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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2 to FORM 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934

 

 

LOGO

Global Power Equipment Group Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   73-1541378

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

5199 N. Mingo Road

Tulsa, OK 74117

(918) 488-0828

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class to be so registered

 

Name of each exchange on which each class is to be registered

Common Stock, par value $0.01 per share   NASDAQ Global Market

Securities to be registered pursuant to Section 12(g) of the Act: None

 

 

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

 


Table of Contents

Table of Contents

 

Item 1. Business.    3
Item 1A. Risk Factors.    12
Item 2. Financial Information.    21
Item 3. Properties.    32
Item 4. Security Ownership of Certain Beneficial Owners and Management.    33
Item 5. Directors and Executive Officers.    35
Item 6. Executive Compensation.    39
Item 7. Certain Relationships and Related Transactions, and Director Independence.    58
Item 8. Legal Proceedings.    59
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.    60
Item 10. Recent Sales of Unregistered Securities.    62
Item 11. Description of Registrant’s Securities to be Registered.    62
Item 12. Indemnification of Directors and Officers.    65
Item 13. Financial Statements and Supplementary Data.    66
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.    66
Item 15. Financial Statements and Exhibits.    67

 

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Statements we make in this registration statement that express a belief, expectation or intention or otherwise are not limited to recounting historical facts are forward-looking statements. These forward-looking statements are subject to various risks, uncertainties and assumptions, including those noted under the headings “Cautionary Statement Regarding Forward Looking Statements” and “Risk Factors” in Items 1 and 1A of this registration statement.

 

Item 1. Business.

Overview

Global Power Equipment Group Inc. is a comprehensive provider of power generation equipment and maintenance services for customers in the domestic and international energy, power infrastructure and service industries.

We design, engineer and manufacture a comprehensive range of auxiliary power and heat recovery equipment primarily used to enhance the efficiency and facilitate the operation of gas turbine power plants as well as for other industrial, energy and power-related applications. With a strong competitive position in our product lines, we benefit from a large installed base of equipment in domestic and international markets.

We provide on-site specialty, maintenance and outage management services for commercial nuclear reactors and specialty, maintenance and other industrial services to fossil-fuel and hydroelectric power plants and other industrial operations in the United States. These services include a comprehensive range of industrial maintenance, modification and construction services for power generation, pulp and paper, chemical, refining, manufacturing and other industrial market segments. We also combine our services and equipment resources to offer turn-key solutions for aftermarket repair applications for the North American gas turbine power generation, hydrocarbon and cogeneration market segments.

Through predecessor entities, we have over 40 years of experience providing custom engineered products that are critical for the operation of gas turbine power plants and more than 18 years of experience providing complex outage shutdown services to operators of nuclear power plants as well as other industrial maintenance services. Our current corporate structure, in which Global Power Equipment Group Inc. acts through operating subsidiaries, dates to 2001 when we made our initial public offering and listed our stock on the New York Stock Exchange. We acquired our nuclear plant and other industrial services capabilities through a transaction completed in April 2005.

Corporate Structure Overview. The following chart shows the relationship between Global Power Equipment Group Inc., which is a Delaware corporation, and each of its three primary operating subsidiaries, each of which is a Delaware limited liability company.

LOGO

We and all of our U.S. subsidiaries filed voluntary Chapter 11 petitions under the United States Bankruptcy Code on September 28, 2006. We successfully exited Chapter 11 on January 22, 2008 pursuant to an approved Plan of Reorganization. Since our emergence from bankruptcy, our common stock has been quoted on the over-the-counter “Pink Sheets” under the symbol “GLPW.” For detail regarding the events leading to, certain consequences of, and the terms of our emergence from bankruptcy, see the discussion below in Item 1 under the heading “Bankruptcy Reorganization.”

Business Segments

We operate through two business segments which we refer to as our Products Division and our Services Division. For information about our segments see Note 12 to our consolidated financial statements included in this Form 10.

Through our Products Division, we engineer, design and fabricate products worldwide for the gas turbine power generation, energy and process industries. We supply auxiliary power equipment and components under the Braden Manufacturing and Consolidated Fabricators brands and heat recovery boilers under the Deltak brand. A significant portion of our products revenue originates outside of the United States.

Through our Services Division, we provide industrial technical services under the Williams Industrial Services Group brand, focusing on specialty services, outage management and overhaul of power facilities and other heavy industrial plants. All of our services revenue is from operations conducted in the United States.

 

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Revenues by segment for 2009, 2008 and 2007 are as follows (in thousands):

 

     For the Years Ended December 31,
     2009    2008    2007

Products Division

   $ 193,150    36%    $ 311,603    56%    $ 208,085    52%

Services Division

     347,460    64%      245,161    44%      195,333    48%
                             
   $ 540,610       $ 556,764       $ 403,418   
                             

Products Division

We sell our products to the gas turbine power generation, hydrocarbon and cogeneration market segments. Our principal customers are gas turbine original equipment manufacturers and engineering, procurement and construction contractors. We also provide replacement parts, filter elements and aftermarket retrofit equipment to both original equipment manufacturers and end users. Our products are critical to the efficient operation of gas turbine power plants and are custom engineered to meet customer-specific requirements. We manufacture and sell two primary product lines: auxiliary power equipment and heat recovery equipment.

The contracts under which we sell our products are generally fixed-price contracts of which approximately 95% are “lump sum bid” and 5% are “negotiated fixed-price”. Under lump sum bid contracts, we bid against other contractors based on relatively fixed customer specifications. In the case of negotiated fixed-price contracts, we are selected as the contractor before negotiating a price with the customer and often before the full scope and detail of the work to be performed has been determined.

Auxiliary Power Equipment. We provide a comprehensive range of products critical to the operation of gas turbine power plants through our Braden Manufacturing subsidiary, headquartered in Tulsa, Oklahoma. Our auxiliary power equipment product offerings, which we market under the Braden and Consolidated Fabricators brand names, include:

 

   

Filter Houses . A filter house cleans debris, dirt and other contaminants from the air that enters the turbine, using either a barrier filter or a pulse filter. Barrier filters use a series of filter elements contained in a large filter house to remove airborne contaminants. Pulse filters are self-cleaning filters that use blasts of air to expel dirt or ice from the filter element. In addition to a barrier or pulse filter, a filter house may include evaporative coolers, chiller coils, fog cooling systems, anti-icing systems and a broad range of other equipment to treat the air that is pulled through the turbine.

 

   

Inlet Systems . Inlet systems are large air intake ducts that connect the filter house to the gas turbine and provide silencing for the noise emanating from the gas turbine through the inlet. The major components of an inlet system are inlet silencers, expansion joints and inlet ductwork.

 

   

Exhaust Systems . Exhaust systems direct the hot exhaust from the turbine to the atmosphere. The main components of an exhaust system are exhaust ductwork, acoustic silencing equipment and the exhaust stack. Exhaust systems are custom engineered and complex due to the severe turbulence and heat exposure that they must endure.

 

   

Diverter Dampers . Diverter dampers divert the hot exhaust from the gas turbine into a heat recovery steam generator when the power plant is operated as a combined cycle facility or into the exhaust stack in the case of a simple cycle operation. We also design and manufacture various other types of dampers.

 

   

Selective Catalytic Emission Reduction Systems . These systems, commonly referred to as SCRs, are used in simple cycle gas turbine facilities and are focused on removing oxides of nitrogen and carbon monoxide.

 

   

Packaged Skids, Precision Parts and Specialty Fabrications . We manufacture these products in our Auburn, Massachusetts plant and sell them under the Consolidated Fabricators brand. Packaged skids in various configurations support the operation of the gas turbine. Precision parts and specialty fabrications are used in both new gas turbine equipment and in aftermarket applications.

Heat Recovery Equipment. We provide heat recovery steam generator boilers and specialty boilers and related products through our Deltak subsidiary, headquartered in Plymouth, Minnesota. We market these products under the Deltak brand name.

 

   

Heat Recovery Steam Generators . A heat recovery steam generator (commonly referred to as a “HRSG”) is a boiler that creates steam in a combined cycle power plant or a cogeneration plant using the hot exhaust emitted by the gas turbine or other heat source. This steam is either used to drive a steam turbine to produce additional electricity in a combined cycle power plant or is used for process purposes in a cogeneration plant. Each HRSG is custom designed and engineered to meet the specifications of the customer, taking into account the type of gas turbine and the environmental locale, among other factors. We design and manufacture HRSGs for applications supporting turbines up to 85 megawatt capacity for both new combined cycle and retrofitted simple cycle power plants. We have an installed base of more than 300 mid-sized HRSGs in over 20 countries.

 

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Specialty Boilers and Related Products . Specialty boilers are a highly customized class of equipment that capture waste heat and convert it into steam. We develop creative engineering solutions to produce specialty boilers used in process heat recovery and incineration systems, small power generation systems and marine cogeneration systems. Our specialty boilers are used in a wide range of markets, including oil and gas, pulp and paper, chemicals, petrochemical, marine and food industries. We have an installed base of more than 1100 specialty boilers in over 30 countries.

Supply Chain Structure. We fabricate our equipment through a combination of in-house manufacturing at our own factories in the United States and Mexico and outsourced manufacturing in other countries around the world. Our network of high-quality international manufacturing partners, located in more than 20 countries, allows us to manufacture equipment for power plant projects and power-related equipment worldwide at competitive prices. Outsourcing a portion of our manufacturing enables us to meet increasing demand without being restricted by internal manufacturing capacity limitations and also reduces our capital expenditure requirements. Our employees work closely with our international manufacturing partners to supervise the manufacture of our products at their facilities. Our use of manufacturing facilities around the world, whether our own or those of our manufacturing partners, allows us to respond to the particular sourcing initiatives of our customers, whether those initiatives call for global sourcing or for localized supply content.

Our technical engineering capabilities allow us to design and manufacture what we believe are among the broadest ranges of gas turbine power plant and other power-related equipment to meet each customer’s specific performance requirements. We provide products for gas turbine power plants to most of the leading power industry original equipment manufacturers and to a number of leading power generating companies and engineering, procurement and construction firms within the United States and abroad.

