereof by telephone or electronically and, if requested by
Borrower, shall confirm any telephonic notice in writing.
4.4
Effect of Termination.
On the effective date of any termination of the Commitments, all Obligations shall be
immediately due and payable. All undertakings of the Obligors contained in the Loan Documents
shall survive any termination, and Agent shall retain its Liens in the Collateral and all of its
rights and remedies under the Loan Documents until Full Payment of the Obligations.
Notwithstanding Full Payment of the Obligations, Agent shall not be required to terminate its
Liens in any Collateral unless, with respect to any damages Agent may incur as a result of the
dishonour or return of Payment Items applied to Obligations, Agent receives (a) a written
agreement, executed by the Obligors and any Person whose advances are used in whole or in part to
satisfy the Obligations, indemnifying Agent and Lenders from any such damages; or (b) such Cash
Collateral as Agent, in its discretion, deems necessary to protect against any such damages. The
provisions of Sections 2.2, 3.6, 3.7, 3.9, 5.4, 5.8, 12, 15.2 and this Section, and the obligation
of each Obligor and Lender with respect to each indemnity given by it in any Loan Document, shall
survive Full Payment of the Obligations and any release relating to this credit facility.
SECTION 5 PAYMENTS
5.1
General Payment Provisions.
All payments of Obligations shall be made in Dollars, without offset, compensation,
counterclaim or defense of any kind, free of (and without deduction for) any Taxes, and in
immediately available funds, not later than 12:00 p.m. (Eastern time) on the due date. Any payment
after such time shall be deemed made on the next Business Day. Obligors may, at the time of
payment, specify to Agent the Obligations to which such payment is to be applied, but Agent shall
in all events retain the right to apply such payment in such manner as Agent, subject to the
provisions hereof, may determine to be appropriate. If any payment under the Loan
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Documents shall be stated to be due on a day other than a Business Day, the due date shall be
extended to the next Business Day and such extension of time shall be included in any computation
of interest and fees. Any payment of a BA Equivalent Loan prior to the end of its Interest Period
shall be accompanied by all amounts due under Section 3.9. Any prepayment of Loans shall be applied
first to Prime Rate Loans and then to BA Equivalent Loans.
5.2
Repayment of Revolver Loans.
Revolver Loans shall be due and payable in full on the Revolver Termination Date, unless
payment is sooner required hereunder. Revolver Loans may be prepaid from time to time, without
penalty or premium. Notwithstanding anything herein to the contrary, (i) if an Overadvance exists,
Borrower shall, on the sooner of Agents demand or the first Business Day after Borrower has
knowledge thereof, repay the outstanding Revolver Loans in an amount sufficient to reduce the
principal balance of Revolver Loans to the Borrowing Base.
5.3
Payment of Other Obligations.
Obligations other than Loans, including LC Obligations and Extraordinary Expenses, shall be
paid by Obligors as provided in the Loan Documents or, if no payment date is specified, on demand.
5.4
Marshalling; Payments Set Aside.
None of Agent or Lenders shall be under any obligation to marshal any assets in favour of any
Obligor or against any Obligations. If any Obligor makes a payment to Agent or Lenders, or if
Agent or any Lender receives payment from the proceeds of Collateral, exercise of setoff,
compensation or otherwise, and such payment is subsequently invalidated or required to be repaid
to a trustee, receiver or any other Person, then the Obligations originally intended to be
satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full
force and effect as if such payment had not been received and any enforcement, setoff or
compensation had not occurred.
5.5
Post-Default Allocation of Payments.
5.5.1
Allocation.
Notwithstanding anything herein to the contrary, during an Event of Default, monies to be
applied to the Obligations, whether arising from payments by Obligors, realization on Collateral,
setoff, compensation or otherwise, shall be allocated as follows:
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(a)
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first, to all costs and expenses, including Extraordinary Expenses, owing to
Agent;
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(b)
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second, to all amounts owing to Agent on Swingline Loans or Protective
Advances;
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(c)
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third, to all amounts owing to Issuing Bank on LC Obligations;
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(d)
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fourth, to all Obligations constituting fees owing to Agent and owing to
Lenders (on a Pro Rata basis), (excluding amounts relating to Bank Products);
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(e)
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fifth, to all Obligations constituting interest owing to Agent and owing to the
Lenders (on a Pro Rata basis), (excluding amounts relating to Bank Products);
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(f)
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sixth, to provide Cash Collateral for outstanding Letters of Credit;
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(g)
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seventh, to all other Obligations owing to Agent, and owing to the Lenders
(on a Pro Rata basis), other than Bank Product Debt;
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(h)
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eighth, to Bank Product Debt in respect of Bank Products provided by the
Agent or an Affiliate of the Agent; and
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(i)
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last, to Bank Product Debt in respect of Bank Products provided by any other
Lender or an Affiliate of any other Lender.
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Amounts shall be applied to each category of Obligations set forth above until Full Payment
thereof and then to the next category. If amounts are insufficient to satisfy a category, they
shall be applied on a pro rata basis among the Obligations in the category. Amounts distributed
with respect to any Bank Product Debt shall be the lesser of the applicable Bank Product Amount
last reported to Agent or the actual Bank Product Debt as calculated by the methodology reported
to Agent for determining the amount due. Agent shall have no obligation to calculate the amount to
be distributed with respect to any Bank Product Debt, but may rely upon written notice of the
amount (setting forth a reasonably detailed calculation) from the Secured Party. In the absence of
such notice, Agent may assume the amount to be distributed is the Bank Product Amount last
reported to it. The allocations and applications of payments set forth in this Section are solely
to determine the rights and priorities of Agent and Lenders as among themselves, and may be
changed by agreement among them without the consent of any Obligor. This Section is not for the
benefit of or enforceable by any Obligor.
5.5.2
Erroneous Application.
Agent shall not be liable for any application of amounts made by it in good faith and, if any
such application is subsequently determined to have been made in error, the sole recourse of any
Lender or other Person to which such amount should have been made shall be to recover the amount
from the Person that actually received it (and, if such amount was received by any Lender, such
Lender hereby agrees to return it).
5.6
Application of Payments.
Borrower and each applicable Obligor irrevocably waives the right to direct the application of
any payments or Collateral proceeds, and agrees that Agent shall have the continuing, exclusive
right to apply and reapply same against the Obligations, in such manner as Agent deems advisable,
notwithstanding any entry by Agent in its records. If, as a result of Agents receipt of Payment
Items or proceeds of Collateral, a credit balance exists, the balance shall not accrue interest in
favour of Borrower and shall be made available to Borrower as long as no Default or Event of
Default exists.
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5.7
Loan Account; Account Stated.
5.7.1
Loan Account.
Agent shall maintain in accordance with its usual and customary practices an account or
accounts (Loan Account) evidencing the Debt of Borrower resulting from each Loan or issuance of a
Letter of Credit from time to time. Any failure of Agent to record anything in the Loan Account, or
any error in doing so, shall not limit or otherwise affect the obligation of Borrower to pay any
amount owing hereunder. Agent may maintain a single Loan Account in the name of Borrower.
5.7.2
Entries Binding.
Entries made in the Loan Account shall constitute presumptive evidence of the information
contained therein. If any information contained in the Loan Account is provided to or inspected by
any Person, then such information shall be conclusive and binding on such Person for all purposes
absent manifest error, except to the extent such Person notifies Agent in writing within 30 days
after receipt or inspection that specific information is subject to dispute.
5.8
Taxes.
5.8.1
Payments Free of Taxes.
Any and all payments by or on account of any obligation of Obligors hereunder or under any
other Loan Document shall be made free and clear of and without deduction or withholding for any
Indemnified Taxes, provided that if an Obligor shall be required by applicable law to deduct or
withhold any Indemnified Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions or withholdings (including deductions or
withholdings applicable to additional sums payable under this Section) the Agent or Lenders, as
the case may be, receives an amount equal to the sum it would have received had no such deductions
or withholdings been made; (ii) Obligors shall make such deductions or withholdings; and (iii)
Obligors shall timely pay the full amount deducted or withheld to the relevant Governmental
Authority in accordance with applicable law.
5.8.2
Payment of Other Taxes by Obligors.
Without limiting the provisions of Section 5.8.1, Obligors shall timely pay any Other Taxes
to the relevant Governmental Authority in accordance with applicable law.
5.8.3
Indemnification by Obligors.
Obligors shall indemnify the Agent and each Lender, 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) paid by the Agent or Lender, as the case may
be, and any penalties, interest, additions to tax and reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or
liability delivered to an Obligor by a Lender (with a copy to the
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Agent), or by the Agent on its own behalf or on behalf of a Lender, shall be conclusive absent
manifest error.
5.8.4
Evidence of Payments.
As soon as practicable after any payment of Indemnified Taxes by an Obligor to a Governmental
Authority, Obligors shall deliver to the Agent, the original or a certified copy of a receipt
issued by such Governmental Authority evidencing such payment, a copy of the return reporting such
payment or other evidence of such payment reasonably satisfactory to the Agent.
5.8.5
Authorized Foreign Banks.
In addition to the provisions of Section 5.8, in respect of amounts paid or credited by or on
account of an Obligor to or for the benefit of a particular Lender that is an authorized foreign
bank for purposes of the ITA, the obligations under this Section 5.8 to pay an additional amount
shall apply where the particular Lender is liable for Tax under Part XIII of the ITA in respect of
such payment, even if such Obligor is not required under the ITA to deduct or withhold an amount in
respect of Taxes on such payment and this Section 5.8 shall apply,
mutatis mutandis,
as if such
Obligor was required to withhold an amount in respect of such Taxes.
SECTION 6 CONDITIONS PRECEDENT
6.1
Conditions Precedent to Initial Loans.
In addition to the conditions set forth in Section 6.2, Lenders shall not be required to fund
any requested Loan, issue any Letter of Credit, or otherwise extend credit to Borrower hereunder,
until the date (Closing Date) that each of the following conditions has been satisfied:
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(a)
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Notes shall have been executed by Borrower and delivered to each Lender that
requests issuance of a Note. Each other Loan Document shall have been duly
executed and delivered to Agent by each of the signatories thereto, and each
Obligor shall be in compliance with all terms thereof.
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(b)
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Agent shall have received all PPSA and other Lien searches and other
evidence satisfactory to Agent that such Liens are the only Liens upon the
Collateral, except Permitted Liens.
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(c)
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The Agent shall have received:
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(i)
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acknowledgment copies of proper financing or filing
statements, publications or recordations, duly filed on or before the Closing
Date under the PPSA of all jurisdictions that the Agent may deem necessary or
desirable in order to perfect the Agents Lien; and
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(ii)
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duly executed Termination Statements and such other
instruments, in form and substance satisfactory to the Agent, as shall be
necessary to terminate and discharge and satisfy all Liens on the Property of
the Obligors (except Permitted Liens).
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(d)
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Agent shall have received (i) the Shareholder Subordination Agreement, and (ii) the 331562 Estoppel
Agreement.
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(e)
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Agent shall have received duly executed agreements establishing each
Dominion Account, in form and substance satisfactory to Agent.
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(f)
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Agent shall have received certificates, in form and substance satisfactory to it,
from a knowledgeable Senior Officer of each Obligor certifying that, after
giving effect to the initial Loans and transactions hereunder, (i) such Obligor
is Solvent; (ii) no Default or Event of Default exists; (iii) the representations
and warranties set forth in Section 9 are true and correct; and (iv) such
Obligor has complied with all agreements and conditions to be satisfied by it
under the Loan Documents.
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(g)
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Agent shall have received a certificate of a duly authorized officer of each
Obligor, certifying (i) that attached copies of such Obligors Organic
Documents are true and complete, and in full force and effect, without
amendment except as shown, (ii) that an attached copy of resolutions
authorizing execution and delivery of the Loan Documents is true and
complete, and that such resolutions are in full force and effect, were duly
adopted, have not been amended, modified or revoked, and constitute all
resolutions adopted with respect to this credit facility, and (iii) to the title,
name and signature of each Person authorized to sign the Loan Documents.
Agent may conclusively rely on this certificate until it is otherwise notified by
the applicable Obligor in writing.
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(h)
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Agent shall have received, in form and substance satisfactory to it,
consignees consent letters from the Persons who are consignees of Obligor Inventory
and the requisite assignment of PPSA filings in favour of the Agent reflecting the
Agents security in the consigned Inventory of the Obligors.
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(i)
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Agent shall have received a written opinion of Fleming LLP as well as any
local counsel to Obligors or Agent, in form and substance satisfactory to Agent.
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(j)
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Agent shall have received copies of the charter documents of each Obligor,
certified as appropriate by the provincial ministry or Secretary of State or another
official of such Obligors jurisdiction of organization. Agent shall have received
compliance certificates, certificates of status, certificates dattestation and good
standing certificates for each Obligor, issued by the appropriate official of such
Obligors jurisdiction of organization and each jurisdiction where such Obligors
conduct of business or ownership of Property necessitates qualification.
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(k)
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Agent shall have received copies of policies or certificates of insurance and
binders of Insurance for the insurance policies carried by Obligors with requisite
loss payable endorsements, all in compliance with the Loan Documents and in form and
substance satisfactory to the Agent.
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(l)
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Agent shall have completed its legal due diligence of Obligors, with results
satisfactory to Agent. No material adverse change, in the opinion of the Agent, (i) in
the financial condition of any Obligor, (ii) in the quality, quantity or value of any
Collateral, (iii) in each Obligors business prospects or its results from operations,
or (iv) in each of the Obligors liabilities, shall have occurred since July 31, 2006.
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(m)
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Since July 31, 2006, to the Closing Date, there shall have been no material
adverse change or material disruption in the financial, banking or capital markets
which could reasonably be expected to have a Material Adverse Effect on the Loans.
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(n)
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The Revolver Commitments, and the allocation of same among a syndicate of
lenders acceptable to the Agent, shall have been arranged and completed.
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(o)
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Agent shall have received a Borrowing Base Certificate prepared as of
September 30, 2006. Upon giving effect to the initial funding of Loans and issuance of
Letters of Credit, and the payment by Borrower of all fees and expenses incurred in
connection herewith as well as any payables stretched beyond their customary payment
practices, Availability shall be at least $20,000,000.
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(p)
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The Borrower shall have paid all fees and expenses of the Agent and Lenders,
including as provided in the Fee Letter and hereunder, and all attorney costs and
audit costs incurred in connection with any of the Loan Documents and the transactions
contemplated thereby to the extent invoiced.
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(q)
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The Agent shall have received evidence satisfactory to the Agent that the
terms of this Agreement and the other Loan Documents are not in violation of or
contrary to the provisions of any other document to which Borrower or any Subsidiary is
a party or by which they are bound.
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(r)
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There shall exist no action, suit, investigation, litigation, or proceeding
pending or threatened in any court or before any arbitrator or governmental authority
that in Lenders good faith credit discretion (a) could reasonably be expected to have
a Material Adverse Effect or impair Obligors ability to perform their obligations
under the Loan Agreement, or (b) could reasonably be expected to materially and
adversely affect the Obligations or the transactions contemplated thereby.
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(s)
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Agent shall have reviewed and confirmed their satisfaction with the
instruments/debt documents evidencing the Debt of and any other creditors not being
paid out and discharged on or prior to the Closing Date.
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(t)
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The Agent shall have received evidence satisfactory to it that each Obligor
shall have obtained all governmental and third party consents and approvals as Agent
may consider necessary or appropriate in connection with this Agreement and the
transactions contemplated thereby.
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(u)
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The Agent shall have received evidence that the Obligor 2006 Amalgamation
has occurred, on terms and conditions satisfactory to the Agent.
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(v)
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All proceedings taken in connection with the execution of this Agreement, all
other Loan Documents and all documents and papers relating thereto shall be
satisfactory in form, scope, and substance to the Agent and the Lenders.
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The acceptance by the Borrower of any Loans made or Letters of Credit issued on the Closing
Date shall be deemed to be a representation and warranty made by the Borrower to the effect that
all of the conditions precedent to the making of such Loans or the issuance of such Letters of
Credit have been satisfied, with the same effect as delivery to the Agent and the Lenders of a
certificate signed by a Responsible Officer of the Borrower, dated the Closing Date, to such
effect.
Execution and delivery to the Agent by a Lender of a counterpart of this Agreement or by an
Assignment and Acceptance shall be deemed confirmation by such Lender that (i) all conditions
precedent in this Section 6.1 have been fulfilled to the satisfaction of such Lender, (ii) the
decision of such Lender to execute and deliver to the Agent an executed counterpart of this
Agreement was made by such Lender independently and without reliance on the Agent or any other
Lender as to the satisfaction of any condition precedent set forth in this Section 6.1, and (iii)
all documents sent to such Lender for approval, consent, or satisfaction were acceptable to such
Lender.
6.2
Conditions Precedent to All Credit Extensions.
Agent, Issuing Bank and Lenders shall not be required to fund any Loans, arrange for issuance
of any Letters of Credit or grant any other accommodation to or for the benefit of Borrower, unless
the following conditions are satisfied:
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(a)
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No Default or Event of Default shall exist at the time of, or result from, such
funding, issuance or grant;
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(b)
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The representations and warranties of each Obligor in the Loan Documents
shall be true and correct on the date of, and upon giving effect to, such
funding, issuance or grant (except for representations and warranties that
expressly relate to an earlier date);
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(c)
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All conditions precedent in any other Loan Document shall be satisfied;
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(d)
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No event shall have occurred or circumstance exist that has or could
reasonably be expected to have a Material Adverse Effect; and
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(e)
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With respect to issuance of a Letter of Credit, the LC Conditions shall be
satisfied.
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Each request (or deemed request) by Borrower for funding of a Loan, issuance of a Letter of
Credit or grant of an accommodation shall constitute a representation by Borrower that the
foregoing conditions are satisfied on the date of such request and on the date of such funding,
issuance or grant. As an additional condition to any funding, issuance or grant, Agent shall have
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received such other information, documents, instruments and agreements as it deems appropriate in
connection therewith.
6.3
Limited Waiver of Conditions Precedent.
If Agent, Issuing Bank or Lenders fund any Loans, arrange for issuance of any Letters of
Credit or grant any other accommodation when any conditions precedent are not satisfied (regardless
of whether the lack of satisfaction was known or unknown at the time), it shall not operate as a
waiver of (a) the right of Agent, Issuing Bank and Lenders to insist upon satisfaction of all
conditions precedent with respect to any subsequent funding, issuance or grant; nor (b) any Default
or Event of Default due to such failure of conditions or otherwise.
SECTION 7 COLLATERAL
7.1
Grant of Security Interest.