Gas Turbine Power Generation, Hydrocarbon and Cogeneration Market Overview . All gas turbine power plants combine a gas turbine with a generator to produce electricity. In a simple cycle gas turbine plant, the hot exhaust coming out of the gas turbine is vented to the atmosphere through an exhaust stack. In a combined cycle plant, the hot exhaust coming out of the gas turbine is fed into a heat recovery steam generator; the HRSG captures much of the heat from the gas turbine exhaust to generate steam, which in turn is used to power a steam turbine and generate more electricity before the exhaust is vented into the atmosphere. We manufacture products that are critical components of both simple cycle and combined cycle plants, including filter houses, diverter dampers, inlet and exhaust systems and turbine and generator enclosures. We also manufacture specialized diverter dampers that are used in combined cycle plants between the gas turbines and the HRSG.

We believe manufacturers of equipment and components supporting gas turbine power plants are well positioned to benefit from the need for new or more efficient power generation infrastructure. The advantages of power generation plants utilizing gas turbine technologies versus other technologies include:

 

   

lower construction costs,

 

   

shorter construction periods,

 

   

improved operating efficiency,

 

   

lower emissions of CO 2 ,

 

   

minimal other environmental impact,

 

   

flexibility to expand plant capacity, and

 

   

rapid start-up and shutdown time.

As a provider of equipment for simple and combined cycle gas turbine power plants, we should benefit from the growth of gas turbine power plant capacity that we expect to result from the factors listed above.

 

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Services Division

Our Services Division, headquartered in Atlanta, Georgia, is operated under the name Williams Industrial Services Group, LLC (“Williams”). Through Williams, we provide routine and specialty maintenance services to a wide range of utilities and industrial customers, including nuclear, fossil-fuel and hydroelectric power plants and pulp and paper mills. Our service offerings include industrial painting and coating, removal of hazardous materials, industrial insulation, repair and replacement of roofing systems and nuclear, fossil fuel and hydroelectric power plant maintenance. The majority of these services are designed to improve or sustain operating efficiencies and extend the useful lives of process equipment in these facilities. In addition, these services provide our customers with a credible alternative to maintaining in-house maintenance capabilities. We provide maintenance services both on a constant presence basis and as a service provider for discrete projects. By providing high quality industrial services with exemplary safety performance, we have forged long-standing relationships with many leading utilities.

We contract for approximately 90% of the services we provide on a cost-plus basis under contracts that provide for reimbursement of costs incurred plus an amount of profit in the form of a mark-up. We contract for the remaining approximately 10% of the services we provide on a fixed-price basis. In the case of lump sum bid contracts, we bid against other contractors based on customer specifications. Fixed-price contracts present certain inherent risks, including the possibility of ambiguities in the specifications received, problems with new technologies, and economic and other changes that may occur over the contract period. Accordingly, fixed-price agreements are not our preferred form of contract. However, because of efficiencies that may be realized during the contract term, fixed-price contracts may offer greater profit potential than other types of contracts.

Service offerings include the following:

 

   

Nuclear Power Plant Maintenance . We perform a full range of critical services for the nuclear facility market, including routine maintenance and modification work performed during outages, decommissioning services, cooling tower and steam generator replacement support and vessel and heat exchanger replacements. We are one of a limited number of companies qualified to perform comprehensive services in United States nuclear power plants under rules issued by the U.S. Nuclear Regulatory Commission (“NRC”). Under these rules, owners of nuclear facilities must qualify contractors by requiring the contractors to demonstrate that they will comply with NRC regulations on quality assurance, reporting of safety issues, security and control of personnel access and conduct.

 

   

Fossil Fuel and Hydroelectric Power Plant Maintenance . We provide routine maintenance, repair and capital project services primarily in coal-fired, gas-fired and hydroelectric power plants, often managing hundreds of craft employees. Services provided include electrical and mechanical maintenance, outage support, turnarounds, welding, scaffolding, staff augmentation, grounds maintenance and janitorial and custodial services.

 

   

Industrial Painting and Coatings . We perform cleaning, surface preparation, coatings application, quality control and inspection testing, utilizing Williams Insight™, our proprietary analysis system, to help our customers schedule and prioritize major coating projects based on a detailed cost/benefit analysis. Coatings applied in industrial environments are typically designed for specific applications. To satisfy these exacting requirements, many of these coatings involve multiple component mixes, require specialized application equipment and are strictly monitored and tested.

 

   

Insulation . We provide a variety of industrial insulation services, primarily in process-piping installations. These services are commonly packaged with industrial coating projects.

 

   

Roofing Systems . We routinely replace, repair and upgrade industrial facility roofing systems, primarily within the highly corrosive environments of pulp and paper manufacturing facilities. Our proprietary Pro-Tec™ Panel system allows our employees to safely work above operational equipment on roofing projects while completely containing all refuse materials. This allows us to rehabilitate or completely replace the roof of an industrial facility without interrupting production.

 

   

Abatement . We provide two primary abatement services for the removal of hazardous materials: removal of asbestos and removal of heavy metal based coatings such as lead paint. These services involve the demolition of the contaminated area, the collection and containment of hazardous material and arrangements for their disposal or storage. We do not take ownership of hazardous materials and do not assume responsibility for the liability associated with the materials other than for our actions meeting applicable statutory and regulatory requirements.

 

   

Valve Services . We provide integrated valve and actuator services to our customer base. These services include inspection, preventative maintenance and repair of various types of valves and actuators. We offer a full spectrum of valve services for diagnostic testing and analysis, project management, training and engineering.

Industrial Services Industry and Market Overview. The U.S. industrial services industry is a multi-billion dollar industry broadly defined as routine maintenance and technical services provided to industrial facilities ranging from manufacturing facilities to power generation plants. The industry is currently experiencing a shift towards outsourcing as plant operators seek to alleviate financial constraints, reduce labor costs, increase labor utilization and productivity and eliminate operational redundancies.

 

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We expect that power industry demand for industrial maintenance services will be driven by the following factors in the future:

 

   

Aging Infrastructure . According to the U.S. Department of Energy’s Energy Information Administration, more than half of the electrical generating capacity in the United States was placed in service before 1980. Coupled with the limited number of large-scale power generation facilities being constructed, the efforts to maintain older plants of all types and take advantage of newer and more efficient technologies at existing sites have created opportunities for companies providing maintenance and modification services.

 

   

Increasing Demand for Nuclear Plant Maintenance . The United States currently has 104 operating nuclear reactors that generate approximately 20% of annual electric production. These nuclear reactors have been in operation for an average of 30 years and require extensive ongoing engineering and maintenance services to support operations and improve performance. Nuclear power plants in the United States are subject to a rigorous program of Nuclear Regulatory Commission oversight, inspection, preventive and corrective maintenance, equipment replacement and equipment testing. Nuclear power plants are required by the NRC to go offline to refuel at intervals of no more than 24 months and to perform condition monitoring and preventive maintenance during every refueling outage. NRC regulations also require that nuclear generating facilities be decommissioned, or returned to “greenfield” status, at the end of their operating lives. Initially, commercial nuclear power plants in the United States were licensed to operate for 40 years, reflecting the amortization period generally used by electric utility companies for large capital investments. In 2000, the NRC issued the first license renewal to a nuclear power plant, extending its license for an additional 20 years beyond its original 40-year license. The NRC has since issued 20-year license extensions for numerous reactors and is reviewing license renewal applications for others. We expect the extended operating licenses of nuclear power plants will also increase the maintenance requirements of these facilities.

 

   

New Nuclear Plant Construction . We expect new nuclear plants to be constructed over the next 10 years. In February 2010, the federal government announced loan guarantees for the construction of the first new nuclear unit at Southern Nuclear Operating Company’s Vogtle Nuclear Plant near Waynesboro, Georgia. We believe we are well positioned to participate in new plant construction opportunities, through our Williams Services Division. These types of services are generally required in the later stages of the construction process and they are frequently subcontracted by new build contractors.

Customers and Marketing

Products . Our Products customers include original equipment manufacturers, engineering procurement and construction firms, utilities and independent operators of power generation facilities and firms engaged across several process related industries. The end users of most of our products are owners and operators of gas turbine power plants and refineries. We market our products globally through a sales network consisting of employees and independent representatives. We have employed sales representatives in China, Egypt, the Netherlands and the United States. Our sales teams travel extensively and work with our local manufacturing partners to assess local market conditions, utilize local contacts and respond quickly to our customers’ needs. We focus our sales and marketing efforts on end users of our products, including the developers and operators of gas turbine power plants, and on gas turbine original equipment manufacturers, which may order our products directly or specify the use of our products.

Services . Our Services customers include major private and government owned utilities throughout the United States as well as leaders in the United States paper and industrial sectors. We market our services using dedicated sales and marketing personnel, operations personnel, and external consultants retained for specific projects. We use specific services sales initiatives to emphasize long-term renewable contracts that are augmented by small to medium sized, fixed-price projects. Our services sales initiatives directly seek to apply operational strengths to specific facilities within the targeted markets, including nuclear power, pulp and paper and other industrial plants located throughout the United States.

 

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Revenues by Customer and Geographic Region . Our top customers vary from year-to-year depending on the relative size and duration of our projects over time. Customers that accounted for more than 10% of our consolidated revenues in 2009, 2008 and 2007 were:

 

       For the Years Ended December 31,  
       2009      2008      2007  

General Electric Company

     13    20    22

Southern Company

     12    10    11

Entergy Services Inc.

     11    —         —     

Tennessee Valley Authority

     11    —         —     

Our revenues from each of the customers listed in the above table are derived from multiple purchase orders or contracts that are entered into, performed, and terminate independently of each other. None of these multiple purchase orders or contracts accounts, individually, for a material part of our revenues.