To secure the prompt payment and performance of all Obligations, each Obligor hereby grants
to Agent, for the benefit of Secured Parties, a continuing security interest in and Lien upon all
personal Property (save and exclusive solely of Equipment) of Obligors, including all of the
following Property, whether now owned or hereafter acquired, and wherever located:
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(a)
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all Accounts;
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(b)
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all Chattel Paper, including electronic chattel paper;
|
|
|
(c)
|
|
all Deposit Accounts and Dominion Accounts;
|
|
|
(d)
|
|
all General Intangibles, including Intellectual Property;
|
|
|
(e)
|
|
all Goods, including Inventory but excluding Equipment;
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|
(f)
|
|
all Instruments;
|
|
|
(g)
|
|
all Investment Property;
|
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|
(h)
|
|
all monies, whether or not in the possession or under the control of Agent, a
Lender, or a bailee or Affiliate of Agent or a Lender, including any Cash
Collateral;
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|
(i)
|
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all accessions to, substitutions for, and all replacements, products, and cash
and non-cash proceeds of the foregoing, including proceeds of and unearned
premiums with respect to insurance policies, and claims against any Person for
loss, damage or destruction of any Collateral; and
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(j)
|
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all books and records (including customer lists, files, correspondence, tapes,
computer programs, print-outs and computer records) pertaining to the
foregoing.
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7.2
Lien on Deposit Accounts/Dominion Accounts; Cash Collateral.
7.2.1
Deposit Accounts/Dominion Accounts.
|
(a)
|
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To further secure the prompt payment and performance of all Obligations,
each Obligor hereby grants to Agent, for the benefit of Secured Parties, a
continuing security interest in and Lien upon all of Obligors right, title and
interest in and to each Deposit Account and Dominion Account of such
Obligor and any deposits or other sums at any time credited to any such
Deposit Account and Dominion Account, including any sums in any blocked
or lockbox accounts or in any accounts into which such sums are swept. For
greater certainty, Obligors hereby agree that, unless otherwise agreed to by
Agent, they will not maintain any Deposit Accounts, other than Dominion
Accounts with the Bank.
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|
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(b)
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Each Obligor authorizes and directs Bank to deliver to Agent, on a daily basis,
all balances in the Dominion Accounts maintained by such Obligor with such
depository for application to the Obligations then outstanding. Each Obligor
irrevocably appoints Agent as such Obligors attorney to collect such balances
to the extent any such delivery is not so made.
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7.2.2
Cash Collateral.
Any Cash Collateral may be invested, in Agents discretion, in Cash Equivalents, but Agent
shall have no duty to do so, regardless of any agreement, understanding or course of dealing with
Borrower, and shall have no responsibility for any investment or loss. Borrower hereby grants to
Agent, for the benefit of Secured Parties, a security interest in all Cash Collateral held from
time to time and all proceeds thereof, as security for the Obligations, whether such Cash
Collateral is held in the Cash Collateral Account or elsewhere. Agent may apply Cash Collateral to
the payment of any Obligations, in such order as Agent may elect, as they become due and payable.
The Cash Collateral Account and all Cash Collateral shall be under the sole dominion and control of
Agent. No Borrower or other Person claiming through or on behalf of Borrower shall have any right
to any Cash Collateral, until Full Payment of all Obligations.
7.3
Other Collateral.
7.3.1
Certain After-Acquired Collateral.
Obligors shall promptly notify Agent in writing if, after the Closing Date, any Obligor
obtains any interest in any Collateral consisting of Deposit Accounts, Chattel Paper, documents,
Instruments, Intellectual Property or Investment Property and, upon Agents request, shall
promptly execute such documents and take such actions as Agent deems appropriate to effect Agents
duly perfected, opposable and first priority Lien upon such Collateral, subject to Permitted
Liens, including obtaining any appropriate possession, control agreement or Lien Waiver. If any
Collateral is in the possession of a third party, at Agents request, Obligors shall obtain an
acknowledgment that such third party holds the Collateral for the benefit of Agent.
- 53 -
7.4
No Assumption of Liability.
The Lien on Collateral granted hereunder is given as security only and shall not subject
Agent or any Lender to, or in any way modify, any obligation or liability of Obligors relating to
any Collateral.
7.5
Further Assurances.
Promptly upon request, Obligors shall deliver such instruments, assignments, title
certificates, or other documents or agreements, and shall take such actions, as Agent deems
appropriate under Applicable Law to evidence or perfect or render opposable its Lien on any
Collateral, or otherwise to give effect to the intent of this Agreement. Each Obligor authorizes
Agent to file any financing statements or other application of publication that indicates the
Collateral as all present and after acquired personal property or the universality of all
present and future movable property of such Obligor, or words to similar effect, and ratifies any
action taken by Agent before the Closing Date to effect or perfect or render opposable its Lien on
any Collateral.
SECTION 8 COLLATERAL ADMINISTRATION
8.1
Borrowing Base Certificates.
By the twentieth day of each month (or with such other frequency as Agent may require, from
time to time, acting in their sole discretion), Borrower shall deliver to Agent (and Agent shall
promptly deliver same to Lenders) a Borrowing Base Certificate prepared as of the close of business
of the previous month, and at such other times as Agent may request. All calculations of
Availability in any Borrowing Base Certificate shall originally be made by Borrower and certified
by a Senior Officer, provided that Agent may from time to time review and adjust any such
calculation (a) to reflect its reasonable estimate of declines in value of any Collateral, due to
collections received in the Dominion Account or otherwise; and (b) to the extent the calculation is
not made in accordance with this Agreement or does not accurately reflect the Availability Reserve.
8.2
Administration of Accounts.
8.2.1
Records and Schedules of Accounts.
Each Obligor shall keep accurate and complete records of its Accounts, including all payments
and collections thereon, and shall submit to Agent, on such periodic basis as Agent may request, a
sales and collections report, in form satisfactory to Agent. Each Obligor shall also provide to
Agent, on or before the 20
th
day of each month, a detailed aged trial balance of all
Accounts as of the end of the preceding month, specifying each Accounts Account Debtor name,
amount, invoice date and due date, showing any discount, allowance, credit, authorized return or
dispute, and including such proof of delivery, copies of invoices and invoice registers, copies of
related documents, repayment histories, status reports and other information as Agent may request
(including the addresses for each Account Debtor). If Accounts in an aggregate face amount of
$100,000 or more cease to be Eligible Accounts, Borrower or applicable Obligor shall notify Agent
of such occurrence promptly (and in any event within one Business Day) after Borrower or applicable
Obligor has knowledge thereof.
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8.2.2
Taxes.
If an Account of an Obligor includes a charge for any Taxes, Agent is authorized, in its
discretion, to pay the amount thereof to the proper taxing authority for the account of Borrower
and to charge Borrower therefor; provided, however, that neither Agent nor Lenders shall be liable
for any Taxes that may be due from Obligor or with respect to any Collateral.
8.2.3
Account Verification.
Whether or not a Default or Event of Default exists, Agent shall have the right at any time,
in the name of Agent, any designee of Agent or any Obligor to verify the validity, amount or any
other matter relating to any Accounts of Obligors by mail, telephone or otherwise. Obligors shall
cooperate fully with Agent in an effort to facilitate and promptly conclude any such verification
process.
8.2.4
Maintenance of Dominion Account.
Obligors shall maintain Dominion Accounts pursuant to lockbox or other arrangements
acceptable to Agent with Bank. Obligors shall obtain an agreement (in form and substance
satisfactory to Agent) from Bank, establishing Agents control over and Lien in the Dominion
Account, requiring immediate deposit of all remittances received in the Dominion Account, and
waiving offset and compensation rights of such servicer against any funds in the Dominion Account,
except offset or compensation rights for customary administrative charges. Neither Agent nor
Lenders assume any responsibility to Obligors for any Dominion Account, including any claim of
accord and satisfaction or release with respect to any Payment Items accepted by servicer.
8.2.5
Proceeds of Collateral.
Obligors shall request in writing and otherwise take all reasonable steps to ensure that all
payments on Accounts or otherwise relating to Collateral are made directly to a Dominion Account.
If any Obligor or Subsidiary receives cash or Payment Items with respect to any Collateral, it
shall hold same in trust for Agent and promptly (not later than the next Business Day) deposit
same into a Dominion Account.
8.3
Administration of Inventory.
8.3.1
Records and Reports of Inventory.
Each Obligor shall keep accurate and complete records of its Inventory and shall submit to
Agent, on or before the 20
th
day of each month, or as frequent as the Agent may
request, inventory reports in form satisfactory to Agent. Agent may participate in and observe
each inventory count.
8.3.2
Returns of Inventory.
No Obligor shall return any Inventory to a supplier, vendor or other Person, whether for
cash, credit or otherwise, unless (a) such return is in the Ordinary Course of Business; (b) no
Default, Event of Default or Overadvance exists or would result therefrom; (c) Agent is promptly
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notified if the aggregate Value of all Inventory returned in any month exceeds $100,000; and (d)
any payment received by an Obligor for a return is promptly remitted to Agent for application to
the Obligations.
8.3.3
Acquisition, Sale and Maintenance.
No Obligor shall acquire or accept any Inventory on consignment or approval, and shall take
all steps to assure that all Inventory is produced in accordance with Applicable Law. No Obligor
shall sell any Inventory on consignment (unless the conditions in respect of such Inventory, set
forth in paragraph (i) of the definition of Eligible Inventory, are met to the satisfaction of the
Agent) or approval or any other basis under which the customer may return or require Obligors to
repurchase such Inventory. Obligors shall use, store and maintain all Inventory with reasonable
care and caution, in accordance with applicable standards of any insurance and in conformity with
all Applicable Law, and shall make current rent payments (within applicable grace periods provided
for in leases) at all locations where any Collateral is located.
8.4
Administration of Equipment and Real Estate.
8.4.1
Records and Schedules of Equipment and Real Estate.
Each Obligor shall keep accurate and complete records of its Equipment, including kind,
quality, quantity, cost, acquisitions and dispositions thereof, and shall submit to Agent, on such
periodic basis as Agent may request, a current schedule thereof, in form satisfactory to Agent.
Promptly upon request, Obligors shall deliver to Agent evidence of their ownership or interests in
any Real Estate and Equipment.
8.4.2
Dispositions of Equipment.
No Obligor shall sell, lease or otherwise dispose of or alienate any Equipment or Real
Estate, without the prior written consent of Agent, other than (a) a Permitted Asset Disposition,
and (b) Equipment or Real Estate pledged as security for the ATB Financial Debt (as long as the
Net Proceeds of such dispositions are used to acquire replacement Equipment or Real Estate or to
pay or pre-pay amounts owing under the ATB Financial Debt or as otherwise permitted by the ATB
Financial Debt documents).
8.5
Administration of Deposit Accounts.
Schedule 8.5 sets forth all Dominion Accounts maintained by Obligors. Each Obligor shall take
all actions necessary to establish Agents control of each such Dominion Account. Each Obligor
shall be the sole account holder of each Dominion Account and shall not allow any other Person
(other than Agent) to have control over a Dominion Account or any Property deposited therein. Each
Obligor shall not open any Deposit Account or Dominion Account without the consent of Agent.
- 56 -
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8.6.1
|
|
Location of Collateral.
|
All tangible (corporeal) items of Collateral, other than Inventory in transit, shall at all
times be kept by Obligors at the business locations set forth in Schedule 8.6.1, except that
Obligors may (a) make sales or other dispositions of Collateral
in accordance with Section 10.2.6;
and (b) move Collateral to another location in Canada, as applicable, upon 30 Business Days prior
written notice to Agent.
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8.6.2
|
|
Insurance of Collateral; Condemnation Proceeds.
|
|
|
(a)
|
|
Each Obligor shall maintain insurance with respect to the Collateral, covering
casualty, hazard, public liability, theft, malicious mischief, and such other risks, in
such amounts, with such endorsements, and with such insurers (rated A+ or better by
A.M. Best Rating Guide) as are satisfactory to Agent. All proceeds under each policy
shall be payable to Agent. From time to time upon request, Obligors shall deliver to
Agent the originals or certified copies of its insurance policies and updated flood
plain searches. Unless Agent shall agree otherwise, each policy shall include
satisfactory endorsements (i) showing Agent as sole loss payee, first mortgagee or
additional insured, as appropriate; (ii) requiring 30 days prior written notice to
Agent in the event of cancellation of the policy for any reason whatsoever; and (iii)
specifying that the interest of Agent shall not be impaired or invalidated by any act
or neglect of any Obligor or the owner of the Property, nor by the occupation of the
premises for purposes more hazardous than are permitted by the policy. If any Obligor
fails to provide and pay for such insurance, Agent may, at its option, but shall not be
required to, procure the insurance and charge Obligors therefor. Each Obligor agrees
to deliver to Agent, promptly as rendered, copies of all reports made to insurance
companies. While no Event of Default exists, Obligors may settle, adjust or compromise
any insurance claim, as long as the proceeds are delivered to Agent. If an Event of
Default exists, only Agent shall be authorized to settle, adjust and compromise such
claims.
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(b)
|
|
Any proceeds of insurance (other than proceeds from workers compensation or
D&O insurance) and any awards arising from condemnation of any Collateral shall be paid
to Agent. Any such proceeds or awards that relate to Inventory shall be applied to
payment of the Revolver Loans, and then to any other Obligations outstanding.
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8.6.3
|
|
Protection of Collateral.
|
All expenses of protecting, storing, warehousing, insuring, handling, maintaining and
shipping any Collateral, all Taxes payable with respect to any Collateral (including any sale
thereof), and all other payments required to be made by Agent to any Person to realize upon any
Collateral, shall be borne and paid by Obligors. Agent shall not be liable or responsible in any
way for the safekeeping of any Collateral, for any loss or damage thereto (except for reasonable
care in its custody while Collateral is in Agents actual possession), for any diminution in the
- 57 -
value thereof, or for any act or default of any warehouseman, carrier, forwarding agency or other
Person whatsoever, but the same shall be at Obligors sole risk.
|
8.6.4
|
|
Defense of Title to Collateral.
|
Each Obligor shall at all times defend its title to Collateral and Agents Liens therein
against all Persons, claims and demands whatsoever, except Permitted Liens.
Each Obligor hereby irrevocably constitutes and appoints Agent (and all Persons designated by
Agent) as such Obligors true and lawful attorney (and agent-in-fact) for the purposes provided in
this Section. Agent, or Agents designee, may, without notice and in either its or an Obligors
name, but at the cost and expense of Obligors:
|
(a)
|
|
Endorse an Obligors name on any Payment Item or other proceeds of Collateral
(including proceeds of insurance) that come into Agents possession or control; and
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|
(b)
|
|
During an Event of Default, (i) notify any Account Debtors of the assignment of
their Accounts or to set-up or render opposable any Lien in respect thereof, demand and
enforce payment of Accounts, by legal proceedings or otherwise, and generally exercise
any rights and remedies with respect to Accounts; (ii) settle, adjust, modify,
compromise, discharge or release any Accounts or other Collateral, or any legal
proceedings brought to collect Accounts or Collateral; (iii) sell or assign any Accounts
and other Collateral upon such terms, for such amounts and at such times as Agent deems
advisable; (iv) take control, in any manner, of any proceeds of Collateral; (v) prepare,
file and sign in Obligors name to a proof of claim or other document in a bankruptcy of
an Account Debtor, or to any notice, assignment or satisfaction of Lien or similar
document; (vi) receive, open and dispose of mail addressed to an Obligor, and notify
postal authorities to change the address for delivery thereof to such address as Agent
may designate; (vii) endorse any Chattel Paper, Document, Instrument, invoice, freight
bill, bill of lading, or similar document or agreement relating to any Accounts,
Inventory or other Collateral; (viii) use an Obligors stationery and sign its name to
verifications of Accounts and notices to Account Debtors; (ix) use the information
recorded on or contained in any data processing equipment and computer hardware and
software relating to any Collateral; (x) make and adjust claims under policies of
insurance; (xi) take any action as may be necessary or appropriate to obtain payment
under any letter of credit or bankers acceptance for which an Obligor is a beneficiary;
and (xii) take all other actions as Agent deems appropriate to fulfill any Obligors
obligations under the Loan Documents.
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SECTION 9 REPRESENTATIONS AND WARRANTIES
9.1
|
|
General Representations and Warranties.
|
To induce Agent and Lenders to enter into this Agreement and to make available the
Commitments, Loans and Letters of Credit, each Obligor represents and warrants that:
|
9.1.1
|
|
Organization and Qualification.
|
Each Obligor and Subsidiary is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization. Each Obligor and Subsidiary is duly qualified,
authorized to do business and in good standing as a foreign corporation in each jurisdiction where
failure to be so qualified could reasonably be expected to have a Material Adverse Effect.
|
9.1.2
|
|
Power and Authority.
|
Each Obligor is duly authorized to execute, deliver and perform its Loan Documents. The
execution, delivery and performance of the Loan Documents have been duly authorized by all
necessary action, and do not (a) require any consent or approval of any holders of Equity
Interests of any Obligor, other than those already obtained; (b) contravene the Organic Documents
of any Obligor; (c) violate or cause a default under any Applicable Law or Material Contract; or
(d) result in or require the imposition of any Lien (other than Permitted Liens) on any Property
of any Obligor.
Each Loan Document is a legal, valid and binding obligation of each Obligor party thereto,
enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors rights generally.
Schedule 9.1.4 shows, for each Obligor and Subsidiary, its name, its jurisdiction of
organization, its authorized and issued Equity Interests, the holders of its Equity Interests and
all direct or indirect holders of such holders, and all agreements binding on such holders with
respect to their Equity Interests. Each Obligor has good title to its Equity Interests in its
Subsidiaries, subject only to Agents Lien, and all such Equity Interests are duly issued, fully
paid and non-assessable. There are no outstanding options to purchase, warrants, subscription
rights, agreements to issue or sell, convertible interests, phantom rights or powers of attorney
relating to any Equity Interests of any Obligor or Subsidiary other than (i) Red Man Pipe Canadas
call right to purchase the voting Equity Interests of the Borrower held by Midfield Holdings (which
call right may be exercised between May 13
th
and November 13
th
of 2008), and
(ii) Midfield Holdings options to purchase non-voting Equity Interests of the Borrower.
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9.1.5
|
|
Corporate Names; Locations.
|
During the five years preceding the Closing Date, except as shown on Schedule 9.1.5, no
Obligor or Subsidiary has been known as or used any corporate, fictitious or trade names, has
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been the surviving corporation of a merger, amalgamation or combination, or has acquired any
substantial part of the assets of any Person. The chief executive offices and other places of
business of Obligors and Subsidiaries are shown on Schedule 8.6.1. During the five years preceding
the Closing Date, no Obligor or Subsidiary has had any other office or place of business.