Our Products revenues by geographic regions for the years 2009, 2008 and 2007 are shown in the following table both on the basis of revenue recognition and on the basis of shipment destination (in thousands):

 

     Years ended December 31,
     2009    2008    2007
     Revenue
Recognized In
   Product
Shipped To
   Revenue
Recognized In
   Product
Shipped To
   Revenue
Recognized In
   Product
Shipped To

United States

   $ 139,138    $ 66,320    $ 212,914    $ 105,301    $ 146,668    $ 68,393

Canada

     —        11      —        22,050      —        34,698

Europe

     38,471      31,345      80,792      20,704      40,355      8,263

Mexico

     10,518      364      16,350      116      19,832      11

Asia

     5,023      26,113      1,547      17,999      1,230      10,970

Middle East

     —        63,681      —        112,374      —        70,387

Other

     —        5,316      —        33,059      —        15,363
                                         

Total

   $ 193,150    $ 193,150    $ 311,603    $ 311,603    $ 208,085    $ 208,085
                                         

Our Services revenues, virtually all of which are derived in the United States, were $347.5 million for 2009, $245.2 million for 2008 and $195.3 million for 2007.

Backlog

Backlog is not a measure defined by generally accepted accounting principles, and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts. Backlog may not be indicative of future operating results and projects in our backlog may be cancelled, modified or otherwise altered by our customers.

Our backlog consists of firm orders or blanket authorizations from our customers. Backlog may vary significantly reporting period to reporting period due to the timing of customer commitments. The time between receipt of an order and actual completion or delivery of our products varies from a few weeks, in the case of inventoried precision parts, to a year or more, in the case of custom designed filter houses and other major plant components. We add a booking to our backlog for products when we receive an order accompanied by a written commitment from a customer. The maintenance services we provide through Williams are typically carried out under long-term contracts spanning several years. Upon signing a multi-year contract with a customer for services, we add to our backlog only the first twelve months of work that we expect to perform under the contract. Additional work that is not called for under the original contract is added to our backlog when we reach agreement with the customer as to the scope and pricing of that additional work.

 

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The following table shows our backlog amounts, by segment, as of the end of each of the last three years (in thousands):

 

       Backlog as of December 31,
       2009      2008      2007

Products

     $ 120,760      $ 168,904      $ 248,246

Services

       194,162        163,906        128,281
                          

Total

     $ 314,922      $ 332,810      $ 376,527
                          

Approximately 45% of the December 31, 2009 backlog is comprised of orders from the major customers shown in the table included above under “Customers and Marketing.” Based on production and delivery schedules, we anticipate that of our December 31, 2009 backlog, approximately 98% of the Products backlog and 100% of the Services backlog will be recognized as revenues during 2010.

Engineering, Design and Maintenance Capabilities

Products . The design and engineering expertise of our Products Division makes us an industry leader in the field of power generation equipment. We provide original design, retrofit and upgrade engineering and after-sales maintenance and repair of our products. Our products are custom-designed and engineered to meet the specifications of our customers. Our extensive engineering experience and proprietary designs from completed projects enhance our ability to efficiently satisfy our customers’ needs on projects that require significant engineering. As of December 31, 2009, we employed 52 engineers specializing in thermal, structural, electrical/controls, mechanical, acoustical, industrial and chemical engineering and other technical areas. Our engineers and designers use a PC-based network and engineering and drafting programs such as AutoCAD™, ANSYS™, STAAD™, Solidworks™ and several internally developed proprietary programs.

Services . We provide extensive training, certifications, and ongoing safety monitoring to all of our maintenance employees. For over ten years, we have maintained a safety record above the industry average, benefitting both us and our customers. We maintain a broad range of professional certifications relevant to the performance of many of the specialized services we provide. We maintain memberships and selected certifications with organizations such as the National Association of Corrosion Engineers, the Society of Protective Coatings, the American Nuclear Society, the American Society of Mechanical Engineers, the National Board of Boiler & Pressure Vessel Inspectors, the American National Standard Institutes, the American Society for Nondestructive Testing, the American Welding Society, Institute of Nuclear Power Operations (“INPO”) and other organizations. We are one of a limited number of companies qualified to work anywhere in a United States nuclear facility and have been one of the leading providers of coatings at United States nuclear facilities for more than 35 years.

Manufacturing, Outsourcing and Contract Labor

Products . We fabricate our products using a combination of in-house manufacturing and third-party subcontractors. Most of our subcontracting work is performed outside the United States. Our network of outsourcing relationships provides us the following benefits:

 

   

flexibility to rapidly expand or contract our manufacturing capacity, with minimal impact on our capital expenditure requirements and fixed expenses;

 

   

ability to manufacture in low cost countries, thereby reducing the overall cost of our products; and

 

   

ability to satisfy local content requirements.

Subcontractors account for a significant percentage of our manufacturing costs. We provide on-site technical advisors at our subcontracted facilities to ensure high levels of quality and workmanship. While we generally have proven long-term relationships with our subcontractors, we also routinely search for additional fabricators to enhance our ability to manufacture equipment at the lowest cost while maintaining high-quality standards and on-time delivery.

Services . We provide maintenance services throughout the United States with experienced, temporary craft labor and leased equipment, directed and supervised by an experienced team of project managers across our branch network. Our flexible staffing and equipment model enables us to meet seasonal demand without being restricted by internal capacity limitations, thus minimizing our fixed cost requirements.

 

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Materials and Suppliers

The principal materials for our products are carbon steel plate, stainless steel products and other structural shapes, insulation and finned tubing. We obtain these products from a number of domestic and foreign suppliers. The markets for most of the materials we use are served by a large number of suppliers and we believe that we can obtain each of the materials we require from more than one supplier.

Competition

Products . We compete with a large number of U.S. and international companies along all of our major product lines. We compete based on the price, quality, reliability and reputation of our products and our ability to engineer and design products to meet each customer’s unique specifications. Our competitors, some of which are significantly larger than we are and have significantly greater financial resources than we do, vary with respect to each product category we offer. We believe that no single competitor offers our breadth of products to the gas turbine power generation, hydrocarbon and cogeneration industries.

Services . The barriers to entry in industrial services are both financially and logistically low with the result that the industry is highly fragmented with no single company being dominant. Our competitors vary depending on plant geography and scope of services to be rendered. Several national vendors, which are significantly larger than we are and have significantly greater financial resources than we do, will often compete for larger maintenance and specialty opportunities that become available. Additional smaller vendors that operate on a regional basis will often compete for smaller opportunities associated with open shop labor sources. The key competitive factors in industrial services are reputation, safety record, price, service, quality, breadth of service and the ability to identify and retain qualified personnel. We believe our project management capabilities, service diversity, long-term customer relationships and safety standards differentiate us from our competitors. We also believe that the fact that we maintain a constant presence at many of our customers’ sites is a key competitive advantage because it provides us with an intimate understanding of these facilities and thereby allows us to better identify our customers’ service needs.

Employees

We had 667 permanent employees as of December 31, 2009. Of these, 88 were employed at our facility in Mexico under a collective bargaining agreement. We regularly hire unionized craft labor on a temporary basis in the operation of our Services Division, often deploying hundreds of employees simultaneously at a single site for intensive outage work. We believe that our relationships with our employees, both permanent and temporary, are satisfactory.

Intellectual Property

We use a variety of patents, trademarks and proprietary technologies in the ordinary course of business in both our Products and Services Divisions. We rely upon patents, on nondisclosure and confidentiality agreements with our employees, subcontractors, customers and others, and on various other security measures to protect our proprietary rights. Our patents related to heat exchangers generally expire in 2011; our patents related to exhaust systems generally expire in 2016; and a patent relating to a filter element clipper expires in 2027. We do not believe that any single patent or proprietary technology is material to our business and we do not believe our competitive position would be materially affected by competitors also using similar technologies and systems.

Compliance with Government Regulations

We are subject to certain federal, state and local environmental, occupational health and product safety laws applicable in the countries in which we operate. We also purchase materials and equipment from third-parties, and engage subcontractors, who are also subject to these laws and regulations.

Environmental. We are subject to extensive and changing environmental laws and regulations in the United States and in foreign jurisdictions where we do business. These laws and regulations relate primarily to air and water pollutants and the management and disposal of hazardous materials. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or hazardous materials.

Health and Safety Regulations. We are subject to the requirements of the United States Occupational Safety and Health Act (OSHA) and comparable state and foreign laws. Regulations promulgated by these agencies require employers and independent contractors who perform construction services, including electrical and repair and maintenance, to implement work practices, medical surveillance systems and personnel protection programs in order to protect employees from workplace hazards and exposure to hazardous chemicals and materials. In recognition of the potential for accidents within various scopes of work, these agencies have enacted very strict and comprehensive safety regulations.

Nuclear Regulatory Commission . Owners of nuclear power plants are licensed to build, operate, and maintain those plants by the NRC. Their license requires that they qualify their suppliers and contractors to ensure that the suppliers and contractors comply with NRC regulations. Our Service Division must demonstrate to its customers that we will comply with NRC regulations related to quality assurance, reporting of safety issues, security and control of personnel access and conduct.

While we believe that we operate safely and prudently and in compliance with all environmental, occupational health and product safety laws, there can be no assurance that accidents will not occur or that we will not incur substantial liability in connection with the operation of our business. However, we believe that all our operations are in material compliance with those laws and we do not anticipate any material capital expenditures or material adverse effect on earnings or cash flows as a result of complying with those laws.

Export Laws . To the extent we export technical services, data and products outside of the United States, we are subject to U.S. and international laws and regulations governing international trade and exports including but not limited to the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control with the Department of Treasury. A failure to comply with these laws and regulations could result in civil or criminal sanctions, including the imposition of fines, the denial of export privileges and suspension or debarment from participation in U.S. government contracts.

Available Information

You may obtain copies of our annual reports at our website at www.globalpower.com under the heading “Financials”. The information disclosed on our website is not incorporated by this reference and is not a part of this Form 10. We will make available on our website, free of charge, all of our future periodic filings with the Securities and Exchange Commission (the “SEC”), including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports, as soon as reasonably practicable after we electronically file with or furnish the reports to the SEC. You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, or on the SEC’s website located at www.sec.gov. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

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Bankruptcy Reorganization

We and all of our U.S. subsidiaries filed voluntary petitions for relief under Chapter 11 of the U. S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware on September 28, 2006. The bankruptcy stemmed principally from losses attributable to our large-scale HRSG product line within our Deltak LLC (“Deltak”) subsidiary and associated financial reporting deficiencies. The New York Stock Exchange (“NYSE”) suspended trading in our common stock as a result of our bankruptcy filing and our related failure to make required periodic filings with the SEC. Our listing on NYSE and our registration with the SEC were terminated on December 7, 2006.

During the pendency of our bankruptcy case, we discontinued our large-scale HRSG product line, terminating personnel and divesting a foreign subsidiary that had been dedicated to that product line. (We continue to serve the mid-sized HRSG segment with products that complement power generation turbines up to 85 megawatt capacity.)

We successfully emerged from bankruptcy pursuant to an approved Plan of Reorganization on January 22, 2008. That plan provided for payment in full of allowed claims of all creditors other than unsecured creditors of Deltak. Those unsecured creditors are expected to share in recoveries through a $34 million fund established to satisfy allowed unsecured claims against Deltak. Upon our emergence from bankruptcy, our pre-petition equity holders received one share of our new common stock for each share of common stock held before the bankruptcy and a right to purchase additional shares of our new common stock on a pro-rata basis pursuant to a rights offering that commenced on November 6, 2007 and expired on December 13, 2007. Upon emergence from bankruptcy on January 22, 2008, we issued 5,266,885 shares of our new common stock to pre-petition equity holders in exchange for stock held before the bankruptcy. On that same date, pursuant to the rights offering, a related backstop private placement, and our Management Incentive Co-Investment Plan, we issued an additional 9,589,138 shares of our new common stock in exchange for $72.5 million in new capital. The applicable price of our common stock in the rights offering was $7.65 per share. As part of the plan, we also entered into a $150 million exit financing package comprised of a $90 million term loan and a $60 million revolver facility. (All of the share and per share numbers in this Form 10 reflect the effect of the 1-for-9 reverse stock split of all of our outstanding shares of common stock that was effective June 30, 2010. For further information about the reverse split, see Item 11 of this Form 10.)

Cautionary Statement Regarding Forward-Looking Statements

This registration statement and its exhibits contain or incorporate by reference various forward-looking statements that express a belief, expectation or intention or are otherwise not statements of historical fact. Forward-looking statements generally use forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast” and other words that convey the uncertainty of future events or outcomes. Forward-looking statements include information concerning possible or assumed future results of our operations, including the following:

 

   

business strategies;

 

   

operating and growth initiatives and opportunities;

 

   

competitive position;

 

   

market outlook and trends in our industry;

 

   

expected financial condition;

 

   

future cash flows;

 

   

financing plans;

 

   

expected results of operations;

 

   

future capital and other expenditures;

 

   

availability of raw materials and inventories;

 

   

plans and objectives of management;

 

   

future compliance with orders and agreements with regulatory agencies;

 

   

expected outcomes of legal or regulatory proceedings and their expected effects on our results of operations; and

 

   

any other statements regarding future growth, future cash needs, future operations, business plans and future financial results.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, including unpredictable or unanticipated factors that we have not discussed in this registration statement. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by the forward-looking statements.

 

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In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You should consider the areas of risk and uncertainty described above, as well as those discussed under “Item 1A–Risk Factors” in this registration statement. Except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise and we caution you not to rely upon them unduly.

 

Item 1A. Risk Factors.

Our business, financial condition and results of operations may be impacted by one or more of the following factors, any of which could cause actual results to vary materially from historical and current results or anticipated future results.

Risk Factors Related to Our Operations

If the United States were to change its support of nuclear power, it could have a material adverse effect on our operations.

The U.S. government has been supportive of increased investment in nuclear power. However, if the federal government changed its policy or if public acceptance of nuclear technology declines, demand for nuclear power could be negatively affected and potentially increase the regulation of the nuclear power industry. Reduced demand for nuclear power or increased regulation would adversely affect our clients, which in turn could have a material adverse effect on our revenues.

If our costs exceed the estimates we use to set the fixed-prices of our contracts, our earnings will be reduced.

Nearly all of our power generation equipment sales contracts are entered into on a fixed-price basis. As a result, our Products Division has a limited ability to recover any cost overruns. Contract prices are established based in part on our projected costs, which are subject to a number of assumptions. The costs that we incur in connection with each contract can vary, sometimes substantially, from our original projections. Because of the large scale and long duration of our contracts, unanticipated changes may occur, such as customer budget decisions, design changes, delays in receiving permits and cost increases, as well as delays in delivery of our products. We often are contractually subject to liquidated damages for late delivery. Unanticipated cost increases or delays may occur as a result of several factors, including:

 

   

increases in the cost of commodities (primarily steel plate), labor or freight;

 

   

unanticipated technical problems (for example, difficulties in designing products that integrate well with new generations of gas turbines);

 

   

suppliers’ or subcontractors’ failure to perform (for example, substandard welding by a subcontractor), requiring modified execution plans or re-work.

Cost increases or overruns that we cannot pass on to our customers or our payment of liquidated damages under our contracts will lower our earnings. Increases in commodity prices may adversely affect our gross margins.

If we are unable to control the quality or timely production of products manufactured by our subcontractors, our reputation could be adversely affected and we could lose customers. If we are unable to recover any advance progress payments made to subcontractors, our profitability would be adversely affected.

We rely on subcontractors to manufacture and assemble a substantial portion of our products. Subcontractors account for a significant percentage of our manufacturing costs. The quality and timing of production by our subcontractors is not totally under our control. Our subcontractors may not always meet the level of quality control and the delivery schedules required by our customers. The failure of our subcontractors to produce quality products in a timely manner could adversely affect our reputation and result in the cancellation of orders for our products, significant warranty and repair costs and the loss of customers. Alternatively, we could be required to move subcontract manufacturing to other locations, resulting in increased costs.

In addition, we make advance progress payments to subcontractors in anticipation of their completion of our orders. We may be unable to recover those advances if a subcontractor fails to complete an order, which may adversely affect our profitability.

 

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Competition could result in decreased sales or decreased prices for our products and services.

We face and will continue to face significant competition for the sale of our products and services. Competition could result in a reduction in the demand for, or the prices that we can charge for, our products and services. Our success is dependent in large part on our ability to:

 

   

anticipate or respond quickly to our customers’ needs and enhance and upgrade our existing products and services to meet those needs;

 

   

continue to price our products and services competitively and find low-cost subcontractors that can produce quality products; and

 

   

develop new products and services that are accepted by our customers and differentiated from our competitors’ offerings.

Our competitors may:

 

   

develop more desirable, efficient, environmentally friendly or less expensive products;

 

   

be willing to accept lower prices to protect strategic market positions or increase market share;

 

   

be better able to take advantage of acquisition opportunities; or

 

   

adapt more quickly to changes in customer requirements.

As demand for our products has decreased due to the world-wide economic slow-down, competitors have shown a willingness to accept lower prices to absorb their fixed costs. As a result of our competitors’ business practices, we may need to lower our prices and/or devote significant resources to marketing our products in order to remain competitive. Lower prices and/or higher costs would reduce our revenues and our profitability.

Our future revenues and operating results may vary significantly from reporting period to reporting period.

Our quarterly revenues and earnings have varied in the past and are likely to vary in the future. Our power generation equipment sales contracts stipulate customer-specific delivery terms which, coupled with other factors beyond our control, may result in uneven recognition of revenues and earnings over time. Customer-imposed delays can significantly impact the timing of revenue recognition. Due to our relatively large average contract size, our power generation equipment sales volume during any given period may be concentrated in relatively few orders, intensifying the magnitude of these fluctuations. Furthermore, some of our operating costs are fixed. As a result, we may have limited ability to reduce our operating costs in response to unanticipated decreases in our revenues or the demand for our products in any given reporting period. Therefore, our operating results in any reporting period may not be indicative of our future performance. Because we must make significant estimates related to potential costs when we recognize revenue on a percentage of completion basis, these costs may change significantly from reporting period to reporting period based on new project information. For example, if labor efficiency experienced on a project is lower than we estimated at the outset of the project, the costs incurred on the project will increase and the percentage of completion may be reduced from earlier estimates. In addition, most of our power generation equipment revenues are based on fixed-price contracts, and the relative profitability can vary significantly between contracts. As a result, our profitability can vary from reporting period to reporting period based on the specific contracts being recognized.

We may not be able to maintain or expand our business outside the United States because of numerous factors outside our control.

Our international operations are subject to a number of risks inherent in doing business outside the United States including:

 

   

labor unrest;

 

   

regional economic uncertainty;

 

   

political instability;

 

   

restrictions on the transfer of funds into or out of a country;

 

   

currency exchange rate fluctuations;

 

   

export duties and quotas;

 

   

expropriations;

 

   

domestic and foreign customs and tariffs;

 

   

current and changing regulatory environments;

 

   

potentially adverse tax consequences;

 

   

availability of financing;

 

   

unfavorable commercial terms and conditions; and

 

   

potential for adverse dispute resolution outcomes.

 

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These factors may result in a decline in revenues or profitability and could adversely affect our ability to maintain or expand our business outside the United States.

A substantial portion of our revenues is from sales of equipment for gas turbine power plants. During periods of declining construction of new gas turbine power plants, the market for our products is significantly diminished.

The demand for our products depends on the continued construction of gas turbine power generation plants. The power generation equipment industry has experienced cyclical periods of slow growth or decline. In periods of decreased demand for new gas turbine power plants, our customers may be more likely to decrease expenditures on the types of products and systems that we supply and, as a result, our future revenues may decrease. These projects typically require funding from a healthy credit market as well. As long as credit markets are tight, funding could be difficult to obtain therefore delaying or even cancelling these types of projects entirely. A rise in the price or a shortage in the supply of natural gas could affect the profitability or operations of gas turbine power plants, which could adversely affect our future revenues. These and other factors may temper demand for our products. If in a particular geographic area prices of natural gas are so high or the supply of natural gas is so limited as to make the construction of new gas turbine power plants uneconomical in that geographic area, we will not derive any future revenues from projects in that geographic region unless and until those factors are reversed.