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9.1.6
|
|
Title to Properties; Priority of Liens.
|
Each Obligor and Subsidiary has good and marketable title to (or valid leasehold interests in)
all of its Real Estate, and good title to all of its personal (movable) Property, including all
Property reflected in any financial statements delivered to Agent or Lenders, in each case free of
Liens except Permitted Liens. Each Obligor and Subsidiary has paid and discharged all lawful claims
that, if unpaid, could become a Lien on its Properties, other than Permitted Liens. All Liens of
Agent in the Collateral are duly perfected, opposable and first priority Liens, subject only to
Permitted Liens that are expressly allowed to have priority over Agents Liens.
Agent may rely, in determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect thereto. Borrower warrants, with respect to each
Account at the time it is shown as an Eligible Account in a Borrowing Base Certificate, that:
|
(a)
|
|
it is genuine and in all respects what it purports to be, and is not evidenced
by a judgment;
|
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|
(b)
|
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it arises out of a completed, bona fide sale and delivery of goods or rendition
of services in the Ordinary Course of Business, and substantially in accordance
with any purchase order, contract or other document relating thereto;
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(c)
|
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it is for a sum certain, maturing as stated in the invoice covering such sale
or rendition of services, a copy of which has been furnished or is available to Agent
on request;
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(d)
|
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it is not subject to any offset, compensation, Lien (other than Agents Lien),
deduction, defense, dispute, counterclaim or other adverse condition except as arising
in the Ordinary Course of Business and disclosed to Agent; and it is absolutely owing
by the Account Debtor, without contingency in any respect;
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|
|
(e)
|
|
no purchase order, agreement, document or Applicable Law restricts
assignment of the Account to Agent (regardless of whether, under the UCC, the PPSA or
the Civil Code, the restriction is ineffective);
|
|
|
(f)
|
|
no extension, compromise, settlement, modification, credit, deduction or return
has been authorized with respect to the Account, except discounts or allowances granted
in the Ordinary Course of Business for prompt payment that are reflected on the face of
the invoice related thereto and in the reports submitted to Agent hereunder; and
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(g)
|
|
to the best of Borrowers knowledge, (i) there are no facts or circumstances
that are reasonably likely to impair the enforceability or collectibility of
such Account; (ii) the Account Debtor had the capacity to contract when the
Account arose, continues to meet the applicable Borrowers customary credit
standards, is Solvent, is not contemplating or subject to an Insolvency
Proceeding, and has not failed, or suspended or ceased doing business; and
(iii) there are no proceedings or actions threatened or pending against any
Account Debtor that could reasonably be expected to have a material adverse
effect on the Account Debtors financial condition.
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9.1.8
|
|
Financial Statements.
|
The consolidated and consolidating balance sheets, and related statements of income, cash flow
and shareholders equity, of Obligors and Subsidiaries that have been and are hereafter delivered
to Agent and Lenders, are prepared in accordance with GAAP, and fairly present the financial
positions and results of operations of Obligors and Subsidiaries at the dates and for the periods
indicated. All projections delivered from time to time to Agent and Lenders have been prepared in
good faith, based on reasonable assumptions in light of the circumstances at such time. Since July
31, 2006 there has been no change in the condition, financial or otherwise, of any Obligor or
Subsidiary that could reasonably be expected to have a Material Adverse Effect. No financial
statement delivered to Agent or Lenders at any time contains any untrue statement of a material
fact, nor fails to disclose any material fact necessary to make such statement not materially
misleading. Each Obligor and Subsidiary is Solvent.
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9.1.9
|
|
Surety Obligations.
|
No Obligor or Subsidiary is obligated as guarantor, surety or indemnitor under any bond or
other contract that assures payment or performance of any obligation of any Person, except as
permitted hereunder.
Each Obligor and Subsidiary has filed all federal, provincial, territorial, state and local
tax returns and other reports that it is required by law to file, and has paid, or made provision
for the payment of, all Taxes upon it, its income and its Properties that are due and payable,
except to the extent being Properly Contested. The provision for Taxes on the books of each
Obligor and Subsidiary is adequate for all years not closed by applicable statutes, and for its
current Fiscal Year.
There are no brokerage commissions, finders fees or investment banking fees payable in
connection with any transactions contemplated by the Loan Documents.
|
9.1.12
|
|
Intellectual Property.
|
Each Obligor and Subsidiary owns or has the lawful right to use all Intellectual Property
necessary for the conduct of its business, without conflict with any rights of others. There is no
pending or, to any Obligors knowledge, threatened Intellectual Property Claim with respect to
- 61 -
any Obligor, any Subsidiary or any of their Property (including any Intellectual Property). Except
as disclosed on Schedule 9.1.12, no Obligor or Subsidiary pays or owes any Royalty or other
compensation to any Person with respect to any Intellectual Property. All Intellectual Property
owned, used or licensed by, or otherwise subject to any interests of, any Obligor or Subsidiary is
shown on Schedule 9.1.12.
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9.1.13
|
|
Governmental Approvals.
|
Each Obligor and Subsidiary has, is in compliance with, and is in good standing with respect
to, all Governmental Approvals necessary to conduct its business and to own, lease and operate its
Properties. All necessary import, export or other licenses, permits or certificates for the import
or handling of any goods or other Collateral have been procured and are in effect, and Obligors and
Subsidiaries have complied with all foreign and domestic laws with respect to the shipment and
importation of any goods or Collateral, except where noncompliance could not reasonably be expected
to have a Material Adverse Effect.
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9.1.14
|
|
Compliance with Laws.
|
Each Obligor and Subsidiary has duly complied, and its Properties and business operations are
in compliance, in all material respects with all Applicable Law, except where noncompliance could
not reasonably be expected to have a Material Adverse Effect. There have been no citations,
notices or orders of material noncompliance issued to any Obligor or Subsidiary under any
Applicable Law.
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9.1.15
|
|
Compliance with Environmental Laws.
|
Except as disclosed on Schedule 9.1.15, no Obligors or Subsidiarys past or present
operations, Real Estate or other Properties are subject to any federal, provincial, territorial,
state or local investigation to determine whether any remedial action is needed to address any
environmental pollution, hazardous material or environmental clean-up. No Obligor or Subsidiary
has received any Environmental Notice. No Obligor or Subsidiary has any contingent liability with
respect to any Environmental Release, environmental pollution or hazardous material on any Real
Estate now or previously owned, leased or operated by it. The representations and warranties
contained in the Environmental Agreement are true and correct on the Closing Date.
|
9.1.16
|
|
Burdensome Contracts.
|
No Obligor or Subsidiary is a party or subject to any contract, agreement or charter
restriction that could reasonably be expected to have a Material Adverse Effect. No Obligor or
Subsidiary is party or subject to any Restrictive Agreement, except as shown on Schedule 9.1.16,
none of which prohibit the execution or delivery of any Loan Documents by an Obligor nor the
performance by an Obligor of any obligations thereunder.
Except as shown on Schedule 9.1.17, there are no actions, suits, proceedings or
investigations pending or, to any Obligors knowledge, threatened against any Obligor or
Subsidiary, or any of their businesses, operations, Properties, prospects or conditions, that (a)
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relate to any Loan Documents or transactions contemplated thereby; or (b) could reasonably be
expected to have a Material Adverse Effect if determined adversely to any Obligor or Subsidiary.
No Obligor or Subsidiary is in default with respect to any order, injunction or judgment of any
Governmental Authority.
No event or circumstance has occurred or exists that constitutes a Default or Event of
Default. No Obligor or Subsidiary is in default, and no event or circumstance has occurred or
exists that with the passage of time or giving of notice would constitute a default, under any
Material Contract or in the payment of any Borrowed Money. There is no basis upon which any party
(other than Borrower or Subsidiary) could terminate a Material Contract prior to its scheduled
termination date.
|
9.1.19
|
|
Pension Compliance.
|
Except as otherwise disclosed in Schedule 9.1.19:
|
(a)
|
|
Each Plan is in compliance in all material respects with all applicable laws
and the terms of such Plans. Each of the Obligors and each of its Subsidiaries
Plans are duly registered where required by, and are in compliance and good
standing in all material respects under, all applicable laws, acts, statutes,
regulations, orders, directives and agreements, including, without limitation, the ITA
and the PBA, any successor legislation thereto, and other applicable laws of any
jurisdiction. Each Obligor has made all required contributions to any Plan when due,
and no application for or taking of a funding waiver or an extension of any
amortization period has been made with respect to any Plan.
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(b)
|
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There are no pending or, to the best knowledge of Obligors, threatened claims,
actions or lawsuits, or action by any Governmental Authority or any Plan administrator
or trustee, with respect to any Plan which has resulted or could reasonably be expected
to result in a Material Adverse Effect. There has been no prohibited transaction or
breach of the fiduciary responsibility rules with respect to any Plan or any breach by
the Borrower of any other laws, rules, regulations or terms of any Plans or any whole
or partial termination or wind up of any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect.
|
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(c)
|
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(i) No Pension Event has occurred during the last 5 years, or is reasonably
expected to occur; (ii) no Plan has any Unfunded Pension Liability; and (iii) No
Obligor has incurred during the last 5 years, or reasonably expects to incur, any
liability under applicable laws with respect to any Plan (other than premiums due and
not delinquent).
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(d)
|
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No Lien on any property of an Obligor has arisen in respect of any Plan (except
inchoate Liens for premiums and contributions not due and delinquent).
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(e)
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No Obligor or Subsidiary has any Multiemployer Plan or Foreign Plan. Each
Obligor and Subsidiary is in full compliance with the requirements of all
Applicable Laws, including ERISA, relating to each Multiemployer Plan and
Foreign Plan. No fact or situation exists that could reasonably be expected to
result in a Material Adverse Effect in connection with any Multiemployer Plan
or Foreign Plan. No Obligor or Subsidiary has any withdrawal liability in
connection with a Multiemployer Plan or Foreign Plan. All employer and employee
contributions to Foreign Plans, to the extent required by law or the terms of
such plans, have been made or accrued in accordance with normal accounting
principles. The fair market value of the assets of each funded Foreign Plan,
the liability of each insurer for any Foreign Plan funded through insurance
and/or the book reserve established for each Foreign Plan, together with any
accrued contributions, are sufficient to provide the accrued benefit
obligations of all participants in such plans according to the actuarial
assumptions and valuations most recently used to account for such obligations
in accordance with applicable generally accepted accounting principles. Each
Foreign Plan required to be registered has been registered and is maintained in
good standing with all applicable regulatory authorities.
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9.1.20
|
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Workers Compensation.
|
Each Obligor does not have any unpaid workers compensation or like obligations except as are
being incurred and paid on a current basis in the Ordinary Course of Business, and there are no
proceedings, claims, actions, orders or investigations of any Governmental Authority relating to
workers compensation outstanding, pending or threatened relating to them or any of their
employees or former employees which could reasonably be expected to give rise to a Material
Adverse Effect.
There exists no actual or threatened termination, resiliation, limitation or modification of
any business relationship between any Obligor or Subsidiary and any customer or supplier, or any
group of customers or suppliers, who individually or in the aggregate are material to the business
of any Obligor or Subsidiary. There exists no condition or circumstance that could reasonably be
expected to impair the ability of any Obligor or Subsidiary to conduct its business at any time
hereafter in substantially the same manner as conducted on the Closing Date.
Except as described on Schedule 9.1.21, no Obligor or Subsidiary is party to or bound by any
collective bargaining agreement, management agreement or consulting agreement. There are no
material grievances, disputes or controversies with any union or other organization of any
Obligors or Subsidiarys employees, or, to any Obligors knowledge, any asserted or threatened
strikes, work stoppages or demands for collective bargaining.
|
9.1.23
|
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Payable Practices.
|
No Obligor or Subsidiary has made any material change in its historical accounts payable
practices from those in effect on the Closing Date.
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9.1.24
|
|
Not a Regulated Entity.
|
No Obligor is (a) an investment company or a person directly or indirectly controlled by or
acting on behalf of an investment company within the meaning of the Investment Company Act of
1940; (b) a holding company, a subsidiary company of a holding company, or an affiliate of
either, within the meaning of the Public Utility Holding Company Act of 1935; or (c) subject to
regulation under the Federal Power Act, the Interstate Commerce Act, any public utilities code or
any other Applicable Law regarding its authority to incur Debt.
No Obligor or Subsidiary is engaged, principally or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No
Loan proceeds or Letters of Credit will be used by Obligors to purchase or carry, or to reduce or
refinance any Debt incurred to purchase or carry, any Margin Stock or for any related purpose
governed by Regulations T, U or X of the Board of Governors.
|
9.1.26
|
|
Foreign Plan Assets.
|
No Obligor is an entity deemed to hold plan assets within the meaning of 29 C.F.R.
§2510.3-101 of any employee benefit plan (as defined in Section 3(3) of ERISA) that is subject
to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code), and neither
the execution of this Agreement nor the funding of any Loans gives rise to a prohibited
transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code or under any
other Applicable Laws in respect of Foreign Plans.
Each Obligor is Solvent prior to and after giving effect to the making of the Revolving Loans
to be made on the Closing Date and the issuance of the Letters of Credit to be issued on the
Closing Date and the execution and delivery of all Loan Documents, and shall remain Solvent during
the term of this Agreement.
|
9.1.28
|
|
Inactive Subsidiaries
|
Worldwide Matrix Inc. (i) does not carry on any business whatsoever, (ii) does not own any
Inventory, Accounts or any other personal or moveable property and assets, and (iii) has not
granted a Lien to any Person and no Person otherwise has a Lien against it or its personal and
moveable property and assets.
|
9.1.29
|
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Real Estate
|
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(a)
|
|
(a) Except as advised in writing to the Agent, no investigation or proceeding
of any Governmental Authority is pending against the Real Estate or against an
Obligor in respect of the Real Estate. No part of the Real Estate has been
condemned, taken or expropriated by any Governmental Authority, federal, state,
provincial, municipal or any other competent authority;
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|
(b)
|
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Except as advised in writing to the Agent, all present uses in respect of
the Real Estate may lawfully be continued and all permitted uses are
satisfactory for the Obligors current and intended purposes;
|
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(c)
|
|
All Obligor owned Real Estate is set forth in Schedule 9.1.29; and
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(d)
|
|
No Inventory is located at any leased Premises except as indicated in Schedule
8.6.1.
|
No Loan Document contains any untrue statement of a material fact, nor fails to disclose any
material fact necessary to make the statements contained therein not materially misleading. There
is no fact or circumstance that any Obligor has failed to disclose to Agent in writing that could
reasonably be expected to have a Material Adverse Effect.
SECTION 10 COVENANTS AND CONTINUING AGREEMENTS
10.1
|
|
Affirmative Covenants.
|
For so long as any Commitments or Obligations are outstanding, each Obligor shall, and shall
cause each Subsidiary to:
|
10.1.1
|
|
Inspections; Appraisals.
|
|
|
(a)
|
|
Permit Agent from time to time, subject (except when a Default or Event of
Default exists) to reasonable notice and normal business hours, to visit and inspect
the Properties of any Obligor or Subsidiary, inspect, audit and make extracts from any
Obligors or Subsidiarys books and records, and discuss with its officers, employees,
agents, mandataries, advisors and independent accountants such Obligors or
Subsidiarys business, financial condition, assets, prospects and results of
operations. Lenders may participate in any such visit or inspection, at their own
expense. Neither Agent nor any Lender shall have any duty to any Obligor to make any
inspection, nor to share any results of any inspection, appraisal or report with any
Obligor. To the extent any appraisal or other information is shared by Agent or a
Lender with any Obligor, such Obligor acknowledges that it was prepared by Agent and
Lenders for their purposes and Obligors shall not be entitled to rely upon it.
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(b)
|
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Reimburse Agent for all charges, costs and expenses of Agent in connection with
(i) examinations of any Obligors books and records or any other financial or
Collateral matters; and (ii) appraisals of Inventory. Subject to the foregoing,
Obligors shall pay Agents then standard charges, costs and expenses for each day that
an employee of Agent or its Affiliates is engaged in any examination activities (the
standard per diem, per individual, is US$850 (excluding costs and expenses)). This
Section shall not be construed to limit Agents right to conduct examinations or to
obtain appraisals at any time in its discretion, nor to use third parties for such
purposes.