Environmental laws and regulations have played a part in the increased use of gas turbine technology in various jurisdictions. These laws and regulations may change or other jurisdictions may not adopt similar laws and regulations. Changes in existing laws and regulations could result in a reduction in the building and refurbishment of gas turbine power plants. In addition, stricter environmental regulation could result in our customers seeking new ways of generating electricity that do not require the use of our products. Furthermore, although gas turbine power plants have lower emissions than coal-fired power plants, emissions from gas turbine power plants remain a concern and attempts to reduce or regulate emissions could increase the cost of gas turbine power plants and result in our customers’ switching to alternative sources of power.

Other current power technologies, improvements to these technologies and new alternative power technologies that compete or may compete in the future with gas turbine power plants could affect our sales and profitability. Any change in the power generation industry that results in a decline in the construction of new combined cycle power plants or a decline in the upgrading of existing simple cycle power plants to combined cycle power plants could materially adversely affect our sales.

A small number of major customers account for a significant portion of our revenues, and the loss of any of these customers could negatively impact our business.

We depend on a relatively small number of customers for a significant portion of our revenues. In 2009, two customers accounted for approximately 25% of our consolidated revenues and approximately 23% of our backlog at the end of the year. In 2008, two customers accounted for approximately 30% of our consolidated revenues and approximately 33% of our backlog at the end of the year. Other than their obligations under firm orders placed in our backlog, none of our customers have a long-term contractual obligation to purchase any material amounts of products or services from us. All of our firm orders contain cancellation provisions, which permit us to recover only our costs and a portion of our anticipated profit if a customer cancels its order. If a customer elects to cancel, we would not realize the full amount of future revenues included in our backlog. We expect to continue to depend upon a relatively small number of customers for a significant percentage of our revenues. Because our major customers represent a large part of our business, the loss of any of our major customers could negatively impact our business and results of operations. Several of our customers have the ability to internally source some of the products we manufacture. Any increase in this activity could reduce our sales.

The dollar amount of our backlog, as stated at any time, is not necessarily indicative of our future revenues.

When we receive a firm order for a project from a customer, it is added to our backlog. However, customers may cancel or delay projects for reasons beyond our control and we may be unable to replace any canceled orders with new orders. To the extent projects are delayed, the timing of our revenues could be affected. If a customer cancels an order, we may be reimbursed for the costs we have incurred. Typically, however, we have no contractual right to the full amount of the revenues reflected in our backlog contracts in the event of cancellation. In addition, projects may remain in our backlog for extended periods of time. Revenue recognition occurs over extended periods of time and is subject to unanticipated delays. Fluctuations in our reported backlog levels also result from the fact that we may receive a small number of relatively large orders in any given reporting period that may be included in our backlog. Because of these large orders, our backlog in that reporting period may reach levels that may not be sustained in subsequent reporting periods. Our backlog, therefore, is not necessarily indicative of our future revenues or of long-term industry trends.

 

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The success of our business is partially dependent upon maintaining our safety record.

Our ability to obtain new business and retain our current business, particularly in our Services Division, is partially dependent on our continuing ability to maintain a safety record that exceeds the industry average. If we fail to maintain superior safety procedures, or if serious accidents occur in spite of those safety procedures, our revenues and results of operations, particularly in our Services Division, could be materially and adversely affected.

We have been named as a defendant in asbestos personal injury lawsuits.

Since we emerged from bankruptcy on January 22, 2008 we have been named as a defendant in nine personal injury asbestos lawsuits, in each of which we are or were one of multiple defendants. Through the date on which we emerged from bankruptcy, approximately 25 asbestos personal injury lawsuits had been filed against our Deltak subsidiary, all of which were extinguished by the bankruptcy court’s discharge order issued when we emerged from bankruptcy. Findings of liability on our part in any of three cases that were filed against us after we emerged from bankruptcy that remain unresolved could have an adverse effect on our financial position, results of operations or liquidity.

Efforts to increase our size through acquisitions will involve risks and could result in a material adverse effect on our business.

We intend to actively pursue additional acquisition opportunities, some of which may be material to our business and financial performance. We may not be able to grow our business in the future through acquisitions for a number of reasons, including:

 

   

acquisition financing not being available on acceptable terms or at all;

 

   

encountering difficulties identifying and executing acquisitions;

 

   

increased competition for targets, which may increase acquisition costs;

 

   

consolidation in our industry reducing the number of acquisition targets; and

 

   

competition laws and regulations preventing us from making certain acquisitions.

In addition, there are potential risks associated with growing our business through acquisitions, including the failure to successfully integrate and realize the expected benefits of an acquisition. For example, with any past or future acquisition, there is the possibility that:

 

   

the business culture of the acquired business may not match well with our culture;

 

   

technological and product synergies, economies of scale and cost reductions may not occur as expected;

 

   

management may be distracted from overseeing existing operations by the need to integrate acquired businesses;

 

   

we may acquire or assume unexpected liabilities;

 

   

unforeseen difficulties may arise in integrating operations and systems;

 

   

we may fail to retain and assimilate employees of the acquired business;

 

   

we may experience problems in retaining customers; and

 

   

problems may arise in entering new markets in which we may have little or no experience.

These risks could have a material adverse effect on our business, financial condition and results of operations.

Compliance with environmental laws and regulations is costly, and our ongoing operations may expose us to environmental liabilities.

Our operations are subject to laws and regulations governing the discharge of materials into the environment or otherwise relating to the protection of the environment or human health and safety. We are subject to various U.S. federal statutes and the regulations implementing them, as well as similar laws and regulations at the state and local levels and in other countries in which we operate.

If we fail to comply with environmental laws or regulations, we may be subject to significant liabilities for fines, penalties or damages, or lose or be denied significant operating permits. For example, if employees of our Services Division accidentally release hazardous substances while working at a customer’s facility, we may be subject to fines and costs of clean up as well as lawsuits by third parties. In addition, some environmental laws impose liability for the costs of investigating and remediating releases of hazardous substances without regard to fault and on a joint and several basis, so that in some circumstances we may be liable for costs attributable to hazardous substances released into the environment by others.

 

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A defect in our products could result in unanticipated warranty costs or product liability not covered by our insurance, which could adversely affect our financial condition or results of operations.

We generally provide warranties for terms of three years or less on our products. These warranties require us to repair or replace faulty products. Warranty claims could result in significant unanticipated costs. The need to repair or replace products with design or manufacturing defects could also temporarily delay the sale of new products and adversely affect our reputation.

In addition, we may be subject to product liability claims involving claims of personal injury or property damage. The sale and servicing of complex, large scale equipment used in a variety of locations and climates, and integrating a variety of manufactured and purchased components entails an inherent risk of disputes and liability relating to the operation and performance of the equipment and the health and safety of the workers who operate and come into contact with the machinery. Because our products are used primarily in power plants, claims could arise in different contexts, including the following:

 

   

fires, explosions and power surges that can result in significant property damage or personal injury; and

 

   

equipment failure that can result in personal injury or damage to other equipment in the power plant.

For example, a failure of a filter house provided by us could result in significant damage to costly precision components of the gas turbine generator that takes in conditioned air from the filter house. This, in turn, could cause the owner of the gas turbine to seek to recover significant damages from us. The insurance policies we maintain to cover claims of this nature are subject to deductibles and recovery limitations as well as limitations on contingencies covered, and we may therefore suffer losses from these claims for which no insurance recovery is available.

Expiration of the Price-Anderson Act’s indemnification authority could have adverse consequences on our Services Division.

We provide services to the nuclear industry through our Services Division. The Price-Anderson Act promotes the nuclear industry by offering broad indemnification to commercial nuclear power plant operators and Department of Energy (“DOE”) for liabilities arising out of nuclear incidents at power plants licensed by the Nuclear Regulatory Commission and at DOE nuclear facilities. That indemnification protects not only the NRC licensee or DOE prime contractor, but also others like us who may be doing work under contract or subcontract for a licensed power plant or under a DOE prime contract. To date, there has been no occasion for a determination whether the Price-Anderson Act’s indemnification provisions apply to all nuclear liabilities that might be incurred by a radioactive materials cleanup contractor. The recently enacted Energy Policy Act extended the Price-Anderson Act for an additional 20 years. A problem related to our provision of services at a nuclear facility could lead to a damage claim against us as to which we might not be entitled to indemnification. In addition, any well-publicized problem with those services, whether actual or perceived, could adversely affect our reputation and reduce demand for our services.

Our revenues would be adversely affected if we are unable to protect the proprietary design software programs that we use in our business.

We have developed several proprietary software programs and data to help us design our products. Our ability to protect our proprietary rights to these programs and this data is important to our success. We protect these rights through the use of internal controls, confidentiality and non-disclosure agreements and other legal protections. The legal protections afforded to our proprietary rights and the precautions we have taken may not be adequate to prevent misappropriation of our proprietary rights. We generally enter into non-disclosure and confidentiality agreements with our employees and subcontractors with access to sensitive design software and technology. However, these contractual protections do not prevent independent third-parties from developing functionally equivalent or superior technologies, programs, products or professional services. Third-parties may also infringe upon or misappropriate our proprietary rights and use them to develop competing products. In addition, the laws and enforcement mechanisms of some foreign countries do not protect proprietary rights to the same extent as do United States laws. Our inability to protect our proprietary rights and enforce intellectual property rights through infringement or other enforcement proceedings could have a material adverse effect on our business, financial condition and results of operations.

If we were required to commence legal actions to enforce our intellectual property or proprietary rights or to defend ourselves against claims that we are infringing on the intellectual property or proprietary rights of others, we could incur substantial losses and/or costs and divert management’s attention from operations.

 

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A failure to attract and retain employees who fill key requirements of our business may make it difficult to sustain or expand operations.

We must attract and retain highly qualified, experienced mechanical, design, structural and software engineers, service technicians, marketing and sales personnel and other key personnel to expand our operations. If we are unable to attract and retain necessary personnel, we may not be able to sustain or expand our operations.