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10.1.2
|
|
Financial and Other Information.
|
Keep adequate records and books of account with respect to its business activities, in which
proper entries are made in accordance with GAAP reflecting all financial transactions; and furnish
to Agent and Lenders:
|
(a)
|
|
as soon as available, and in any event within 120 days after the close of each
Fiscal Year, balance sheets as of the end of such Fiscal Year and the related
statements of income, cash flow and shareholders equity for such Fiscal Year, on
consolidated and consolidating bases for Obligors and Subsidiaries, which consolidated
statements shall be audited and certified (without qualification as to scope, going
concern or similar items) by a firm of independent chartered accountants of recognized
standing selected by Borrower and acceptable to Agent, and shall set forth in
comparative form corresponding figures for the preceding Fiscal Year and other
information acceptable to Agent;
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(b)
|
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as soon as available, and in any event within 30 days after the end of each
calendar month), (i) unaudited balance sheets as of the end of such month and the
related statements of income and cash flow for such month and for the portion of the
Fiscal Year then elapsed, on consolidated and consolidating bases for Obligors and
Subsidiaries, setting forth in comparative form corresponding figures for the preceding
Fiscal Year and certified by the chief financial officer of Borrower as prepared in
accordance with GAAP and fairly presenting the financial position and results of
operations for such month and period, subject to normal year end adjustments and the
absence of footnotes, (ii) a reconciliation of the detailed accounts receivable aged
trial balance most recently delivered to Agent pursuant to the requirements of Section
8.2.1 to the accounts receivable balance provided in the unaudited balance sheet
delivered pursuant to clause (i) above, (iii) a reconciliation of the detailed trade
payable listing most recently delivered to Agent pursuant to the requirements of
Section 10.1.2(f) to the trade payable balance provided in the unaudited balance sheet
delivered pursuant to clause (i) above, and (iv) a reconciliation of the detailed
inventory reports most recently delivered to Agent pursuant to the requirements of
Section 8.3.1 to the inventory balance provided in the unaudited balance sheet
delivered pursuant to clause (i) above;
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|
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(c)
|
|
concurrently with delivery of financial statements under clauses (a) and (b)
above, or more frequently if requested by Agent while a Default or Event of Default
exists, a Compliance Certificate executed by the chief financial officer of Borrower;
|
|
|
(d)
|
|
concurrently with delivery of financial statements under clause (a) above,
copies of all management letters and other material reports submitted to Obligors by
its accountant in connection with such financial statements;
|
|
|
(e)
|
|
not later than ninety (90) days after the beginning of each Fiscal Year,
projections of Obligors consolidated balance sheets, results of operations, cash flow
and Availability for the next Fiscal Year, month by month;
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- 67 -
|
(f)
|
|
on or before the 30
th
day of each month, or as frequent as the Agent may
request, a listing of each Obligors trade payables as of the end of the preceding
month, specifying the trade creditor and balance due, all in form satisfactory to
Agent;
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(g)
|
|
promptly after the sending or filing thereof, copies of any proxy statements, financial
statements or reports that any Obligor has made generally available to its shareholders;
copies of any regular, periodic and special reports or registration statements or
prospectuses that any Obligor files with the Securities and Exchange Commission, any
provincial securities commission (including the Ontario Securities Commission) or any other
Governmental Authority, or any securities exchange; and copies of any press releases or other
statements made available by an Obligor to the public concerning material changes to or
developments in the business of such Obligor;
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|
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(h)
|
|
promptly after the sending or filing thereof, copies of any annual report,
valuation, notice on other filing to be filed in connection with each Plan or Foreign
Plan, to the FSCO, the Canada Revenue Agency, or otherwise;
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|
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(i)
|
|
upon request, or, in the event that such filing reflects a significant change with
respect to the matters covered thereby, within five (5) Business Days after the filing
thereof with the FSCO or any other Governmental Authority, as applicable, copies of
the following: (i) each annual report filed with the FSCO or any other Governmental
Authority with respect to each Plan and (ii) a copy of each other filing or notice
filed with the FSCO or any other Governmental Authority with respect to each Plan by
an Obligor;
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|
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(j)
|
|
upon request, copies of each actuarial report for any Plan or Multi-Employer
Plan and within five (5) Business Days after receipt thereof by an Obligor copies of
any notices of the FSCOs or any other Governmental Authorities intention to
terminate a Plan or to have a third party appointed to administer such Plan or
determination that a whole or partial termination has occurred in respect of any Plan
or that any withdrawal liability exists in respect of any Plan; or (ii) any notice
regarding the imposition of withdrawal liability;
|
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(k)
|
|
within fifteen (15) Business Days after the occurrence thereof: (i) any changes
in the benefits of any existing Plan which increase the Obligors annual costs with
respect thereto by an amount in excess of $250,000, or the establishment of any new
Plan or the commencement of contributions to any Plan to which the Obligors or any of
their Subsidiaries was not previously contributing, in either case if the annual costs
with respect thereto are in excess of $250,000, and (ii) any failure by the Obligors
or any of their Subsidiaries to make a required instalment or any other required
payment in respect of a Pension Plan on or before the due date for such instalment or
payment or any other material breach or material default by the Obligors or any of
their Subsidiaries under or in respect of any Plan or (iii) the occurrence of any
event or condition which might constitute grounds for termination, or winding up of a
Plan or which
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- 68 -
|
|
|
might give rise to any Lien on any property of the Obligors or any of their
Subsidiaries in respect of any Plan;
|
|
|
(1)
|
|
At Agents request, a copy of any tax return filed by an Obligor; and
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|
(m)
|
|
such other reports and information (financial or otherwise) as Agent may
request from time to time in connection with any Collateral or any Obligors,
Subsidiarys or other Obligors financial condition or business.
|
|
|
10.1.3
|
|
Notices.
|
Notify Agent and Lenders in writing, promptly after an Obligors obtaining knowledge thereof,
of any of the following that affects an Obligor: (a) the threat or commencement of any action,
suit, proceeding or investigation, whether or not covered by insurance, if an adverse
determination could have a Material Adverse Effect; (b) any pending or threatened labour dispute,
strike or walkout, or the expiration of any material labour contract; (c) any default under or
termination or resiliation of a Material Contract; (d) the existence of any Default or Event of
Default; (e) any judgment in an amount exceeding $100,000; (f) the assertion of any Intellectual
Property Claim, if an adverse resolution could have a Material Adverse Effect; (g) any violation
or asserted violation of any Applicable Law (including ERISA, PBA, ITA, OSHA or any Environmental
Laws), if an adverse resolution could have a Material Adverse Effect; (h) any Environmental
Release by an Obligor or on any Property owned, leased or presently or previously occupied by an
Obligor; or receipt of any Environmental Notice; (i) the discharge of or any withdrawal or
resignation by Obligors independent accountants; (j) any opening of a new office or place of
business, at least 30 days prior to such opening; (k) any change in an Obligors name,
jurisdiction of organization, or form of organization, trade names under which an Obligor will
sell Inventory or create Accounts, or to which instruments in payment of Accounts may be made
payable, in each case at least thirty (30) days prior thereto (or in the case of trade names other
than legal corporate names, promptly after such change); (1) within ten (10) Business Days after
an Obligor knows or has reason to know, that a Pension Event has occurred in respect of any Plan
and, when known, any action taken or threatened by the PBGF with respect thereto; or (m) any other
event or circumstance which would reasonably be expected to have a Material Adverse Effect.
|
10.1.4
|
|
Landlord and Storage Agreements.
|
Upon request, provide Agent with copies of all existing agreements, and promptly after
execution thereof provide Agent with copies of all future agreements, between an Obligor and any
landlord, warehouseman, processor, shipper, bailee or other Person that owns any premises at which
any Collateral may be kept or that otherwise may possess or handle any Collateral.
|
10.1.5
|
|
Compliance with Laws.
|
Comply with all Applicable Laws, including PBA, ERISA, Environmental Laws, OSHA,
Anti-Terrorism Laws, and laws regarding collection and payment of Taxes, and maintain all
Governmental Approvals necessary to the ownership of its Properties or conduct of its business,
unless failure to comply (other than failure to comply with Anti-Terrorism Laws) or maintain could
not reasonably be expected to have a Material Adverse Effect. Without limiting the generality of
the foregoing, if any Environmental Release occurs at or on any Properties of
- 69 -
Borrower or Subsidiary, it shall act promptly and diligently to investigate and report to Agent
and all appropriate Governmental Authorities the extent of, and to make appropriate remedial
action to eliminate, such Environmental Release, whether or not directed to do so by any
Governmental Authority.
Pay and discharge all Taxes prior to the date on which they become delinquent or penalties
attach, unless such Taxes are being Properly Contested.
In addition to the insurance required hereunder with respect to Collateral, maintain
insurance with insurers (rated A+ or better by Best Rating Guide) satisfactory to Agent, (a) with
respect to the Properties and business of Obligors and Subsidiaries of such type (including
product liability, workers compensation, larceny, embezzlement, or other criminal
misappropriation insurance), in such amounts, and with such coverages and deductibles as are
customary for companies similarly situated, and (b) business interruption insurance in an amount
consistent with customary practices in Obligors industry, with deductibles satisfactory to Agent.
Keep each License affecting any Collateral (including the manufacture, distribution or
disposition of Inventory) or any other material Property of Obligors and Subsidiaries in full
force and effect; promptly notify Agent of any proposed modification to any such License, or entry
into any new License, in each case at least 30 days prior to its effective date; pay all Royalties
when due; and notify Agent of any default or breach asserted by any Person to have occurred under
any License.
|
10.1.9
|
|
Future Subsidiaries.
|
Promptly notify Agent upon any Person becoming a Subsidiary and cause it to guarantee the
Obligations in a manner satisfactory to Agent, and to execute and deliver such documents,
instruments and agreements and to take such other actions as Agent shall require to evidence and
perfect and render opposable a Lien in favour of Agent (for the benefit of Secured Parties) on all
Property of such Person, including delivery of such legal opinions, in form and substance
satisfactory to Agent, as it shall deem appropriate.
|
10.1.10
|
|
Maintenance of Property.
|
|
|
(a)
|
|
Maintain all of its Property necessary and useful in its businesses in the
ordinary course in good operating condition and repair, ordinary wear
and tear
excepted;
|
|
|
(b)
|
|
To perform or cause to be performed all of its covenants and obligations
contained in all Leases and keep all such Leases in good standing
(unless and until terminated in the ordinary course of business); and
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- 70 -
|
(c)
|
|
Promptly notify the Agent of any fire or other casualty or any notice of
expropriation, action or proceeding affecting the Real Estate or any part
thereof immediately upon obtaining knowledge of the same.
|
|
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10.1.11
|
|
Plans.
|
Cause each of its and its Subsidiaries Plans to be duly registered and administered in all
respects in material compliance with, as applicable, the PBA, the ITA and all other applicable
laws (including regulations, orders and directives), and the terms of the Plans and any agreements
relating thereto. Each Obligor shall ensure that it and its Subsidiaries: (a) has no Unfunded
Pension Liability in respect of any Plan, including any Plan to be established and administered by
it or them; (b) pay all amounts required to be paid by it or them in respect of such Plan when
due; (c) has no Lien on any of its or their property that arises or exists in respect of any Plan
except as disclosed in Schedule 9.1.19; (d) do not engage in a prohibited transaction or breach
any applicable laws with respect to any Plan that could reasonably be expected to result in a
Material Adverse Effect in respect of such Plan; (e) do not permit to occur or continue any
Pension Event (other than a partial plan termination or the amalgamation of the Plans described in
Schedule 9.1.19, in either case, provided that all representations and warranties in this
Agreement continue to be true and correct in all material respects and the Obligors are and
continue to be in compliance with all covenants and agreements in this Agreement); and (f) do not
enter into any defined benefit Plan during the term of this Agreement.
Obligors shall use commercially reasonable best efforts to obtain Lien Waivers from (a) the
lessors of premises to the Obligors where Obligor Inventory is located, and (b) such other Persons
who are in the possession of Obligor Inventory as warehousemen, within 90 days of the Closing
Date, failing which Agent shall (i) establish Rent and Charges Reserves for each leased location
of an Obligor, and (ii) disallow, as Eligible Inventory, any Inventory at a warehouse location.
For greater certainty, the eligibility criterion in the definition of Eligible Inventory (other
than as provided for in this Section) continue to apply in respect of all locations of Inventory.
For so long as any Commitments or Obligations are outstanding, each Obligor shall not, and
shall cause each Subsidiary not to:
Create, incur, guarantee or suffer to exist any Debt, except:
(a)
|
|
the Obligations;
|
|
(b)
|
|
ATB Financial Debt, provided same is subject to the ATB Intercreditor
Agreement;
|
|
(c)
|
|
The Shareholders Notes and the Class R Note, provided same are subject to
the Shareholders Subordination Agreement;
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- 71 -
|
(d)
|
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331562 Debt, provided same is subject to the 331562 Estoppel Agreement;
|
|
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(e)
|
|
Permitted Purchase Money Debt;
|
|
|
(f)
|
|
Borrowed Money (other than the Obligations, ATB Financial Debt, the 331562
Debt, the Shareholders Notes, the Class R Note and Permitted Purchase Money Debt), but
only to the extent outstanding on the Closing Date and satisfactory to the Lenders, and
not satisfied with proceeds of the initial Loans;
|
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(g)
|
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Permitted Contingent Obligations;
|
|
|
(h)
|
|
Debt that is not included in any of the preceding clauses of this Section, is not
secured by a Lien and does not exceed $250,000 in the aggregate at any time; and
|
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|
(i)
|
|
Accounts payable and accrued liabilities arising in the Ordinary Course of
Business.
|
|
|
10.2.2
|
|
Permitted Liens.
|
Create or suffer to exist any Lien upon any of its Property, except the following
(collectively, Permitted Liens):
|
(a)
|
|
Liens in favour of Agent;
|
|
|
(b)
|
|
Purchase Money Liens securing Permitted Purchase Money Debt;
|
|
|
(c)
|
|
Liens for Taxes not yet due or being Properly Contested;
|
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|
(d)
|
|
statutory Liens (other than Liens for Taxes or imposed under ERISA) arising in
the Ordinary Course of Business, but only if (i) payment of the obligations secured
thereby is not yet due or is being Properly Contested, and (ii) such Liens do not
materially impair the value or use of the Property or materially impair operation of
the business of any Obligor or Subsidiary;
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(e)
|
|
Liens incurred or deposits made in the Ordinary Course of Business to secure
the performance of tenders, bids, leases, contracts (except those relating to Borrowed
Money), statutory obligations and other similar obligations, or arising as a result of
progress payments under government contracts, as long as such Liens are at all times
junior to Agents Liens;
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(f)
|
|
Liens arising by virtue of a judgment or judicial order against any Obligor or
Subsidiary, or any Property of an Obligor or Subsidiary, as long as such Liens are (i)
in existence for less than 20 consecutive days or being Properly Contested, and (ii) at
all times junior to Agents Liens;
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(g)
|
|
Liens which constitute easements, rights-of-way, servitudes, easements,
rights-of-way, restrictions, covenants or other agreements of record, and other similar
charges or encumbrances on Real Estate, that do not secure any
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- 72 -
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monetary obligation and do not interfere with the Ordinary Course of
Business;
|
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(h)
|
|
normal and customary rights of setoff or compensation upon deposits in
favour of depository institutions, and Liens of a collecting bank on Payment
Items in the course of collection;
|
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|
(i)
|
|
Liens on Equipment and Real Estate in favour of ATB Financial securing the
ATB Financial Debt and as permitted pursuant to the ATB Intercreditor Agreement;
|
|
|
(j)
|
|
Liens on the Collateral in favour of 331562 securing the 331562 Debt and as
permitted pursuant to the 331562 Estoppel Agreement; and
|
|
|
(k)
|
|
existing Liens shown on Schedule 10.2.2.
|
|
|
10.2.3
|
|
Capital Expenditures.
|
Commencing Fiscal Year 2007, make Capital Expenditures in excess of $5,000,000 in the
aggregate by all Obligors during any Fiscal Year; provided, however, that if the amount of Capital
Expenditures permitted to be made in any Fiscal Year exceeds the amount actually made, up to
$250,000 of such excess may be carried forward to the next Fiscal Year; provided, further, that
the one time Capital Expenditure (limited to a maximum aggregate amount of $5,000,000) related to
the purchase of the Lands at, and the building of a new facility on, 502 Fifth St. W., Nisku,
Alberta, is hereby permitted and not subject to this Section.
|
10.2.4
|
|
Payments to Shareholders; Upstream Payments.
|
Make any Distributions or any payments to Persons having an Equity Interest in the Borrower,
except Upstream Payments; or create or suffer to exist any encumbrance or restriction on the
ability of a Subsidiary to make any Upstream Payment, except for restrictions under the Loan
Documents, under Applicable Law or in effect on the Closing Date as shown on Schedule 9.1.16;
provided, however, that Borrower may, (i) pay Bonuses and/or pay interest to Persons having an
Equity Interest in the Borrower who are holders of Shareholders Notes; provided, however, that no
Default or Event of Default exists at the time of making such payments and no Default or Event of
Default would occur as a consequence of the making of such payments, provided, further, that in the
case of payments of interest on Shareholders Notes, that the Persons holding such Shareholders
Notes have entered into a Shareholder Subordination Agreement, and (ii) during the period, in any
calendar year, commencing April 15
th
and ending on June 15
th
of such calendar
year, (A) make annual Net Distributions to the Persons holding an Equity Interest in the Borrower,
and (B) pay interest to Red Man Pipe Canada on the Class R Note; provided, however, that any such
annual Net Distributions and such payment of interest on the Class R Note made by the Borrower to
the Persons holding an Equity Interest in the Borrower may only be made if (a) Borrower delivers a
current Borrowing Base Certificate, five days prior to such annual Net Distribution and such
payment of interest on the Class R Note (and not earlier), and (b) Borrower delivers a Compliance
Certificate, five days prior to such annual Net Distribution and such payment of interest on the
Class R Note (and not earlier), executed by a Senior Officer of the Borrower certifying and setting
forth the following, (I) as at the date of the Compliance Certificate, the Borrowers Availability
and the Obligors compliance with
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Sections 10.2.3,
10.3.1 and 10.3.2; (II) Availability (x) before the making of such annual Net
Distribution and such payment of interest on the Class R Note is, for a trailing thirty (30) day
period, an amount equal to the annual Net Distribution to be made plus the amount of such payment
of interest on the Class R Note to be made plus $20,000,000, and (y) after the making or declaring
of such Net Distribution and making of such payment of interest on the Class R Note, is greater
than $20,000,000, and (III) no Default or Event of Default exists or would occur as a result of the
declaring or making of such annual Net Distribution and such payment of interest on the Class R
Note.
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10.2.5
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Restricted Investments.
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Make any Restricted Investment.
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10.2.6
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Disposition of Assets.
|
Make any Asset Disposition, except a Permitted Asset Disposition, a disposition of Equipment
under Section 8.4.2, or a transfer of Property by a Subsidiary or Obligor to Borrower.
Make any loans or other advances of money to any Person, except (a) to Europump under the
Europump Loan existing as of the Closing Date,
provided
that the aggregate principal
amount of such Europump Loan does not exceed $5,500,000,
provided
further that, to the
extent any payments are made and received by the Borrower or any Obligor under the Europump Loan,
any such payments shall permanently reduce the outstanding aggregate principal amount owing under
the Europump Loan, and
provided
further that Europump shall not be permitted to borrow
from the Borrower or any other Obligor, and neither the Borrower nor any Obligor shall lend or
advance to Europump, any further sums of money, (b) advances to an officer or employee for salary,
travel expenses, commissions and similar items in the Ordinary Course of Business; (c) prepaid
expenses and extensions of trade credit made in the Ordinary Course of Business; (d) deposits with
financial institutions permitted hereunder; and (e) as long as no Default or Event of Default
exists, intercompany loans by an Obligor to another Obligor.
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10.2.8
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Restrictions on Payment of Certain Debt.
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Make any payments (whether voluntary or mandatory, or a prepayment, redemption, retirement,
defeasance or acquisition) with respect to any (a) ATB Financial Debt or 331562 Debt, except to
the extent permitted under the ATB Intercreditor Agreement or the 331562 Estoppel Agreement,
respectively, (and a Senior Officer of Borrower shall certify to
Agent, not less than five Business
Days prior to the date of payment, that all conditions under such agreement have been satisfied);
(b) Shareholders Notes and the Class R Note, except for the Closing Date Debt Repayments or
except as permitted pursuant to Section 10.2.4; or (c) Borrowed Money (other than the Obligations)
prior to its due date under the agreements evidencing such Debt as in effect on the Closing Date
(or as amended thereafter with the consent of Agent).
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10.2.9
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Fundamental Changes.
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Amalgamate, merge, combine or consolidate with any Person, or liquidate, wind up its affairs
or dissolve itself, in each case whether in a single transaction or in a series of related
transactions, except for amalgamations, mergers or consolidations of a wholly-owned Subsidiary
with another wholly-owned Subsidiary or into Borrower (on terms acceptable to the Agent); change
its name or conduct business under any fictitious name; change its tax, charter or other
organizational identification number; or change its form or state of organization.
Form or acquire any Subsidiary after the Closing Date, except in accordance with Sections
10.1.9 and 10.2.5; or permit any existing Subsidiary to issue any additional Equity Interests.