Our revenues may fall sharply in times of general economic contraction and will not necessarily rise in tandem with general economic expansion.

Orders for new electrical power generation capacity are placed by our customers with long lead times. Consequently, our bookings and revenues may rise or fall sharply as total industry orders tend to follow pronounced cycles of general expansion and contraction. During a contraction phase, limited investment in new projects, deferrals of planned projects and project cancelations may significantly reduce our potential recognition of revenues and profits. At the end of an expansion phase, the existence of excess capacity will negatively affect power prices which results in a reduction in new orders. In addition to being cyclical in nature, our domestic revenues do not correlate precisely with changes in actual or forecasted new capacity due to timing differences in revenue recognition.

Demand for our products and services is cyclical and vulnerable to economic slowdowns and reductions in private industry and government spending. If adverse economic conditions continue or deteriorate further, then our revenues, profits and our financial condition may be adversely affected.

The industries we serve historically have been, and will likely continue to be, cyclical in nature and vulnerable to general slowdowns in the domestic and international economies. Consequently, our results of operations have fluctuated and may continue to fluctuate depending on the demand for products and services from these industries.

Due to the continued economic slowdown, many of our clients may face budget shortfalls or may delay capital spending that may decrease the overall demand for our products and services. Our clients may find it more difficult to obtain project financing due to limitations on the availability of credit and other uncertainties in the global credit markets. In addition, our clients may demand better pricing terms and their ability to timely pay our invoices may be affected by the continued economic slowdown. If private industry and government spending are reduced, then our revenues, net income and overall financial condition may be adversely affected.

Systems and information technology interruption could adversely impact our ability to operate.

We depend on our information technology systems for many aspects of our business. Our business may be adversely affected if our systems are disrupted or if we are unable to improve, upgrade, integrate or expand our systems to meet our changing needs. Any damage, delay or loss of critical data associated with our systems may delay or prevent certain operations and may materially adversely affect our financial condition, results of operations and cash flows.

The supply and cost of materials we use in manufacturing our products fluctuates and could increase our operating costs.

Local shortages of steel plate sometimes arise and it is possible that an adequate supply of steel will not continue to be available in all locations on terms acceptable to us. The materials we use in our products are subject to price fluctuations that we cannot control. Changes in the cost of raw materials can have a significant effect on our gross margins. Rapid increases in material prices are difficult to pass through to customers. If we are unable to pass on these higher costs, our results of operations and financial condition could decline.

 

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Risk Factors Related to Our Liquidity and Capital Resources

Volatility and uncertainty of the credit markets may negatively impact us.

We intend to finance our existing operations and initiatives with existing cash and cash equivalents, investments, cash flows from operations and potential borrowings under our Credit Facility. If adverse national and international economic conditions continue or deteriorate further, it is possible that we may not be able to fully draw upon our existing Credit Facility and we may not be able to obtain new financing on favorable terms. In addition, continued deterioration in the credit markets could adversely affect the ability of many of our customers to pay us on time and the ability of many of our suppliers to meet our needs on a competitive basis. If we cannot access necessary additional funds on acceptable terms, our business and operations may be negatively impacted.

Our inability to obtain adequate surety bonding or letters of credit could reduce our ability to bid on new work, which could have a material adverse effect on our future revenues and business prospects.

In line with industry practice, we are often required to provide performance and surety bonds to clients and may be required to provide letters of credit. These bonds and letters of credit provide credit support for the client if we fail to perform our obligations under the contract. If security is required for a particular project and we are unable to obtain a bond or letter of credit on terms commercially acceptable to us, we may not be able to pursue that project. In addition, bonding may be more difficult to obtain in the future or may only be available at significant additional cost as a result of general conditions that affect the insurance and bonding markets. Surety bonds and letters of credit may cease to be available to us on commercially reasonable terms.

We are vulnerable to reductions in our liquidity because of the capital-intensive nature of our business.

Our operations could require us to utilize large sums of working capital, sometimes on short notice and sometimes without assurance of recovery of the expenditures. Circumstances or events that could create large cash outflows include a surge in orders for power generation equipment that require working capital for execution, losses resulting from fixed-price contracts, environmental liabilities, litigation risks, unexpected costs or losses resulting from acquisitions, contract initiation or completion delays, client payment problems and product liability claims. If we encounter significant working capital requirements as a result of these or other factors, we may not have sufficient liquidity or the credit capacity to meet all of our cash needs and this could have a material adverse effect on our operations.

 

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The restrictions and covenants contained in our Credit Facility limit our ability to borrow additional money, sell assets and make acquisitions. Compliance with these restrictions and covenants may limit our ability to implement elements of our business strategy.

Our Credit Facility contains a number of significant restrictions and covenants that may pose a constraint to us by limiting our ability and that of our subsidiaries to:

 

   

borrow money or make capital expenditures;

 

   

incur liens;

 

   

pay dividends or make other restricted payments;

 

   

merge or sell assets;

 

   

enter into transactions with affiliates; and

 

   

make acquisitions.

In addition, our Credit Facility contains other restrictive covenants, including covenants that require us to maintain specified financial ratios, including leverage, fixed charges coverage and minimum liquidity. The facility includes mandatory repayment provisions that will require us to repay our indebtedness with proceeds from certain asset sales, certain debt issuances and certain insurance casualty events. The facility further includes an excess cash flow sweep provision that is based on annual operating results and changes in working capital requirements among other sources or uses of cash.

If we are unable to remain in compliance with our financial covenants currently in effect under our Credit Facility or obtain additional amendments or waivers from our lenders, we may be forced to reduce or delay capital expenditures and business acquisitions, sell assets, restructure or refinance our indebtedness, decline certain business opportunities from customers or seek additional capital.

If we were required to write down our goodwill or long-lived assets, our results of operations and stockholders’ equity could be materially adversely affected.

We have approximately $80.4 million of goodwill recorded on our consolidated balance sheet as of December 31, 2009. Goodwill represents the excess of the aggregate purchase price over the fair value of the identifiable net assets acquired in a business combination. We are required to review goodwill for impairment at least annually in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles—Goodwill and Other , using a two-step impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss. The first step of the test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any. Both steps of goodwill impairment testing involve significant estimates. Long-lived assets, such as property and equipment and intangible assets, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated future cash flows from the use of these assets. If we were required to write down our goodwill or long-lived assets, our results of operations and financial position could be materially adversely affected.

We are exposed to market risks from changes in interest rates and foreign currency exchange rates.

We are subject to market risk exposure related to changes in interest rates and from fluctuations in foreign currency exchange rates. Portions of our operations are located in foreign jurisdictions and a portion of our billings is paid in foreign currencies. Changes in foreign currency exchange rates or weak economic conditions in foreign markets could therefore cause fluctuations in those revenues derived from foreign operations. For example, a decrease in the value against the U.S. dollar of the foreign currency we receive for a project as to which a significant portion of our costs are incurred in U.S. dollars would adversely affect our revenues, as expressed in U.S. dollars, and our net income from that project. In addition, sales of products and services are affected by the value of the U.S. dollar relative to other currencies. Changes in foreign currency rates can also affect the costs of our products purchased or manufactured outside the United States. Changes in interest rates or foreign currency exchange rates could materially adversely affect our results of operations and financial position.

 

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Risk Factors Related to Our Common Stock and Being a Public Company

Fluctuations in the price of our common stock or lack of an active public trading market could make it difficult for our stockholders to sell their stock at desirable prices.

We have applied to list our common stock on the NASDAQ Global Market (“NASDAQ”) in connection with the registration of our common stock with the SEC. It is possible that our application will not be granted. If our common stock fails to qualify for initial or continued listing on NASDAQ, it may be more difficult for our stockholders to find purchasers for their shares of our common stock. An active public market for shares of our common stock may not develop or may not be maintained. The market price of our common stock may fluctuate significantly as a result of quarterly variations in our operating results, changes in the market’s expectations about our operating results and other factors. Fluctuations in the price of our common stock or lack of an active trading market for our common stock could make it more difficult for our stockholders to sell their stock at desirable prices.

Our recently implemented reverse stock split could have unintended adverse results.

On June 30, 2010, we filed an amendment to our Certificate of Incorporation to implement a 1-for-9 reverse stock split of all outstanding shares of our common stock. We effected the reverse stock split in order to satisfy the minimum price per share requirement for listing our stock on the NASDAQ Global Market. The following are some of the possible disadvantages or risks of a reverse stock split:

 

   

The reduced number of shares of our common stock resulting from a reverse stock split could adversely affect the liquidity of our common stock.

 

   

A reverse stock split may leave many stockholders with one or more “odd lots,” which are stock holdings in amounts of less than 100 shares of our common stock. These odd lots may be more difficult to sell than shares of common stock in even multiples of 100.

 

   

The market price per share of our common stock after the reverse stock split may not increase in proportion to the reduction in the number of shares of our common stock outstanding before the reverse stock split.

 

   

The total market capitalization of our common stock after the proposed reverse stock split may be lower than the total market capitalization before the proposed reverse stock split.

 

   

The per share price of our common stock after the reverse split might not be high enough to meet the minimum per share price requirement for listing on NASDAQ.

 

   

The reverse stock split may not result in a per share price that will attract institutional investors or investment funds and the share price may not satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our common stock may not necessarily improve.

Being a public company will increase our administrative costs.

As a result of the registration of our common stock on this Form 10, we will become a public reporting company. In complying with the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will adopt additional internal controls and disclosure controls and procedures, we may pay higher rates for director and officer liability insurance, and we will incur internal and external costs to prepare and distribute periodic public reports in compliance with our obligations under the securities laws. These additional costs will include, for example, fees to consultants and independent auditors to analyze, document and test internal controls to ensure compliance with Sarbanes-Oxley.

Provisions in our certificate of incorporation and by-laws could discourage a change of control that our stockholders may prefer.

We have elected in our certificate of incorporation to be governed by the Delaware merger moratorium statute and our by-laws contain advance notice requirements that our stockholders must meet before submitting proposals or director nominations to be considered at stockholder meetings. These provisions may have the effect of delaying, deterring or preventing a change in our control. These provisions could also impede a transaction in which our stockholders might receive a premium over the then-current market price of our common stock and our stockholders’ ability to approve transactions that they consider in their best interests.