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10.2.11
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Organic Documents.
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Without the consent of the Agent, amend, modify or otherwise change any of its Organic
Documents as in effect on the Closing Date.
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10.2.12
|
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Tax Consolidation.
|
File or consent to the filing of any consolidated income tax return with any Person other
than Obligors and Subsidiaries.
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10.2.13
|
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Accounting Changes.
|
Make any material change in accounting treatment or reporting practices, except as required
by GAAP and in accordance with Section 1.2; or change its Fiscal Year.
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10.2.14
|
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Restrictive Agreements.
|
Become a party to any Restrictive Agreement, except (a) a Restrictive Agreement as in effect
on the Closing Date and shown on Schedule 9.1.16; (b) a Restrictive Agreement relating to secured
Debt permitted hereunder, if such restrictions apply only to the collateral for such Debt; and (c)
customary provisions in leases and other contracts restricting assignment thereof.
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10.2.15
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Conduct of Business.
|
Engage in any business, other than its business as conducted on the Closing Date and any
activities incidental thereto.
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10.2.16
|
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Affiliate Transactions.
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Enter into or be party to any transaction with an Affiliate, except (a) transactions
contemplated by the Loan Documents; (b) payment of reasonable compensation to officers and
employees for services actually rendered, and loans and advances permitted by Section 10.2.7; (c)
payment of customary directors fees and indemnities; (d) transactions solely among Obligors; (e)
transactions with Affiliates that were consummated prior to the Closing Date, as shown on Schedule
10.2.17; and (f) transactions with Affiliates in the Ordinary Course of
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Business, upon commercially fair and reasonable market terms fully disclosed to Agent and no less
favourable than would be obtained in a comparable arms-length transaction with a non-Affiliate.
Become party to any Multiemployer Plan, Foreign Plan or defined benefit Plan, other than any
in existence on the Closing Date.
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10.2.18
|
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Amendments to Subordinated Debt.
|
Amend, supplement or otherwise modify any document, instrument or agreement relating to any
Subordinated Debt, the Shareholders Notes or the Class R Note, if such modification (a) increases
the principal balance of such Debt (other than the issuance of new Shareholders Notes that are
subject to the terms of a Shareholder Subordination Agreement), or increases any required payment
of principal or interest; (b) accelerates the date on which any instalment of principal or any
interest is due, or adds any additional redemption, put or prepayment provisions; (c) shortens the
final maturity date or otherwise accelerates amortization; (d) increases the interest rate; (e)
increases or adds any fees or charges; (f) modifies any covenant in a manner or adds any
representation, covenant or default that is more onerous or restrictive in any material respect for
Borrower or Subsidiary, or that is otherwise materially adverse to Borrower, any Subsidiary or
Lenders; or (g) results in the Obligations not being fully benefited by the subordination
provisions thereof.
Unless otherwise provided for herein, consummate any Acquisitions without the prior written
consent of the Lenders.
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10.2.20
|
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Transactions Affecting Collateral or Obligations.
|
Enter into any transaction, of whatever nature or kind, solely or in conjunction with other
transactions, which would be reasonably expected to have a Material Adverse Effect or cause a
Default or an Event of Default.
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10.2.21
|
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Sale and Leaseback Transactions
|
Directly or indirectly, enter into any arrangement with any Person providing for the Borrower
or any Subsidiary to lease or rent personal property that the Borrower or such Subsidiary has sold
or will sell or otherwise transfer to such Person if the effect of such transaction would result
in the incurrence of Debt by Borrower or any Subsidiary that is not permitted pursuant to Section
10.2.1.
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10.2.22
|
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Inactive Subsidiaries
|
Unless
otherwise agreed to by the Agent, Worldwide Matrix Inc. shall not
(i) carry on any
business whatsoever, and (ii) own any Inventory, Accounts or any other personal or moveable
property and assets.
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10.2.23
IPSCO Distributor Agreement
Amend or terminate, without the prior written consent of the Agent, the Distributor Agreement
dated December 15, 2005, between NUSCO Supply & Manufacturing ULC and IPSCO Inc.
10.3
Financial Covenants.
For so long as any Commitments or Obligations are outstanding, Borrower shall:
10.3.1
Leverage Ratio.
Maintain a Leverage Ratio not greater than 3.50 to 1.00 at the end of each calendar month.
10.3.2
Fixed Charge Coverage Ratio.
Maintain a Fixed Charge Coverage Ratio of at least 1.15 to 1.00 at the end of each calendar
month.
SECTION 11 EVENTS OF DEFAULT; REMEDIES ON DEFAULT
11.1
Events of Default.
Each of the following shall be an Event of Default hereunder, if the same shall occur for
any reason whatsoever, whether voluntary or involuntary, by operation of law or otherwise:
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(a)
|
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Any Obligor fails to pay any Obligations when due (whether at stated
maturity, on demand, upon acceleration or otherwise);
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(b)
|
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Any representation, warranty or other written statement of any Obligor made
in connection with any Loan Documents or transactions contemplated thereby is
incorrect or misleading in any material respect when given;
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(c)
|
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Any Obligor breaches or fail to perform any covenant contained in Section
7.2, 7.3, 7.5, 8.1, 8.2.4, 8.2.5, 8.6.2, 10.1.1, 10.1.2, 10.1.3(d), 10.1.7 or 10.3;
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(d)
|
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Any Obligor breaches or fails to perform any other covenant contained in any
Loan Documents, and such breach or failure is not cured within 15 days after a Senior
Officer of such Obligor has knowledge thereof or receives notice thereof from Agent,
whichever is sooner; provided, however, that such notice and opportunity to cure shall
not apply if the breach or failure to perform is not capable of being cured within
such period or is a wilful breach by an Obligor;
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(e)
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Any Guarantor repudiates, terminates, revokes or attempts to revoke its
Guarantee; any Obligor denies or contests the validity or enforceability of any Loan
Documents or Obligations, or the perfection, opposability or priority of any Lien
granted to Agent; or any Loan Document ceases to be in full force or effect for any
reason (other than a waiver or release by Agent and Lenders);
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(f)
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Any breach or default of an Obligor occurs under any document, instrument or agreement to
which it is a party or by which it or any of its Properties is bound, relating to any Debt
(other than the Obligations) in excess of $250,000 if the maturity of or any payment with
respect to such Debt may be accelerated or demanded due to such breach;
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(g)
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Any judgment or order for the payment of money is entered against an Obligor in an amount
that exceeds, individually or cumulatively with all unsatisfied judgments or orders against
all Obligors, $250,000 (net of any insurance coverage therefor acknowledged in writing by the
insurer), unless a stay of enforcement of such judgment or order is in effect, by reason of a
pending appeal or otherwise;
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(h)
|
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Any loss, theft, damage or destruction occurs with respect to any Collateral if the amount not
covered by insurance exceeds $100,000 (excluding any related deductible under insurance policies);
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(i)
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Any Obligor is enjoined, restrained or in any way prevented by any
Governmental Authority from conducting any material part of its business; any Obligor
suffers the loss, revocation or termination of any material license, permit, lease or
agreement necessary to its business; there is a cessation of any material part of an
Obligors business or enterprise for a material period of time; any material
Collateral or Property of an Obligor is taken or impaired through condemnation; any
Obligor agrees to or commences any liquidation, dissolution or winding up of its
affairs; or any Obligor ceases to be Solvent;
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(j)
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Any Insolvency Proceeding is commenced by any Obligor; an Insolvency
Proceeding is commenced against any Obligor and such Obligor consents to the
institution of the proceeding against it; the petition commencing the proceeding is
not timely controverted by such Obligor; such petition is not dismissed within 30 days
after its filing, or an order for relief is entered in the proceeding; a trustee,
receiver, monitor or custodian (including an interim trustee or an interim receiver)
is appointed to take possession of any substantial Property of or to operate any of
the business of any Obligor; or any Obligor makes an offer of settlement, extension or
composition to its unsecured creditors generally;
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(k)
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A Reportable Event occurs that constitutes grounds for termination by the
Pension Benefit Guaranty Corporation of any Multiemployer Plan or appointment of a
trustee or receiver for any Multiemployer Plan; any Multiemployer Plan is terminated
or any such trustee is requested or appointed; any Obligor is in default (as defined
in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
resulting from any withdrawal therefrom; or any event similar to the foregoing occurs
or exists with respect to a Foreign Plan;
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(l)
|
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A Pension Event shall occur which, in Agents determination, constitutes
grounds for the termination under any applicable law, of any Plan or for the
appointment by the appropriate Governmental Authority of a trustee for any
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Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if an Obligor or any of its Subsidiaries is in default with
respect to payments to a Multiemployer Plan or Plan resulting from their
complete or partial withdrawal from such Plan and any such event may reasonably
be expected to have a Material Adverse Effect or any Lien arises (save for
contribution amounts not yet due) in connection with any Plan;
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(m)
|
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Any Obligor or any of its Senior Officers is criminally indicted or convicted
for (i) a felony committed in the conduct of such Obligors business, or (ii)
any provincial, state or federal law (including the Controlled Substances Act,
Money Laundering Control Act of 1986 and Illegal Exportation of War Materials
Act) that could lead to forfeiture of any material Property or any Collateral;
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(n)
|
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Any amendment is made to the Shareholders Agreement without the prior
written consent of the Agent;
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(o)
|
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A Change of Control occurs; or
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(p)
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Any event occurs or condition exists that has a Material Adverse Effect.
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11.2
Remedies upon Default.
If
an Event of Default described in Section 11.1(j) occurs with respect to any Obligor, then
to the extent permitted by Applicable Law, all Obligations shall become automatically due and
payable and all Commitments shall terminate, without any action by Agent or notice of any kind. In
addition, or if any other Event of Default exists, Agent may in its discretion (and shall upon
written direction of Required Lenders) do any one or more of the following from time to time:
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(a)
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declare any Obligations immediately due and payable, whereupon they shall be
due and payable without diligence, presentment, demand, protest or notice of any kind,
all of which are hereby waived by Obligors to the fullest extent permitted by law;
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(b)
|
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terminate, reduce or condition any Commitment, or make any adjustment to the
Borrowing Base;
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(c)
|
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require Obligors to Cash Collateralize LC Obligations, Bank Product Debt and
other Obligations that are contingent or not yet due and payable, and, if Obligors fail
promptly to deposit such Cash Collateral, Agent may (and shall upon the direction of
Required Lenders) advance the required Cash Collateral as Revolver Loans (whether or
not an Overadvance exists or is created thereby, or the conditions in Section 6 are
satisfied); and
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(d)
|
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exercise any other rights or remedies afforded under any agreement, by law, at
equity or otherwise, including the rights and remedies of a secured party under the
UCC, PPSA, Civil Code, BIA or CCAA. Such rights and remedies include the rights to
(i) take possession of any Collateral; (ii) require Obligors
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to assemble Collateral, at Obligors expense, and make it available to Agent at
a place designated by Agent; (iii) enter any premises where Collateral is
located and store Collateral on such premises until sold (and if the premises
are owned or leased by an Obligor, Obligors agree not to charge for such
storage); and (iv) sell or otherwise dispose of any Collateral in its then
condition, or after any further manufacturing or processing thereof, at public
or private sale, with such notice as may be required by Applicable Law, in lots
or in bulk, at such locations, all as Agent, in its discretion, deems advisable.
Each Obligor agrees that 10 days notice of any proposed sale or other
disposition of Collateral by Agent shall be reasonable. Agent shall have the
right to conduct such sales on any Obligors premises, without charge, and such
sales may be adjourned from time to time in accordance with Applicable Law.
Agent shall have the right to sell, lease or otherwise dispose of any Collateral
for cash, credit or any combination thereof, and Agent may purchase any
Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of the purchase price, may set off or compensate the amount of
such price against the Obligations. After an Event of Default which is
continuing, the Agent is hereby granted a licence to use, without charge, the
Obligors labels, patents, copyrights, name, trade secrets, trade names,
trademarks, and advertising matter, or any similar property, in completing
production of, advertising or selling any Collateral, and the Obligors rights
under all licences and all franchise agreements shall inure to the Agents
benefit for such purpose. The proceeds of sale shall be applied first to all
expenses of sale, including legal fees, and then to the Obligations. The Agent
will return any excess to the Borrower and the Borrower shall remain liable for
any deficiency.
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11.3
License.
Agent is hereby granted an irrevocable, non-exclusive license or other right to use, license
or sub-license (without payment of royalty or other compensation to any Person) any or all
Intellectual Property of Obligors, computer hardware and software, trade secrets, brochures,
customer lists, promotional and advertising materials, labels, packaging materials and other
Property, in advertising for sale, marketing, selling, collecting, completing manufacture of, or
otherwise exercising any rights or remedies with respect to, any Collateral. Each Obligors rights
and interests under Intellectual Property shall inure to Agents benefit.
11.4
Setoff.
Agent, Lenders and their Affiliates are each authorized by Obligor at any time during an
Event of Default, without notice to Borrower or any other Person, to set off or compensate and to
appropriate and apply any deposits (general or special), funds, claims, obligations, liabilities
or other Debt at any time held or owing by Agent, any Lender or any such Affiliate to or for the
account of any Obligor against any Obligations, whether or not demand for payment of such
Obligation has been made, any Obligations have been declared due and payable, are then due, or are
contingent or unmatured, or the Collateral or any guarantee or other security for the Obligations
is adequate.
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11.5
Remedies Cumulative; No Waiver.
11.5.1
Cumulative Rights.
All covenants, conditions, provisions, warranties, guaranties, indemnities and other
undertakings of Obligors contained in the Loan Documents are cumulative and not in derogation or
substitution of each other. In particular, the rights and remedies of Agent and Lenders are
cumulative, may be exercised at any time and from time to time, concurrently or in any order, and
shall not be exclusive of any other rights or remedies that Agent and Lenders may have, whether
under any agreement, by law, at equity or otherwise.
11.5.2
Waivers.
The failure or delay of Agent or any Lender to require strict performance by Obligors with any
terms of the Loan Documents, or to exercise any rights or remedies with respect to Collateral or
otherwise, shall not operate as a waiver thereof nor as establishment of a course of dealing. All
rights and remedies shall continue in full force and effect until Full Payment of all Obligations.
No modification of any terms of any Loan Documents (including any waiver thereof) shall be
effective, unless such modification is specifically provided in a writing directed to Obligors and
executed by Agent or the requisite Lenders, and such modification shall be applicable only to the
matter specified. No waiver of any Default or Event of Default shall constitute a waiver of any
other Default or Event of Default that may exist at such time, unless expressly stated. If Agent or
any Lender accepts performance by any Obligor under any Loan Documents in a manner other than that
specified therein, or during any Default or Event of Default, or if Agent or any Lender shall delay
or exercise any right or remedy under any Loan Documents, such acceptance, delay or exercise shall
not operate to waive any Default or Event of Default nor to preclude exercise of any other right or
remedy. It is expressly acknowledged by Borrower that any failure to satisfy a financial covenant
on a measurement date shall not be cured or remedied by satisfaction of such covenant on a
subsequent date.
SECTION 12 AGENT
12.1
Appointment; Authority and Duties of Agent.
12.1.1
Appointment and Authority.
Each Lender appoints and designates Bank as Agent hereunder. Agent may, and each Lender
authorizes Agent to, enter into all Loan Documents to which Agent is intended to be a party and
accept all Security Documents, for Agents benefit and the Pro Rata benefit of Lenders. Each
Lender agrees that any action taken by Agent or Required Lenders in accordance with the provisions
of the Loan Documents, and the exercise by Agent or Required Lenders of any rights or remedies set
forth therein, together with all other powers reasonably incidental thereto, shall be authorized
and binding upon all Lenders. Without limiting the generality of the foregoing, Agent shall have
the sole and exclusive authority to (a) act as the disbursing and collecting agent for Lenders
with respect to all payments and collections arising in connection with the Loan Documents; (b)
execute and deliver as Agent each Loan Document, including any intercreditor or subordination
agreement, and accept delivery of each Loan Document from any Obligor or other Person; (c) act as
collateral agent for Secured Parties for purposes of perfecting, rendering opposable, setting up
and administering Liens under the Loan Documents, and for all other
- 81 -
purposes stated therein; (d) manage, supervise or otherwise deal with Collateral; and (e) exercise
all rights and remedies given to Agent with respect to any Collateral under the Loan Documents,
Applicable Law or otherwise. The duties of Agent shall be ministerial and administrative in
nature, and Agent shall not have a fiduciary relationship with any Lender, Secured Party,
Participant or other Person, by reason of any Loan Document or any transaction relating thereto.
Agent alone shall be authorized to determine whether any Accounts or Inventory constitute Eligible
Accounts or Eligible Inventory, or whether to impose or release any reserve, which determinations
and judgments, if exercised in good faith, shall exonerate Agent from liability to any Lender or
other Person for any error in judgment.
12.1.2
Duties.
Agent shall not have any duties except those expressly set forth in the Loan Documents, nor
be required to initiate or conduct any Enforcement Action except to the extent directed to do so
by Required Lenders while an Event of Default exists. The conferral upon Agent of any right shall
not imply a duty on Agents part to exercise such right, unless instructed to do so by Required
Lenders in accordance with this Agreement.
12.1.3
Agent Professionals.
Agent may perform its duties through agents and employees. Agent may consult with and employ
Agent Professionals, and shall be entitled to act upon, and shall be fully protected in any action
taken in good faith reliance upon, any advice given by an Agent Professional. Agent shall not be
responsible for the negligence or misconduct of any agents, mandataries, employees or Agent
Professionals selected by it with reasonable care.
12.1.4
Instructions of Required Lenders.
The rights and remedies conferred upon Agent under the Loan Documents may be exercised without
the necessity of joinder of any other party, unless required by Applicable Law. Agent may request
instructions from Required Lenders with respect to any act (including the failure to act) in
connection with any Loan Documents, and may seek assurances to its satisfaction from Lenders of
their indemnification obligations under Section 12.6 against all Claims that could be incurred by
Agent in connection with any act. Agent shall be entitled to refrain from any act until it has
received such instructions or assurances, and Agent shall not incur liability to any Person by
reason of so refraining. Instructions of Required Lenders shall be binding upon all Lenders, and no
Lender shall have any right of action whatsoever against Agent as a result of Agent acting or
refraining from acting in accordance with the instructions of Required Lenders. Notwithstanding the
foregoing, instructions by and consent of all Lenders shall be required in the circumstances
described in Section 15.1.1, and in no event shall Required Lenders, without the prior written
consent of each Lender, direct Agent to accelerate and demand payment of Loans held by one Lender
without accelerating and demanding payment of all other Loans, nor to terminate the Commitments of
one Lender without terminating the Commitments of all Lenders. In no event shall Agent be required
to take any action that, in its opinion, is contrary to Applicable Law or any Loan Documents or
could subject any Agent Indemnitee to personal liability.