 

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Item 2. Financial Information.

Selected Financial Data

The following table provides selected consolidated financial data for the periods shown. The data for the last four years (2009 through 2006) has been derived from our audited consolidated financial statements. The data for 2005 has been derived from our unaudited consolidated financial statements. The financial data for the interim periods ending March 31, 2010 and 2009 have been derived from our unaudited consolidated financial statements for those dates and periods. The unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in our opinion, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for those periods. Our results are not are not necessarily indicative of future performance or results of operations. All of the data in the table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” below in this Item 2, and our consolidated financial statements and related notes included in this Form 10.

 

           Three Months Ended  
     Years Ended December 31,     March 31,  
     2009     2008     2007     2006     2005     2010     2009  
(In thousands, except per share data)                (Debtor-in-Possession)     (unaudited)     (unaudited)  

Statement of Operations

              

Total revenues

   $ 540,610      $ 556,764      $ 403,418      $ 357,398      $ 311,446      $ 157,150      $ 125,974   

Gross profit

     80,425        99,980        72,490        36,946        18,983        25,257        26,230   

Gross profit percentage

     15     18     18     10     6     16     21

Operating expenses

     46,664        50,418        45,179        45,365        47,797        10,859        10,524   

Interest expense

     9,667        11,667        10,057        9,615        4,789        2,157        2,669   

Reorganization items, (beginning 2006)

     1,030        23,574        33,102        26,287        —          506        (132

Income tax expense

     5,282        3,151        5,121        3,453        2,853        1,629        1,153   

Operating income (loss)

     17,782        11,170        (20,969     (56,742     (36,456     10,106        12,016   

Income from discontinued

     10,105        23,668        6,028        —          —          1,059        618   

Non-controlling interest

     —          —          —          —          (127     —          —     

Net income (loss)

   $ 27,887      $ 34,838      $ (14,941   $ (56,147   $ (36,329   $ 11,165      $ 12,634   

Earnings (Loss) Per Share:

              

Basic

   $ 1.84      $ 2.43      $ (2.84   $ (10.62   $ (6.84   $ 0.73      $ 0.84   

Diluted

   $ 1.79      $ 2.39      $ (2.84   $ (10.62   $ (6.84   $ 0.70      $ 0.83   

Common shares outstanding:

              

Weighted-average shares outstanding

              

Basic

     15,124        14,365   (1)       5,262        5,267        5,273        15,230        14,993   

Diluted

     15,566        14,593   (1)       5,262        5,267        5,273        16,043        15,254   

Balance Sheet

              

Current assets

   $ 215,012      $ 184,800      $ 163,669      $ 138,596      $ 137,371      $ 180,371      $ 191,218   

Total Assets

     329,220        301,039        275,881        269,374        274,701        293,705        306,714   

Current liabilities

     148,810        115,132        143,985        98,135        108,932        104,222        110,373   

Liabilities subject to compromise (beginning 2006)

     541        604        122,435        126,452        —          460        584   

Long-term debt (including current portion)

     65,325        85,000        20,000        20,000        88,394        24,633        83,750   

Stockholders’ equity (deficit)

   $ 136,478      $ 105,273      $ (205 (2)     $ 13,946      $ 64,992      $ 146,876      $ 116,169   

 

(1)

Pursuant to our Bankruptcy Plan of Reorganization, all outstanding equity interests in the Company were canceled as of January 22, 2008. Each holder of an equity interest as of November 6, 2007 received a non-transferable, non-certificated right to purchase up to its pro rata share of the new common stock in a rights offering that commenced on November 6, 2007 and expired on December 13, 2007. As a result, on January 22, 2008, we issued 14,744,009 shares of new common stock (as adjusted for the 1-for-9 reverse stock split of our shares effective June 30, 2010).

(2)

Effective January 1, 2007, the Company adopted ASC 740, Income Taxes , resulting in a cumulative effect of a change in accounting principle of $1.3 million.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statements we make in the following discussion that express a belief, expectation or intention or otherwise are not limited to recounting historical facts are forward-looking statements that are subject to various risks, uncertainties and assumptions. Our actual results, performance or achievements, could differ materially from those we express in the following discussion due to a variety of factors, including the risks and uncertainties we have noted under the headings “Cautionary Statement Regarding Forward Looking Statements” and “Risk Factors” in Items 1 and 1A of this registration statement.

 

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The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this Form 10.

Overview

We have two reportable segments: our Products Division and our Services Division. Over the last three years, during the first of which we were still under bankruptcy protection, we have generated significant cash through the operation of these two divisions. Over those same three years we have experienced significant fluctuations in revenues, gross profits and operating results both on a consolidated basis and, to a greater extent, on a divisional basis. These fluctuations result from a number of factors including general economic conditions, changes in industrial demand for power, changes in the relative share of power production captured by different technologies, and changes in our product mix and our services mix that are dependent on the level and timing of customer awards of new business. In general, the business of our Products Division tends to follow general economic trends to a greater degree than the business of our Services Division which is more stable across business cycles.

Material Industry Trends

Products Division. The worldwide financial crisis starting in late 2008 resulted in reduced funding for gas turbine projects in 2009 with many projects either decreased in scope or delayed. Because our revenue from sales of auxiliary power equipment is highly dependent on the installation of new gas turbines, this had a significant impact on our revenues in 2009 and the impact continues into 2010.

Industrial demand for power in the United States declined in 2008 and 2009, marking the first time in over 50 years that power consumption in the United States decreased for two consecutive years. As power consumption begins to increase, we believe that demand for gas-fired power generation plants will increase due to their relatively quick construction times, low capital costs and low carbon emissions as compared to other forms of fossil-fueled power plants. While renewable energy sources could reduce future gas-fired power additions, we believe gas-fired power generation will continue to be the preferred choice for stand-by capacity to complement intermittent forms of renewable energy. We also believe that renewable energy sources still have a higher cost when compared to traditional forms of power generation. Economic recovery is typically accompanied by a rise in commodity price. In recent months we have seen substantial volatility in the commodity markets, which could have a significant impact on our costs.

Growth in international markets is expected to outpace domestic growth. In regions where natural gas is plentiful, we expect that gas-fired power generation will be the preferred choice for baseload power. In 2007, we experienced an increase in bookings and revenue due to an increase in world-wide demand, notably in the Middle East. However, this activity subsided once the worldwide economic crisis developed in late 2008. Many of those projects were delayed due to lack of project funding. In recent months we have seen an increase in the number of requests for quotes which may be a sign of a stabilizing market.

Our sales of heat recovery equipment are highly dependent on the oil and gas refining industry and mid-sized gas turbine installations for cogeneration and power generation. The worldwide financial crisis has resulted in decreased demand for refined petroleum products which, in turn, has reduced capital expenditures in the industry. Uncertainty surrounding climate change legislation has further delayed many projects.

Services Division. Demand for third party plant maintenance services has been positively impacted by the aging infrastructure of nuclear power generation facilities in the United States and the increasing tendency of plant owners electing to outsource maintenance as a means of reducing fixed costs. Prospects for construction of new nuclear power plants in the United States are gaining momentum for the first time in more than thirty years. However, the maintenance service customer base is currently mature and, to date, the number of nuclear sites has remained unchanged. Consolidation in the industry has also reduced the number of maintenance bid opportunities available to us and our competitors.

The demand for discretionary specialty services has remained relatively flat during 2009 due in part to capital budget constraints resulting from the current economic environment. Much of the customer base in this market operate in sectors that are flat or declining, such as pulp and paper, conventional power or automotive. As a result, the growth opportunities for our specialty services are confined to niche service offerings, typically within our existing customer base. We see alliances with partners possessing design engineering capabilities as presenting opportunities for us in the engineering, procurement and construction market. As more projects enter the construction phase, much of the nuclear management talent will be absorbed and customers will seek to outsource to subcontractors to meet new build project demands. This should provide opportunities for us to capitalize on the depth and established capabilities of our Williams operations.

 

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Recent Developments

Products Division. Demand for our product lines has historically fluctuated with industrial demand for power. We experienced a decline in pricing in 2009 due to the decrease in demand for our products and increased competition. Pricing pressure has impacted both the original equipment manufacturer and retrofit customers of our Products Division. Our use of a network of third party fabricators to manufacture a large percentage of our auxiliary power equipment products allows us to avoid a high fixed cost infrastructure. Nevertheless, we implemented several cost reduction initiatives in 2009 in response to current market conditions:

 

   

Reduction in force. We reduced headcount at our Plymouth, Minnesota; Tulsa, Oklahoma; Auburn, Massachusetts; and Monterrey, Mexico facilities to size the business for lower demand.

 

   

Workweek reduction at manufacturing facilities. We implemented reduced workweeks at two of our three manufacturing facilities to retain core talent while reducing current labor costs.

 

   

Reductions in controllable expenses. We reduced controllable expenses, including travel, freight, sales and marketing.

We believe that more favorable pricing levels will return when the demand for our products normalizes. We have retained the resources necessary to participate and execute in a robust market recovery.

Services Division. Our level of plant maintenance and modification work performed during refueling outages at nuclear power plants has remained stable, with period-to-period fluctuations resulting from the timing of particular outages within our customer base. In addition to our traditional plant maintenance business, during 2009 we aligned with complementary service providers to provide engineering, procurement and construction services for capital projects to a greater extent than in earlier years. We see this as an area of potential future growth that would allow us to reach new customers and markets and would provide cyclical offsets to the timing of refueling outages in our traditional maintenance business. During 2009 we also began offering valve maintenance and repair services and we continued to develop unique coating applications that enhance the value of the coatings and allow customers to obtain a longer coating life.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions and conditions.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements included under Page F-1 of this registration statement.

Revenue Recognition. We recognize revenues for auxiliary power equipment using the completed-contract method due to the short-term nature of the production period. Generally, these contracts specify separate phases of work that are frequently contracted separately. Under this method, we do not recognize any revenue until a contract phase is substantially complete, the customer takes risk of loss and title, and the installation is operating according to specifications or has been accepted by the customer. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to job costs and income amounts causing final amounts to differ from those originally estimated.