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12.2
Agreements Regarding Collateral and Field Examination Reports.
12.2.1
Lien Releases; Care of Collateral.
Lenders authorize Agent to release any Lien with respect to any Collateral (a) upon Full
Payment of the Obligations, (b) that is the subject of an Asset Disposition which Borrower
certifies in writing to Agent is a Permitted Asset Disposition or a Lien which Borrower certifies
is a Permitted Lien entitled to priority over Agents Liens (and Agent may rely conclusively on
any such certificate without further inquiry), (c) that does not constitute a material part of the
Collateral, or (d) with the written consent of all Lenders. Agent shall have no obligation
whatsoever to any Lenders to assure that any Collateral exists or is owned by an Obligor, or is
cared for, protected, insured or encumbered, nor to assure that Agents Liens have been properly
created, perfected , rendered opposable or enforced, or are entitled to any particular priority,
nor to exercise any duty of care with respect to any Collateral.
12.2.2
Possession of Collateral.
Agent and Lenders appoint each other Lender as agent for the purpose of perfecting and
rendering opposable Liens (for the benefit of Secured Parties) in any Collateral that, under the
PPSA or other Applicable Law, can be perfected or published by possession or delivery. If any
Lender obtains possession of any such Collateral, it shall notify Agent thereof and, promptly upon
Agents request, deliver such Collateral to Agent or otherwise deal with such Collateral in
accordance with Agents instructions.
12.2.3
Reports.
Agent shall promptly, upon receipt thereof, forward to each Lender copies of the results of
any field audit or other examination or any appraisal prepared by or on behalf of Agent with
respect to any Obligor or Collateral (Report). Each Lender agrees (a) that neither Bank nor
Agent makes any representation or warranty as to the accuracy or completeness of any Report, and
shall not be liable for any information contained in or omitted from any Report; (b) that the
Reports are not intended to be comprehensive audits or examinations, and that Agent or any other
Person performing any audit or examination will inspect only specific information regarding
Obligations or the Collateral and will rely significantly upon Obligors books and records as well
as upon representations of Obligors officers and employees; and (c) to keep all Reports
confidential and strictly for such Lenders internal use, and not to distribute any Report (or the
contents thereof) to any Person (except to such Lenders Participants, attorneys and accountants)
or use any Report in any manner other than administration of the Loans and other Obligations. Each
Lender agrees to indemnify and hold harmless Agent and any other Person preparing a Report from
any action such Lender may take as a result of or any conclusion it may draw from any Report, as
well as any Claims arising in connection with any third parties that obtain all or any part of a
Report through such Lender.
12.3
Reliance By Agent.
Agent shall be entitled to rely, and shall be fully protected in relying, upon any
certification, notice or other communication (including those by telephone, telex, telegram,
telecopy or e-mail) believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person, and upon the advice and statements of Agent Professionals.
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12.4
Action Upon Default.
Agent shall not be deemed to have knowledge of any Default or Event of Default unless it has
received written notice from a Lender or Borrower specifying the occurrence and nature thereof. If
any Lender acquires knowledge of a Default or Event of Default, it shall promptly notify Agent and
the other Lenders thereof in writing. Each Lender agrees that, except as otherwise provided in any
Loan Documents or with the written consent of Agent and Required Lenders, it will not take any
Enforcement Action, accelerate its Obligations, or exercise any right that it might otherwise have
under Applicable Law to credit bid at foreclosure sales, UCC, PPSA, Civil Code sales, sales by a
creditor, judicial sales or other similar dispositions of Collateral. Notwithstanding the
foregoing, however, a Lender may take action to preserve or enforce its rights against an Obligor
where a deadline or limitation period is applicable that would, absent such action, bar enforcement
of Obligations held by such Lender, including the filing of proofs of claim in an Insolvency
Proceeding.
12.5
Ratable Sharing.
If any Lender shall obtain any payment or reduction of any Obligation, whether through
set-off, compensation or otherwise, in excess of its share of such Obligation, determined on a Pro
Rata basis or in accordance with Section 5.5.1, as applicable, such Lender shall forthwith
purchase from Agent, Issuing Bank and the other Lenders such participations in the affected
Obligation as are necessary to cause the purchasing Lender to share the excess payment or
reduction on a Pro Rata basis or in accordance with Section 5.5.1, as applicable. If any of such
payment or reduction is thereafter recovered from the purchasing Lender, the purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but without interest.
12.6
Indemnification of Agent Indemnitees.
12.6.1
Indemnification.
EACH LENDER SHALL INDEMNIFY AND HOLD HARMLESS AGENT INDEMNITEES, TO THE EXTENT NOT REIMBURSED
BY OBLIGORS (BUT WITHOUT LIMITING THE INDEMNIFICATION OBLIGATIONS OF OBLIGORS UNDER ANY LOAN
DOCUMENTS), ON A PRO RATA BASIS, AGAINST ALL CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST
ANY AGENT INDEMNITEE, EXCEPT CLAIMS RESULTING FROM SUCH AGENT INDEMNITEES GROSS NEGLIGENCE OR
WILFUL MISCONDUCT. If Agent is sued by any receiver, trustee in bankruptcy, debtor-in-possession
or other Person for any alleged preference from an Obligor or fraudulent transfer, then any monies
paid by Agent in settlement or satisfaction of such proceeding, together with all interest, costs
and expenses (including attorneys fees) incurred in the defense of same, shall be promptly
reimbursed to Agent by Lenders to the extent of each Lenders Pro Rata share.
12.6.2
Proceedings.
Without limiting the generality of the foregoing, if at any time (whether prior to or after
the Commitment Termination Date) any action, suit, proceeding is brought against any Agent
Indemnitees by an Obligor, or any Person claiming through an Obligor, to recover damages for any
act taken or omitted by Agent in connection with any Obligations, Collateral, Loan Documents or
matters relating thereto, or otherwise to obtain any other relief of any kind on
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account of any transaction relating to any Loan Documents, each Lender agrees to indemnify and hold
harmless Agent Indemnitees with respect thereto and to pay to Agent Indemnitees such Lenders Pro
Rata share of any amount that any Agent Indemnitee is required to pay under any judgment or other
order entered in such proceeding or by reason of any settlement, including all interest, costs and
expenses (including attorneys fees) incurred in defending same. In Agents discretion, Agent may
reserve for any such proceeding, and may satisfy any judgment, order or settlement, from proceeds
of Collateral prior to making any distributions of Collateral proceeds to Lenders.
12.7
Limitation on Responsibilities of Agent.
Agent shall not be liable to Lenders for any action taken or omitted to be taken under the
Loan Documents, except for losses directly and solely caused by Agents gross negligence or wilful
misconduct. Agent does not assume any responsibility for any failure or delay in performance or
any breach by any Obligor or Lender of any obligations under the Loan Documents. Agent does not
make to Lenders any express or implied warranty, representation or guarantee with respect to any
Obligations, Collateral, Loan Documents or Obligor. No Agent Indemnitee shall be responsible to
Lenders for any recitals, statements, information, representations or warranties contained in any
Loan Documents; the execution, validity, genuineness, effectiveness or enforceability of any Loan
Documents; the genuineness, enforceability, collectibility, value, sufficiency, location or
existence of any Collateral, or the validity, extent, perfection, opposability or priority of any
Lien therein; the validity, enforceability or collectibility of any Obligations; or the assets,
liabilities, financial condition, results of operations, business, creditworthiness or legal
status of any Obligor or Account Debtor. No Agent Indemnitee shall have any obligation to any
Lender to ascertain or inquire into the existence of any Default or Event of Default, the
observance or performance by any Obligor of any terms of the Loan Documents, or the satisfaction
of any conditions precedent contained in any Loan Documents.
12.8
Successor Agent and Co-Agents.
12.8.1
Resignation; Successor Agent.
Subject to the appointment and acceptance of a successor Agent as provided below, Agent may
resign at any time by giving at least 30 days written notice thereof to Lenders and Borrower. Upon
receipt of such notice, Required Lenders shall have the right to appoint a successor Agent which
shall be (a) a Lender or an Affiliate of a Lender; or (b) a commercial bank that is organized under
the laws of Canada or the United States or any state or district thereof (provided that such U.S.
bank is an authorized foreign bank as defined in section 2 of the
Bank Act
(Canada), has a
combined capital surplus of at least $200,000,000 and (provided no Default or Event of Default
exists) is reasonably acceptable to Borrower. If no successor agent is appointed prior to the
effective date of the resignation of Agent, then Agent may appoint a successor agent from among
Lenders. Upon acceptance by a successor Agent of an appointment to serve as Agent hereunder, such
successor Agent shall thereupon succeed to and become vested with all the powers and duties of the
retiring Agent without further act, and the retiring Agent shall be discharged from its duties and
obligations hereunder but shall continue to have the benefits of the indemnification set forth in
Sections 12.6 and 15.2. Notwithstanding any Agents resignation, the provisions of this Section 12
shall continue in effect for its benefit with respect
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to any actions taken or omitted to be taken by it while Agent. Any successor by merger,
amalgamation or acquisition of the stock or assets of Bank shall continue to be Agent hereunder
without further act on the part of the parties hereto, unless such successor resigns as provided
above.
12.8.2
Separate Collateral Agent.
It is the intent of the parties that there shall be no violation of any Applicable Law denying
or restricting the right of financial institutions to transact business in any jurisdiction. If
Agent believes that it may be limited in the exercise of any rights or remedies under the Loan
Documents due to any Applicable Law, Agent may appoint an additional Person who is not so limited,
as a separate collateral agent or co-collateral agent. If Agent so appoints a collateral agent or
co-collateral agent, each right and remedy intended to be available to Agent under the Loan
Documents shall also be vested in such separate agent. Every covenant and obligation necessary to
the exercise thereof by such agent or mandatary shall run to and be enforceable by it as well as
Agent. Lenders shall execute and deliver such documents as Agent deems appropriate to vest any
rights or remedies in such agent or mandatary. If any collateral agent or co-collateral agent shall
die or dissolve, become incapable of acting, resign or be removed, then all the rights and remedies
of such agent or mandatary, to the extent permitted by Applicable Law, shall vest in and be
exercised by Agent until appointment of a new agent or mandatary.
12.8.3
Withholding Tax.
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(a)
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Subject to paragraph (b) of this Section, each Lender and the Bank represents
and warrants to the Agent and the other Lenders and the Borrower that it is either a
resident of Canada or is an authorized foreign bank as defined in section 2 of the
Bank Act
(Canada). Each Lender that is an authorized foreign bank as defined in
section 2 of the
Bank Act
(Canada) further represents and warrants to the Borrower and
the other Lenders and agrees that for purposes of the ITA, it will receive all amounts
paid or credited to it under this Agreement in respect of its Canadian banking
business;
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(b)
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If the Canada Revenue Agency or any other Governmental Authority of Canada or
other jurisdiction asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Lender such Lender shall indemnify the Agent
and the Borrower fully for all amounts paid, directly or indirectly, by the Agent or
the Borrower as tax or otherwise, including penalties and interest, and including any
taxes imposed by any jurisdiction on the amounts payable to the Agent under this
Section, together with all costs and expenses (including costs of legal counsel);
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(c)
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Without prejudice to the survival of any other agreement contained herein, the
representations and warranties contained in paragraph (a) of this Section and the
agreements and obligations contained in paragraph (b) of this Section shall survive the
payment in full of principal, interest, fees and any other amounts payable hereunder,
the termination of this Agreement and any other Loan Document and the replacement of
the Agent.
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12.9
Due Diligence and Non-Reliance.
Each Lender acknowledges and agrees that it has, independently and without reliance upon Agent
or any other Lenders, and based upon such documents, information and analyses as it has deemed
appropriate, made its own credit analysis of each Obligor and its own decision to enter into this
Agreement and to fund Loans and participate in LC Obligations bereunder. Each Lender has made such
inquiries concerning the Loan Documents, the Collateral and each Obligor as such Lender feels
necessary. Each Lender further acknowledges and agrees that the other Lenders and Agent have made
no representations or warranties concerning any Obligor, any Collateral or the legality, validity,
sufficiency or enforceability of any Loan Documents or Obligations. Each Lender will, independently
and without reliance upon the other Lenders or Agent, and based upon such financial statements,
documents and information as it deems appropriate at the time, continue to make and rely upon its
own credit decisions in making Loans and participating in LC Obligations, and in taking or
refraining from taking any action under any Loan Documents. Except as expressly provided herein and
except for notices, reports and other information expressly requested by a Lender, Agent shall have
no duty or responsibility to provide any Lender with any notices, reports or certificates furnished
to Agent by any Obligor or any credit or other information concerning the affairs, financial
condition, business or Properties of any Obligor (or any of its Affiliates) which may come into
possession of Agent or any of Agents Affiliates.
12.10
Replacement of Certain Lenders.
In the event that any Lender (a) fails to fund its Pro Rata share of any Loan or LC
Obligation hereunder, and such failure is not cured within two Business Days, (b) defaults in
performing any of its obligations under the Loan Documents, or (c) fails to give its consent to
any amendment, waiver or action for which consent of all Lenders was required and Required Lenders
consented, then, in addition to any other rights and remedies that any Person may have, Agent may,
by notice to such Lender within 120 days after such event, require such Lender to assign all of
its rights and obligations under the Loan Documents to Eligible Assignee(s) specified by Agent,
pursuant to appropriate Assignment and Acceptance(s) and within 20 days after Agents notice.
Agent is irrevocably appointed as attorney-in-fact to execute any such Assignment and Acceptance
if the Lender fails to execute same. Such Lender shall be entitled to receive, in cash,
concurrently with such assignment, all amounts owed to it under the Loan Documents, including all
principal, interest and fees through the date of assignment (but excluding any prepayment charge).
12.11
Remittance of Payments and Collections.
12.11.1
Remittances Generally.
All payments by any Lender to Agent shall be made by the time and on the day set forth in this
Agreement, in immediately available funds. If no time for payment is specified or if payment is due
on demand by Agent and request for payment is made by Agent by 12:00 p.m. (Eastern time) on a
Business Day, payment shall be made by Lender not later than 2:00 p.m. (Eastern time) on such day,
and if request is made after 12:00 p.m. (Eastern time), then payment shall be made by 12:00 p.m.
(Eastern time) on the next Business Day. Payment by Agent to any Lender shall be made by wire
transfer, in the type of funds received by Agent. Any and all fees and interest paid by the
Borrower to the Agent, for the Pro Rata benefit of the Lenders, on the
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first day of each month, shall be paid by the Agent to the Lenders on or before the third Business
Day of such month. Any such payment shall be subject to Agents right of offset or compensation for
any amounts due from such Lender under the Loan Documents.
12.11.2
Failure to Pay.
If any Lender fails to pay any amount when due by it to Agent pursuant to the terms hereof,
such amount shall bear interest from the due date until paid at the rate determined by Agent as
customary in the banking industry for interbank compensation. In no event shall Obligors be
entitled to receive credit for any interest paid by a Lender to Agent.
12.11.3
Recovery of Payments.
If Agent pays any amount to a Lender in the expectation that a related payment will be
received by Agent from an Obligor and such related payment is not received, then Agent may recover
such amount from each Lender that received it. If Agent determines at any time that an amount
received under any Loan Document must be returned to an Obligor or paid to any other Person
pursuant to Applicable Law or otherwise, then, notwithstanding any other term of any Loan
Document, Agent shall not be required to distribute such amount to any Lender. If any amounts
received and applied by Agent to any Obligations are later required to be returned by Agent
pursuant to Applicable Law, Lenders shall pay to Agent, on demand, such Lenders Pro Rata share of
the amounts required to be returned.
12.12
Agent in its Individual Capacity.
As a Lender, Bank shall have the same rights and remedies under the other Loan Documents as
any other Lender, and the terms Lenders, Required Lenders or any similar term shall include
Bank in its capacity as a Lender. Each of Bank and its Affiliates may accept deposits from,
maintain deposits or credit balances for, invest in, lend money to, provide Barik Products to, act
as trustee under indentures of, serve as financial or other advisor to, and generally engage in
any kind of business with, Obligors and their Affiliates, as if Bank were any other bank, without
any duty to account therefor (including any fees or other consideration received in connection
therewith) to the other Lenders. In their individual capacity, Bank and its Affiliates may receive
information regarding Obligors, their Affiliates and their Account Debtors (including information
subject to confidentiality obligations), and each Lender agrees that Bank and its Affiliates shall
be under no obligation to provide such information to Lenders, if acquired in such individual
capacity and not as Agent hereunder.
12.13
Agent Titles.
Each Lender, other than Bank, that is designated (on the cover page of this Agreement or
otherwise) by Bank as an Agent or Arranger or Manager of any type shall not have any right,
power, responsibility or duty under any Loan Documents other than those applicable to all Lenders,
and shall in no event be deemed to have any fiduciary relationship with any other Lender.
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12.14
No Third Party Beneficiaries.
This Section 12 is an agreement solely among Lenders and Agent, and does not confer any rights
or benefits upon Borrower or any other Person. As between Borrower and Agent, any action that Agent
may take under any Loan Documents shall be conclusively presumed to have been authorized and
directed by Lenders as herein provided.
SECTION 13 BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
13.1
Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of Obligors, Agent and Lenders
and their respective successors and assigns, except that (a) no Obligors shall have the right to
assign its rights or delegate its obligations under any Loan Documents, and (b) any assignment by a
Lender must be made in compliance with Section 13.3. Agent may treat the Person which made any Loan
as the owner thereof for all purposes until such Person makes an assignment in accordance with
Section 13.3. Any authorization or consent of a Lender shall be conclusive and binding on any
subsequent transferee or assignee of such Lender.
13.2
Participations.
13.2.1
Permitted Participants; Effect.
Any Lender may, in the ordinary course of its business and in accordance with Applicable Law,
at any time sell to a financial institution (Participant) a participating interest in the rights
and obligations of such Lender under any Loan Documents. Despite any sale by a Lender of
participating interests to a Participant, such Lenders obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the other parties hereto for
performance of such obligations, such Lender shall remain the holder of its Loans and Commitments
for all purposes, all amounts payable by Obligors shall be determined as if such Lender had not
sold such participating interests, and Obligors and Agent shall continue to deal solely and
directly with such Lender in connection with the Loan Documents. Each Lender shall be solely
responsible for notifying its Participants of any matters under the Loan Documents, and Agent and
the other Lenders shall not have any obligation or liability to any such Participant. A
Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the
benefits of Section 5.8 unless Borrower agrees otherwise in writing.
13.2.2
Voting Rights.
Each Lender shall retain the sole right to approve, without the consent of any Participant,
any amendment, waiver or other modification of any Loan Documents other than that which forgives
principal, interest or fees, reduces the stated interest rate or fees payable with respect to any
Loan or Commitment in which such Participant has an interest, postpones the Commitment Termination
Date or any date fixed for any regularly scheduled payment of principal, interest or fees on such
Loan or Commitment, or releases Borrower, Guarantor or substantial portion of the Collateral.
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13.2.3
Benefit of Set-Off.
Obligors agree that each Participant shall have a right of set-off or compensation in respect
of its participating interest to the same extent as if such interest were owing directly to a
Lender, and each Lender shall also retain the right of set-off or compensation with respect to any
participating interests sold by it. By exercising any right of set-off or compensation, a
Participant agrees to share with Lenders all amounts received through its set-off or compensation,
in accordance with Section 12.5 as if such Participant were a Lender.
13.3
Assignments.
13.3.1
Permitted Assignments.
A Lender may assign to any Eligible Assignee, acceptable to Agent acting reasonably (for
greater certainty, any assignment by a Lender to an Affiliate of Lender shall not require such
Agents consent), any of its rights and obligations under the Loan Documents, as long as (a) each
assignment is of a constant, and not a varying, percentage of the transferor Lenders rights and
obligations under the Loan Documents and, in the case of a partial assignment, is in a minimum
principal amount of $10,000,000 (unless otherwise agreed by Agent in its discretion) and integral
multiples of $1,000,000 in excess of that amount; (b) except in the case of an assignment in whole
of a Lenders rights and obligations, the aggregate amount of the Commitments retained by the
transferor Lender be at least $5,000,000 (unless otherwise agreed by Agent in its discretion); and
(c) the parties to each such assignment shall execute and deliver to Agent, for its acceptance and
recording, an Assignment and Acceptance. Nothing herein shall limit the right of a Lender to pledge
or assign any rights under the Loan Documents to (i) any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of Governors and any
Operating Circular issued by such Federal Reserve Bank, or (ii) counterparties to swap agreements
relating to any Loans; provided, however, that any payment by Obligors to the assigning Lender in
respect of any Obligations assigned as described in this sentence shall satisfy Obligors
obligations hereunder to the extent of such payment, and no such assignment shall release the
assigning Lender from its obligations hereunder.
13.3.2
Effect; Effective Date.
Upon delivery to Agent of an assignment notice in the form of Exhibit D and a processing fee
of $3,500, such assignment shall become effective as specified in the notice, if it complies with
this Section 13.3. From the effective date of such assignment, the Eligible Assignee shall for all
purposes be a Lender under the Loan Documents, and shall have all rights and obligations of a
Lender thereunder. Upon consummation of an assignment, the transferor Lender, Agent and Borrower
shall make appropriate arrangements for issuance of replacement and/or new Notes, as appropriate.
13.4
Representation of Lenders.
Each Lender represents and warrants to Borrower, Agent and other Lenders that none of the
consideration used by it to fund its Loans or to participate in any other transactions under this
Agreement constitutes for any purpose of ERISA or Section 4975 of the Code assets of any plan as
defined in Section 3(3) of ERISA or Section 4975 of the Code and the interests of such Lender in
and under the Loan Documents shall not constitute plan assets under ERISA.
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SECTION 14 GUARANTEES
14.1
The Guarantees
Each Guarantor, as primary obligor and not as a surety merely, hereby unconditionally and
irrevocably, jointly and severally (solidarily), guarantees to the Agent and each of the Lenders
the punctual payment when due in accordance with the terms hereof of all Obligations, of whatever
kind and description, of the Borrower to the Agent and each of the Lenders now or hereafter
existing, whether direct or indirect, absolute or contingent, matured
or unmatured, secured or
unsecured pursuant to or arising out of or under this Agreement (including all interest that
accrues after the commencement of any Insolvency Proceeding by or against the Borrower, whether or
not allowed in such case or proceeding), including, without limitation, all Obligations (all such
obligations so guaranteed are referred to herein as the Guaranteed Obligations).
14.2
Guarantee Absolute
Each Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance
with their terms regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Agent and/or Lenders with respect
thereto. The liability of each Guarantor hereunder shall be solidary (joint and several) and
absolute and unconditional irrespective of:
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(a)
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Any lack of validity or enforceability of the Obligations or the Guaranteed
Obligations or any agreement or instrument relating thereto;
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(b)
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Any change in the time, manner or place of the payment of, or in any other term
of, all or any of the Obligations or the Guaranteed Obligations, or any amendment or
modification of or any consent to departure from this Agreement or any other Loan
Document;
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(c)
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Any exchange, release, unopposability or nonperfection of any Collateral or any
release or amendment to, waiver of, or consent to departure from, or any Guarantee
for, all or any part of the Obligations or the Guaranteed Obligations;
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(d)
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the absence of any action to enforce this Agreement (including this Section) or
any other Loan Document, or any waiver, consent or indulgence of any kind by Agent or
any Lender with respect thereto;
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(e)
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Any whole or partial termination of this Guarantee as to any other Guarantor;
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(f)
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the insolvency of any Obligor; (e) any election by Agent or any Lender to avail
itself of an Insolvency Proceeding or any election in an Insolvency Proceeding for the
application of Section 1111(b)(2) of the Bankruptcy Code, or otherwise; (f) any
borrowing or grant of a Lien by Borrower, as debtor-in- possession; (g) the
disallowance of any claims of Agent or any Lender against any Obligor for the repayment
of any Obligations under debtor relief laws; or
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(g)
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Any other circumstance which might otherwise constitute a defence available
to, or a discharge of, the Borrower in respect of the Obligations or the
Guaranteed Obligations or a Guarantor in respect of this Guarantee or the
Guaranteed Obligations.
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This Guarantee shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Obligations or the Guaranteed Obligations are rescinded or must
otherwise be returned by the Agent and/or Lenders upon the bankruptcy or reorganization of any
Guarantor or otherwise under applicable law, all as though such
payment had not been made.
14.3
Consents, Waivers and Renewals
Each Guarantor hereby renounces to the benefits of division and discussion. Each Guarantor
hereby waives promptness, diligence, notice of the acceptance hereof, notice of intent to
accelerate and notice of acceleration and any other notice with respect to any of the Obligations
or the Guaranteed Obligations and this Agreement and any requirement that the Agent and/or Lenders
protect, secure, perfect, render opposable or insure any Agents Lien or Lien on any Property
subject thereto or exhaust any right or take any action against the Borrower any Guarantor or any
other Person or any Collateral before proceeding hereunder. Each Guarantor agrees that the Agent
and/or Lenders may at any time and from time to time, either before or after the maturity thereof,
without notice to or further consent of the Borrower or the Guarantor extend the time of payment
of, exchange or surrender any Collateral for, or renew any of the Obligations or the Guaranteed
Obligations, and may also make any agreements with the Borrower, any Guarantor or with any other
party to or Person liable on any of the Obligations, or interested therein, for the extension,
renewal, payment, compromise, discharge, or release thereof, in whole or in part, or for any
modification of the terms thereof or of any agreement between the Agent and/or any Lenders and the
Borrower or any such other party or Person, without in any way impairing or affecting this
Guarantee. Each Guarantor agrees to make payment to the Agent, for the rateable benefit of the
Lenders, of any of the Obligations and the Guaranteed Obligations whether or not the Agent and/or
any Lenders shall have resorted to any collateral security, or shall have proceeded against any
other obligor principally or secondarily obligated with respect to any of the Obligations or the
Guaranteed Obligations. The Agent and/or Lenders shall be free to deal with the Borrower and the
Guarantor as it sees fit.
Agent and Lenders may, in their discretion, pursue such rights and remedies as they deem
appropriate, including realization upon Collateral by judicial foreclosure or non judicial sale or
enforcement, without affecting any rights and remedies under this Section 14. If, in the exercise
of any rights or remedies, Agent or any Lender shall forfeit any of its rights or remedies,
including its right to enter a deficiency judgment against any Obligor or any other Person, whether
because of any Applicable Laws pertaining to election of remedies or otherwise, Obligors consent
to such action by Agent or such Lender and waive any claim based upon such action, even if the
action may result in loss of any rights of subrogation that any Obligor might otherwise have had
but for such action. Any election of remedies that results in denial or impairment of the right of
Agent or any Lender to seek a deficiency judgment against any Obligor shall not impair any other
Obligors obligation to pay the full amount of the Obligations. Each Obligor waives all rights and
defenses arising out of an election of remedies, such as nonjudicial foreclosure with respect to
any security for the Obligations, even though that election
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of remedies destroys such Obligors rights of subrogation against any other Person. If Agent bids
at any foreclosure or trustees sale or at any private sale, Agent may bid all or a portion of the
Obligations and the amount of such bid need not be paid by Agent but shall be credited against the
Obligations. The amount of the successful bid at any such sale, whether Agent or any other Person
is the successful bidder, shall be conclusively deemed to be the fair market value of the
Collateral, and the difference between such bid amount and the remaining balance of the
Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this
Section 14, notwithstanding that any present or future law or court decision may have the effect
of reducing the amount of any deficiency claim to which Agent or any Lender might otherwise be
entitled but for such bidding at any such sale.
14.4
Subrogation
No Guarantor shall exercise any rights which it may acquire by way of subrogation under this
Agreement, by any payment made hereunder or otherwise, until all the Obligations and the
Guaranteed Obligations shall have been paid in full. If any amount shall be paid to the Borrower
on account of such subrogation rights in violation of the foregoing restriction, such amount shall
be held in trust for the benefit of the Agent (for itself and the other Lenders) and shall
forthwith be paid to the Agent (for itself and the other Lenders) to be credited and applied to
the Obligations, whether matured or unmatured, in accordance with the terms of this Agreement.
14.5
Subordination.
Each Obligor hereby postpones any right of enforcement, remedy and action and subordinates
any claims, including any right of payment, subrogation, contribution and indemnity, that it may
have at any time against any other Obligor, howsoever arising, to the Full Payment of all
Obligations. Any such claims (whether secured or unsecured) and any such remedial rights are
hereby assigned to the Agent (and shall be assigned pursuant to documentation satisfactory to the
Agent), and any such claims owing and paid to an Obligor in contravention of the terms of this
Agreement shall be received and held by any such Obligor in trust for the benefit of the Agent
(for itself and the other Lenders) and the proceeds thereof shall forthwith be paid over to the
Agent (for itself and the other Lenders) to be credited and applied to the Obligations, whether
matured or unmatured, in accordance with the terms of this Agreement.
14.6
Protection Clause
Whenever herein a representation or warranty is expressed by a Guarantor or, subject to
Section 14.1 above, any agreement to do any act or thing is made by a Guarantor, same shall be
deemed to be a representation or warranty as to that Guarantor only and not a representation or
warranty of any matter or circumstance of any other Guarantor and an agreement as to its conduct
and not the conduct of any other Guarantor. Subject to Section 14.1 above, no Guarantor shall be
liable for any obligation of any other Guarantor.
14.7
Limitation on Guarantee of Obligations
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(a)
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In any action or proceeding with respect to any Guarantor involving any state
or provincial corporate law, or any state or provincial or federal bankruptcy,
insolvency, reorganization or other law affecting the rights of creditors
generally, if the obligations of such Guarantor under Section 14.1 hereof
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would otherwise be held or determined to be void, invalid or
unenforceable, or
subordinated to the claims of any other creditors, on account of the
amount of its
liability under said Section 14.1, then, notwithstanding any
other provision hereof to
the contrary, the amount of such liability shall, without any further action by such
Guarantor, any Lender, the Agent or any other Person, be automatically limited and
reduced to the highest amount which is valid and enforceable and not subordinated to the
claims of other creditors as determined in such action or proceeding.
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(b)
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To the extent that any Guarantor shall make a payment under
this Agreement
of all or any of the Guaranteed Obligations (a Guarantor
Payment) which, taking into
account all other Guarantor Payments then previously or concurrently made by the
Guarantor, exceeds the amount which the Guarantor would otherwise have paid if the
Guarantor had paid the aggregate Obligations satisfied by such Guarantor Payment in the
same proportion that such Guarantors Allocable Amount (as defined below) (in
effect immediately prior to such Guarantor Payment) bore to the
aggregate Allocable
Amounts of the Guarantor in effect immediately prior to the making of
such Guarantor
Payment, then, following payment in full in cash of the Obligations and termination of
the Commitments, such Guarantor shall be entitled to receive contribution and
indemnification payments from, and be reimbursed by, the Guarantor for the amount of such
excess, pro rata based upon their respective Allocable Amounts in effect immediately
prior to such Guarantor Payment.
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(i)
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As of any date of determination, the Allocable
Amount of any Guarantor shall
be equal to the maximum amount of the claim which could then be recovered from such
Guarantor under this Agreement without rendering such claim voidable or avoidable under
Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform
Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar
statute or common
law.
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(ii)
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This subsection (b) is intended only to define the
relative rights of Guarantor
and nothing set forth in this subsection (b) is intended to or shall impair the
obligations of Guarantor, jointly and severally, to pay any amounts as and when the same
shall become due and payable in accordance with the terms of this Agreement.
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(iii)
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The rights of the parties under this subsection
(b) shall be exercisable upon
the full and indefeasible payment of the Obligations and the
termination of this
Agreement and the other Loan Documents.
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(iv)
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The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of any Guarantor to which
such contribution and indemnification is owing.
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14.8
Guarantee of Payment
The Guarantor further agrees that this Guarantee constitutes a guaranty of payment when due
and not of collection, and waives any right to require that any resort be had by the Agent or any
Lender to any of the Collateral or other security held for payment of the Guaranteed Obligations or
to any balance of any deposit account or credit on the books of the Agent or any Lender in favour
of any other Guarantor or any other Person or to any other guarantor of all or part of the
Guaranteed Obligations.
SECTION
15
MISCELLANEOUS
15.1
Consents, Amendments and Waivers.
15.1.1
Amendment.
No modification of any Loan Document, including any extension or amendment of a Loan Document
or any waiver of a Default or Event of Default, shall be effective without the prior written
agreement of Agent, with the consent of Required Lenders, and each Obligor party to such Loan
Document; provided, however, that
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(a)
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without the prior written consent of Agent, no modification shall be effective
with respect to any provision in a Loan Document that relates to any rights, duties or
discretion of Agent;
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(b)
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without the prior written consent of Issuing Bank, no modification shall be
effective with respect to any LC Obligations or Section 2.2;
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(c)
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without the prior written consent of each affected Lender, no modification
shall be effective that would (i) increase the Commitment of such Lender; or (ii)
reduce the amount of, or waive or delay payment of, any principal, interest or fees
payable to such Lender; and
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(d)
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without the prior written consent of all Lenders (except a defaulting Lender as
provided in Section 4.2), no modification shall be effective that would (i) extend the
Revolver Termination Date; (ii) alter Section 5.5, 7.1 (except to add Collateral), or
15.1.1; (iii) amend the definitions of Borrowing Base (and the defined terms used in
such definition), Pro Rata or Required Lenders; (iv) increase any advance rate, or
increase total Commitments; (v) release Collateral with a book value greater than
$2,000,000 during any calendar year, except as currently contemplated by the Loan
Documents; or (vi) release any Obligor from liability for any Obligations, if such
Obligor is Solvent at the time of the release.
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15.1.2
Limitations.
The agreement of Obligors shall not be necessary to the effectiveness of any modification of
a Loan Document that deals solely with the rights and duties of Lenders, Agent and/or Issuing Bank
as among themselves. Only the consent of the parties to the Fee Letter or any agreement relating
to a Bank Product shall be required for any modification of such agreement, and no
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Affiliate of a Lender that is party to a Bank Product agreement shall have any other right to
consent to or participate in any manner in modification of any other Loan Document. The making of
any Loans during the existence of a Default or Event of Default shall not be deemed to constitute
a waiver of such Default or Event of Default, nor to establish a course of dealing. Any waiver or
consent granted by Lenders hereunder shall be effective only if in writing, and then only in the
specific instance and for the specific purpose for which it is given.
15.1.3
Payment for Consents.
Borrower will not, directly or indirectly, pay any remuneration or other thing of value,
whether by way of additional interest, fee or otherwise, to any Lender (in its capacity as a
Lender hereunder) as consideration for agreement by such Lender with any modification of any Loan
Documents, unless such remuneration or value is concurrently paid, on the same terms, on a Pro
Rata basis to all Lenders providing their consent.
15.2
Indemnity.
EACH OBLIGOR SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES AGAINST ANY CLAIMS THAT MAY BE
INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE, INCLUDING CLAIMS ARISING FROM THE NEGLIGENCE OF AN
INDEMNITEE. In no event shall any party to a Loan Document have any obligation thereunder to
indemnify or hold harmless an Indemnitee with respect to a Claim that is determined in a final,
non-appealable judgment by a court of competent jurisdiction to result from the gross negligence
or wilful misconduct of such Indemnitee.
15.3
Notices and Communications.
15.3.1
Notice Address.
Subject to Section 4.1.4, all notices, requests and other communications by or to a party
hereto shall be in writing and shall be given to Borrower, at Borrowers address shown on the
signature pages hereof, and to any other Person at its address shown on the signature pages hereof
(or, in the case of a Person who becomes a Lender after the Closing Date, at the address shown on
its Assignment and Acceptance), or at such other address as a party may hereafter specify by notice
in accordance with this Section 15.3. Each such notice, request or other communication shall be
effective only (a) if given by facsimile transmission, when transmitted to the applicable facsimile
number, if confirmation of receipt is received; (b) if given by mail, three Business Days after
deposit in the Canada post mail, with first-class postage pre-paid, addressed to the applicable
address; or (c) if given by personal delivery, when duly delivered to the notice
address with receipt acknowledged. Notwithstanding the foregoing, no notice to Agent pursuant
to Section 2.1.4, 2.2, 3.1.2, or 4.1.1 shall be effective until actually received by the individual
to whose attention at Agent such notice is required to be sent. Any written notice, request or
other communication that is not sent in conformity with the foregoing provisions shall nevertheless
be effective on the date actually received by the noticed party. Any notice received by Borrower
shall be deemed received by all Obligors.
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15.3.2
Electronic Communications; Voice Mail.
Electronic mail and internet websites may be used only for routine communications, such as
financial statements, Borrowing Base Certificates and other information required by Section
10.1.2, administrative matters, distribution of Loan Documents for execution, and matters
permitted under Section 4.1.4. Agent and Lenders make no assurances as to the privacy and security
of electronic communications. Electronic and voice mail may not be used as effective notice under
the Loan Documents.
15.3.3
Non-Conforming Communications.
Agent and Lenders may rely upon any notices purportedly given by or on behalf of Borrower even
if such notices were not made in a manner specified herein, were incomplete or were not confirmed,
or if the terms thereof, as understood by the recipient, varied from a later confirmation. Borrower
shall indemnify and hold harmless each Indemnitee from any liabilities, losses, costs and expenses
arising from any telephonic communication purportedly given by or on behalf of Borrower.
15.4
Performance of Obligors Obligations.
Agent may, in its discretion at any time and from time to time, at Borrowers expense, pay
any amount or do any act required of an Obligor under any Loan Documents or otherwise lawfully
requested by Agent to (a) enforce any Loan Documents or collect any Obligations; (b) protect,
insure, maintain or realize upon any Collateral; or (c) defend or maintain the validity,
opposability or priority of Agents Liens in any Collateral, including any payment of a judgment,
insurance premium, warehouse charge, finishing or processing charge, or landlord claim, privilege
or priority or any discharge of a Lien. All payments, costs and expenses (including Extraordinary
Expenses) of Agent under this Section shall be reimbursed to Agent by Borrower, on demand, with
interest from the date incurred to the date of payment thereof at the Default Rate applicable to
Prime Rate Revolver Loans. Any payment made or action taken by Agent under this Section shall be
without prejudice to any right to assert an Event of Default or to exercise any other rights or
remedies under the Loan Documents.
15.5
Credit Inquiries.
Each Obligor hereby authorizes Agent and Lenders (but they shall have no obligation) to
respond to usual and customary credit inquiries from third parties concerning any Obligor or
Subsidiary.
15.6
Severability.
Wherever possible, each provision of the Loan Documents shall be interpreted in such manner
as to be valid under Applicable Law. If any provision is found to be invalid under Applicable Law,
it shall be ineffective only to the extent of such invalidity and the remaining provisions of the
Loan Documents shall remain in full force and effect.
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15.7
Cumulative Effect; Conflict of Terms.
The provisions of the Loan Documents are cumulative. The parties acknowledge that the Loan
Documents may use several different limitations, tests or measurements to regulate the same or
similar matters, and they agree that these are cumulative and that each must be performed as
provided. Except as otherwise specifically provided in another Loan Document (by specific
reference to the applicable provision of this Agreement), if any provision contained herein is in
direct conflict with any provision in another Loan Document, the provision herein shall govern and
control.
15.8
Counterparts; Facsimile Signatures.
Any Loan Document may be executed in counterparts, each of which taken together shall
constitute one instrument. Loan Documents may be executed and delivered by facsimile, and they
shall have the same force and effect as manually signed originals. Agent may require confirmation
by a manually-signed original, but failure to request or deliver same shall not limit the
effectiveness of any facsimile signature.
15.9
Entire Agreement.
Time is of the essence of the Loan Documents. The Loan Documents embody the entire
understanding of the parties with respect to the subject matter thereof and supersede all prior
understandings regarding the same subject matter.
15.10
Obligations of Lenders.
The obligations of each Lender hereunder are several, and no Lender shall be responsible for
the obligations or Commitments of any other Lender. Amounts payable hereunder to each Lender shall
be a separate and independent debt, and each Lender shall be entitled, to the extent not otherwise
restricted hereunder, to protect and enforce its rights arising out of the Loan Documents. It shall
not be necessary for Agent or any other Lender to be joined as an additional party in any
proceeding for such purposes. Nothing in this Agreement and no action of Agent or Lenders pursuant
to the Loan Documents shall be deemed to constitute Agent and Lenders to be a partnership,
association, joint venture or any other kind of entity, nor to constitute control of any Obligor.
Each Obligor acknowledges and agrees that in connection with all aspects of any transaction
contemplated by the Loan Documents, Obligors, Agent, Issuing Bank and Lenders have an arms-length
business relationship that creates no fiduciary duty on the part of Agent, Issuing Bank or any
Lender, and each Obligor, Agent, Issuing Bank and Lender expressly disclaims any fiduciary
relationship.
15.11
Confidentiality.
During the term of this Agreement and for 12 months thereafter, Agent and Lenders agree to
take reasonable precautions to maintain the confidentiality of any information that Obligors
deliver to Agent and Lenders and identify as confidential at the time of delivery, except that
Agent and any Lender may disclose such information (a) to their respective officers, directors,
employees, Affiliates and agents, including legal counsel, auditors and other professional
advisors; (b) to any party to the Loan Documents from time to time; (c) pursuant to the order of
any court or administrative agency; (d) upon the request of any Governmental
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Authority exercising regulatory authority over Agent or such Lender; (e) which ceases to be
confidential, other than by an act or omission of Agent or any Lender, or which becomes available
to Agent or any Lender on a nonconfidential basis; (f) to the extent reasonably required in
connection with any litigation relating to any Loan Documents or transactions contemplated thereby,
or otherwise as required by Applicable Law; (g) to the extent reasonably required for the exercise
of any rights or remedies under the Loan Documents; (h) to any actual or proposed party to a Bank
Product or to any Transferee, as long as such Person agrees to be bound by the provisions of this
Section; (i) to the National Association of Insurance Commissioners or any similar organization, or
to any nationally recognized rating agency that requires access to information about a Lenders
portfolio in connection with ratings issued with respect to such Lender; or (j) with the consent of
Obligors. Notwithstanding the foregoing, Agent and Lenders may issue and disseminate to the public
general information describing this credit facility, including the names and addresses of Obligors
and a general description of Obligors businesses, and may use Borrowers names in advertising and
other promotional materials.
15.12
Governing Law; Choice of Forum; Service of Process.
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(a)
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THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
CONFLICT OF LAWS PROVISIONS PROVIDED THAT PERFECTION
ISSUES MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT
OF LAW RULES SET FORTH IN ARTICLE IX OF THE UCC OR IN THE
PPSA OR CIVIL CODE OF QUEBEC, AS APPLICABLE) OF THE
PROVINCE OF ONTARIO AND THE FEDERAL LAWS OF CANADA
APPLICABLE THEREIN.
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(b)
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ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE PROVINCE OF ONTARIO, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF
THE OBLIGORS, THE AGENT AND THE LENDERS CONSENTS, FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS, EACH OF THE
OBLIGORS, THE AGENT AND THE LENDERS IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY
DOCUMENT RELATED HERETO. NOTWITHSTANDING THE
FOREGOING: (1) THE AGENT AND THE LENDERS SHALL HAVE
THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST AN
OBLIGOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY
OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL
OR OTHER SECURITY FOR THE OBLIGATIONS AND (2) EACH OF
THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS
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FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.
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(c)
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EACH OBLIGOR HEREBY WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE
MADE BY REGISTERED MAIL OR BY PERSONAL DELIVERY OR TELECOPIER AS PROVIDED IN
SECTION 15.3 DIRECTED TO THE ATTENTION OF OBLIGORS AT ITS ADDRESS SET FORTH
HEREIN AND SERVICE MADE BY REGISTERED MAIL SHALL BE DEEMED TO BE COMPLETED FIVE
(5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE MAIL POSTAGE
PREPAID AND IF MADE OTHERWISE SHALL BE DEEMED TO BE COMPLETED AT THE TIMES
PROVIDED IN SECTION 15.3. NOTWITHSTANDING THE FOREGOING, IF THE PARTY EFFECTING
SUCH SERVICE OF PROCESS KNOWS OR OUGHT REASONABLY TO KNOW OF ANY DIFFICULTIES
WITH THE POSTAL SYSTEM THAT MIGHT AFFECT THE DELIVERY OF MAIL, SUCH SERVICE OF
PROCESS MAY NOT BE MAILED BUT MUST BE EFFECTED BY PERSONAL DELIVERY OR BY A
TELECOMMUNICATIONS DEVICE CAPABLE OF CREATING A WRITTEN RECORD. NOTHING
CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS TO SERVE LEGAL
PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.
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15.13
Waivers by Obligors.
To the fullest extent permitted by Applicable Law, each Obligor waives (a) the right to trial
by jury (which Agent and each Lender hereby also waives) in any proceeding, claim or counterclaim
of any kind relating in any way to any Loan Documents, Obligations or Collateral;
(b) Presentment, demand, protest, notice of presentment, default, non-payment, maturity, release,
compromise, settlement, extension or renewal of any commercial paper, accounts, contract
rights, documents, instruments, chattel paper and guaranties at any time held by Agent on which
an Obligor may in any way be liable, and hereby ratifies anything Agent may do in this regard;
(c) notice prior to taking possession or control of any Collateral; (d) any bond or security that
might be required by a court prior to allowing Agent to exercise any rights or remedies; (e) the
benefit of all valuation, appraisement and exemption laws; (f) any claim against Agent or any
Lender, on any theory of liability, for special, indirect, consequential, exemplary or punitive
damages (as opposed to direct or actual damages) in any way relating to any Enforcement
Action, Obligations, Loan Documents or transactions relating thereto; and (g) notice of
acceptance hereof. Each Obligor acknowledges that the foregoing waivers are a material
inducement to Agent and Lenders entering into this Agreement and that Agent and Lenders are
relying upon the foregoing in their dealings with Obligors. Each Obligor has reviewed the
foregoing waivers with its legal counsel and has knowingly and voluntarily waived its jury trial
and other rights following consultation with legal counsel. In the event of litigation, this
Agreement may be filed as a written consent to a trial by the court.
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15.14
Survival of Representations and Warranties
All of the Obligors representations and warranties contained in this Agreement shall survive
the execution, delivery, and acceptance thereof by the parties, notwithstanding any investigation
by the Agent or the Lenders or their respective agents.
15.15
Fees and Expenses
The Borrower agrees to pay to the Agent, for its benefit, on demand, all costs and expenses
that Agent or Bank pays or incurs (but not the allocated costs of Agents employees engaged in
day-to-day administration, but including the Agents auditors fees and costs) in connection with
the negotiation, preparation, syndication, consummation, administration, enforcement, and
termination of this Agreement or any of the other Loan Documents, including, without limitation (a)
Extraordinary Expenses, (b) attorney costs; (c) costs and expenses (including reasonable lawyers
and paralegals fees and disbursements) for any amendment, supplement, waiver, consent, or
subsequent closing in connection with the Loan Documents and the transactions contemplated thereby;
(d) costs and expenses of lien searches; (e) taxes, fees and other charges for filing financing
statements and continuations, and other actions to perfect, protect, and continue the Agents Liens
(including costs and expenses paid or incurred by the Agent in connection with the consummation of
Agreement); (f) sums paid or incurred to pay any amount or take any action required of the Borrower
under the Loan Documents that the Borrower fails to pay or take; (g) costs of appraisals,
inspections, and verifications of the Collateral, including travel, lodging, and meals for
inspections of the Collateral and the Obligors operations by the Agent plus the Agents then
customary charge (U.S.$850 per day per person) for field examinations and audits and the
preparation of reports thereof for each agent or employee of the Agent with respect to each field
examination or audit; (h) costs and expenses of forwarding loan proceeds, collecting cheques and
other items of payment, and establishing and maintaining Payment Accounts, including lock boxes;
(i) costs and expenses of preserving and protecting the Collateral (and to maintain any insurance
required hereunder or to verify Collateral); and (j) costs and expenses (including attorneys
costs) paid or incurred, by Agent or any Lender, to obtain payment of the Obligations, enforce the
Agents Liens, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions
of the Loan Documents, or to defend any claims made or threatened against the Agent or any Lender
arising out of the transactions contemplated hereby (including preparations for and consultations
concerning any such matters). All legal, accounting and consulting fees shall be charged to
Borrower by Agents professionals at their full hourly rates, regardless of any reduced or
alternative fee billing arrangements that Agent, any Lender or any of their Affiliates may have
with such professionals with respect to this or any other transaction. The foregoing shall not be
construed to limit any other provisions of the Loan Documents regarding costs and expenses to be
paid by the Obligors. All of the foregoing costs and expenses shall be charged to the Borrowers
Loan Account as Revolving Loans as described in Section 5.2 and shall constitute Obligations.
15.16
Limitation of Liability
NO CLAIM MAY BE MADE BY ANY OBLIGOR, ANY LENDER OR OTHER PERSON AGAINST THE AGENT, ANY
LENDER, OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, OR AGENTS OF ANY OF THEM FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM
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FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH, AND EACH OBLIGOR AND EACH LENDER HEREBY WAIVE, RELEASE
AND AGREE NOT TO SUE UPON ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT
KNOWN OR SUSPECTED TO EXIST IN ITS FAVOUR.
15.17
Final Agreement
This Agreement and the other Loan Documents including the Fee Letter are intended by the
Obligors, the Agent and the Lenders to be the final, complete, and exclusive expression of the
agreement between them. This Agreement supersedes any and all prior oral or written agreements
relating to the subject matter hereof. No modification, rescission, waiver, release, or amendment
of any provision of this Agreement or any other Loan Document shall be made, except by a written
agreement signed by the Obligors and a duly authorized officer of each of the Agent and the
requisite Lenders.
15.18
Precedence
In the event that any provisions of the Loan Documents (other than this Agreement) (the
Conflicted Agreements) contradict and are otherwise incapable of being construed in conjunction
with the provisions of this Agreement, the provisions of this Agreement shall take precedence over
those contained in the Conflicted Agreements and, in particular, if any act of an Obligor is
expressly permitted under this Agreement but is prohibited under the Conflicted Agreements, any
such act shall be permitted under this Agreement and shall be deemed to be permitted under the
Conflicted Agreements.
15.19
Judgment Currency.
If for the purpose of obtaining judgment in any court it is necessary to convert an amount due
hereunder in the currency in which it is due (the Original Currency) into another currency (the
Second Currency), the rate of exchange applied shall be that at which, in accordance with normal
banking procedures, the Agent could purchase in the Toronto foreign exchange market, the Original
Currency with the Second Currency on the date two (2) Business Days preceding that on which
judgment is given. Each Obligor agrees that its obligation in respect of any Original Currency due
from it hereunder shall, notwithstanding any judgment or payment in such other currency, be
discharged only to the extent that, on the Business Day following the date the Agent receives
payment of any sum so adjudged to be due hereunder in the Second Currency, the Agent may, in
accordance with normal banking procedures, purchase, in the Toronto foreign exchange market, the
Original Currency with the amount of the Second Currency so paid; and if the amount of the Original
Currency so purchased or could have been so purchased is less than the amount originally due in the
Original Currency, each Obligor agrees as a separate obligation and notwithstanding any such
payment or judgment to indemnify the Agent against such loss. The term rate of exchange in this
Section means the spot rate at which the Agent, in accordance with normal practices, is able on the
relevant date to purchase the Original Currency with the Second Currency, and includes any premium
and costs of exchange payable in connection with such purchase.
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[Remainder of page intentionally left blank; signatures begin on following page]
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date set
forth above.
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BORROWER:
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MIDFIELD SUPPLY ULC
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Per:
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/s/ Dan Endersby
Name: Dan Endersby
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Title: President
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Address:
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1140, 2
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Street West
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P.O. Box 940
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Brooks, Alberta T1R 1B8
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Attn:
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Facsimile:
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GUARANTOR:
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MEGA PRODUCTION TESTING INC.
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Per:
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/s/ Dan Endersby
Name: Dan Endersby
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Title: President
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Address:
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P.O. Box 427
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Brooks, Alberta T1R 1B4
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with copies to:
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12413 94A Street
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Grand Prairie, Alberta T8V 5X7
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Attn:
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Facsimile:
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Loan and Security Agreement
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AGENT AND LENDERS:
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BANK OF AMERICA, N.A.
(acting through its Canada branch), as Agent
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Per:
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/s/ L.M. Junior Del Brocco
Name: L.M. Junior Del Brocco
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Title: Senior Vice President
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Address:
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Bank of America, N.A.
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(acting through its Canada branch)
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200 Front Street W., Suite 2700
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Toronto, Ontario M5V 3L2
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Attn:
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Facsimile:
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With a copy to:
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Address:
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Bank of America, N.A.
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TX1-492-22-13
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901 Main Street, 22
nd
Floor
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Dallas, Texas 75202
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Attn: Loan Administration
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Facsimile: (214) 209-4766
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Loan and Security Agreement
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BANK OF AMERICA, N.A.
(acting through its Canada branch), as a Lender
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Per:
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/s/ L.M. Junior Pel Brocco
Name: L.M. Junior Pel Brocco
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Title: Senior Vice President
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Address:
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Bank of America, N.A. (acting
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through its Canada branch)
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200 Front Street W., Suite 2700
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Toronto, Ontario M5V 3L2
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Attn:
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Facsimile:
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With a copy to:
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Address:
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Bank of America, N.A.
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TX1-492-22-13
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901 Main Street, 22
nd
Floor
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Dallas, Texas 75202
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Attn: Loan Administration
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Facsimile: (214) 209-4766
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Loan and Security Agreement
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ALBERTA TREASURY BRANCHES,
as a Lender
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Per:
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/s/ Dwayne Hoopfer
Name: Dwayne Hoopfer
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Title: Senior Corporate Relationship Manager
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Per:
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/s/ Adrian van Sluys
Name: Adrian van Sluys
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Title: Account Manager
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Address:
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Alberta Treasury Branches
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3
rd
Floor, 239-8
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Avenue
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Calgary, Alberta T2P 1B9
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Attn: Mr. Hoopfer
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Facsimile: (403) 974-5784
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Loan and Security Agreement
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JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as
a Lender
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Per:
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/s/ Barry J. Walsh
Name: Barry J. Walsh
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Title: Vice President
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Address:
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200 Bay Street, Floor 18
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Toronto M5J 2J2 Canada
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Attn: Barry J. Walsh
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Facsimile: (416) 981-2375
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With a Copy to:
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Address:
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JPMorgan Chase Bank, N.A.
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TX1-2921
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2200 Ross Ave., 6th Floor
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Dallas, TX 75201
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Attn: Christy West
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Facsimile: (214) 965-2594
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ROYAL BANK OF CANADA
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(Asset Based Finance),
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as a Lender
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Per:
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/s/ Marcelle Fernandes
Name: Ms. Marcelle Fernandes
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Title: Portfolio Manager
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Per:
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/s/ Tro DerBedrossian
Name: Tro DerBedrossian
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Title: Manager, Underwriting
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Address:
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Royal Bank Asset Based Finance
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320 Front Street West, 9
th
Floor
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Toronto, Ontario M5V 3B6
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Attn: Ms. Marcelle Fernandes
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Facsimile: (416) 974-0716
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Loan and Security Agreement
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HSBC BANK CANADA,
as a Lender
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Per:
|
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/s/ Wade Schuler
Name: Wade Schuler
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Title: Senior Account Manager
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Address:
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HSBC Bank Canada
407-8
th
Avenue SW
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Calgary, Alberta T2P 1E5
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Attn: Mr. Schuler
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Facsimile: (403) 693-8556
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Loan and Security Agreement