 

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We recognize revenues and costs of revenues for our heat recovery equipment products and for applicable fixed-price contracts provided through our Services Division on the percentage-of-completion method based on the percentage of actual hours incurred to date in relation to total estimated hours for each contract. We use this method because we believe expended labor hours is the best available measure of progress on these contracts. We expense pre-contract costs as incurred. Costs related to change orders are recognized when they are incurred. Change orders are included in total estimated contract revenues when they can be reliably estimated and it is probable that the adjustment will be approved by the customer or realized.

The percentage-of-completion method is only allowed under certain circumstances in which the revenue process is long-term in nature (often in excess of one year), the products sold are highly customized and a process is in place whereby revenues, costs and margins can be reasonably estimated. Our use of the percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of the contracts on which we use this method because we are able to produce reasonably dependable estimates of contract billings and contract costs. We use the level of profit margin that is most likely to occur on each separate contract. If we cannot precisely determine the most likely profit margin, we use the lowest probable level of profit in the range of reasonable estimates until the results can be estimated more precisely. Our estimate of the total hours to be incurred at any particular time has a significant impact on the revenue we recognize in the relevant period. Changes in job performance, job conditions, estimated profitability, final contract settlements and resolutions of claims may result in revisions to costs and income. We recognize the effects of any such revisions in the period in which the revisions are determined. We recognize estimated losses on uncompleted contracts in the period in which the losses first become apparent. Under percentage-of-completion accounting, we must make key judgments in areas such as percent complete, estimates of project revenues, costs and margin, estimates of total and remaining project hours and liquidated damages assessments. Any deviations from these estimates could have a significant positive or negative impact on our results of operations.

We recognize revenues for routine services that are not provided pursuant to fixed-price contracts when services are performed and the customer assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Specifically, these routine service revenues are recognized as the services are performed based upon an agreed-upon price for the completed service or based upon the cost incurred and agreed upon hourly rates. On cost plus contracts, we recognize revenue as costs are incurred and we include in revenue the applicable mark up earned through the date the services are provided.

In the fourth quarter of 2006, operating with Bankruptcy Court approval, we initiated a wind down of Deltak’s large-scale HRSG product line and caused Deltak to enter into completion agreements with certain HRSG customers to complete executory contracts for delivery of HRSG units. Some of the HRSG contracts under completion agreements were in a positive cash position as of the Chapter 11 filing date because aggregate collections of billings exceeded aggregate project costs incurred. Our recognition of this excess is deferred until the earnings process is considered completed upon satisfaction of performance milestones set forth in the completion agreements. We recognize the excess of collections of billings over aggregate project costs for these contracts as Deltak meets the performance milestones as specified for avoiding the liquidated damage claims.

Allowance for Doubtful Accounts. We generally establish an allowance for doubtful accounts when receivables are recorded and maintain the allowance at a level deemed appropriate based on loss experience and other factors affecting collectability.

Long-Lived Assets. In accordance with ASC 360-10-35, Subsequent Measurement - Impairment or Disposal of Long-Lived Assets, we group long-lived assets by legal entity for purposes of recognition and measurement of an impairment loss as this is the lowest level for which cash flows are independent. Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable according to ASC 360-10-05-4, Impairment or Disposal of Long- Lived Assets . If circumstances require a long-lived asset be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. We have determined that no events or change in circumstances have occurred that indicate that the carrying amount of any of these long-lived assets, including goodwill, may not be recoverable. For a discussion of goodwill, see the following section.

Goodwill . The Company has made acquisitions in the past that included the recognition of goodwill, which was determined based upon previous accounting principles. Pursuant to ASC 350, Intangibles-Goodwill and Other , beginning January 1, 2009, the Company will record as goodwill the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired.

Goodwill is not amortized, but instead tested for impairment at the reporting unit level on an annual basis or if an event occurs or circumstances change in a way to indicate that there has been a potential decline in the fair value of the reporting unit. We identify reporting units in accordance with ASC 350, Intangibles – Goodwill and Other , and ASC 280, Segment Reporting , based on how we make operating decisions, assess performance, and allocate resources and on the availability of discrete financial information.

As required under ASC 360-10, we perform periodic impairment testing for all goodwill using a two-step impairment test. The first step of the test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any. During 2009, 2008 and 2007, we performed our annual impairment review of goodwill and concluded that the estimated fair value of each reporting unit substantially exceeded the related carrying value and therefore no impairment was recorded. We consider fair value to substantially exceed carrying value if the fair value is at least 110% of carrying value.

We determine fair values for each of our reporting units, Products and Services, using a combination of income and market approaches. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for the business. Actual results may differ from those assumed in our forecast. We derive our discount rates by applying the capital asset pricing model (i.e., to estimate the cost of equity financing) and analyzing published rates for industries relevant to our reporting units. We use discount rates that are commensurate with the risks and uncertainty inherent in the reporting unit and in our internally developed forecasts. Valuations using the market approach reflect prices and other relevant observable information generated by market transactions involving comparable businesses.

Compared to the market approach, the income approach more closely aligns the reporting unit valuation to our specific business model, geographic markets and product and service offerings, as it is based on specific projections of the business. Required rates of return, along with uncertainty inherent in the forecasts of future cash flows, are reflected in the selection of the discount rate. Equally important, under this approach, reasonably likely scenarios and associated sensitivities can be developed for alternative future circumstances that may not be reflected in an observable market price. A market approach allows for comparison to actual market transactions and multiples. It can be somewhat more limited in its application because the population of potential comparables is often limited to publicly-traded companies where the characteristics of the comparative business and ours can be significantly different, market data is usually not available for divisions within larger conglomerates or non-public subsidiaries that could otherwise qualify as comparable, and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction, etc.) may be different or irrelevant with respect to our business. It can also be difficult under the current market conditions to identify orderly transactions between market participants in similar businesses. We assess the valuation methodology based upon the relevance and availability of data at the time of performing the valuation and weight the methodologies appropriately.

Changes in assumptions or estimates can materially affect the fair value measurement of a reporting unit, and therefore can affect the determination of whether an impairment exists. The following are key assumptions we use in making projections:

 

   

Business projections . We make assumptions about the demand for our products and services in the marketplace. These assumptions drive our planning assumptions for volume, mix, and pricing. We also make assumptions about our cost levels (e.g., capacity utilization, cost performance, etc.). These projections are derived using our internal business plans that are updated at least annually.

 

   

Long-term growth rate. A growth rate is used to calculate the terminal value of the reporting unit, and is added to the present value of the debt-free interim cash flows. The growth rate is the expected rate at which a reporting unit’s earnings stream is projected to grow beyond the planning period.

 

   

Discount rate . When measuring possible impairment, future cash flows are discounted at a rate that is consistent with a weighted average cost of capital that we anticipate a potential market participant would use. Weighted-average cost of capital is an estimate of the overall risk-adjusted after-tax rate of return required by equity and debt holders of a business enterprise, which is developed with the assistance of external financial advisors.

The key assumptions that changed at December 31, 2009, compared to prior year were limited to changes in business projections which are based on management’s view of current and future market conditions. As of December 31, 2008, management’s view of market conditions, and demand for our products represented our best estimate based on information available at the time, including perspective on economic events in the preceding three-month period. At December 31, 2009, management’s assessment of market conditions were influenced by the length and depth of the recession and its corresponding impact on demand for power generation equipment. The anticipated market decline lowered management’s business projections for the Products Division resulting in a decline in the estimated fair value; however, the fair value remained substantially in excess of its carrying value.

The Service division was less affected by the market decline due primarily to the long-term nature of their contracts and the addition of new customers in 2009. As a result, management’s business projections for Services showed an increase in overall net income as compared to prior year projections resulting in an increase in the estimated fair value of the division over 2008.

Economic projections . Assumptions regarding general economic conditions are included in and affect our assumptions regarding industry sales and pricing estimates for our products. These macro-economic assumptions include, but are not limited to, industry sales volumes, inflation, interest rates, prices of raw materials (i.e., commodities), and foreign currency exchange rates.

Income Taxes. We account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those differences are expected to be recovered or settled. We recognize in income the effect of a change in tax rates on deferred tax assets and liabilities in the period that includes the enactment date.

FASB requires companies to assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, using a “more likely than not” standard. In making such assessments, significant weight is given to evidence that can be objectively verified. A company’s current or previous losses are given more weight than its future outlook, although we do consider future taxable income projections, ongoing tax planning strategies and the limitation on the use of carryforward losses in determining valuation allowance needs. We establish valuation allowances for our deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

As required by FASB, we have evaluated our deferred tax assets each reporting period, including an assessment of our cumulative income over the prior three-year period, to determine if valuation allowances were required. We had a cumulative tax loss of $86.9 million for income tax years 2005, 2006 and 2007. Due to the significant negative factor of our three-year historical cumulative loss, a full valuation allowance was required for 2008. In 2008, taxable income was generated that utilized $28.1 million of the net operating loss carryover but a three-year historical cumulative loss remained of $58.8 million. This cumulative loss combined with uncertain market and economic conditions resulted in the full valuation allowance remaining in effect for 2009.

Valuation allowances related to deferred tax assets can be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. If we were to determine that we would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made.

During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite our belief that our tax return positions are supportable, we believe that certain positions may not be fully sustained upon review by tax authorities. We believe that our accruals for tax liabilities are adequate for all open audit years based on our assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters is determined to be different than the amounts recorded, those differences will impact income tax expense in the period in which the determination is made.

 

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Warranty Costs. We accrue estimated costs related to product warranty as the related revenue is recognized and included in cost of revenues. We estimate warranty costs based on past warranty claims and sales history. Our warranty terms vary by contract but generally extend for no more than three years after delivery or completion of services. We manage our exposure to warranty claims by having our field service and quality assurance personnel regularly monitor projects and maintain ongoing and regular communications with our customers.

Insurance. We self-insure a portion of our risk for health benefits and workers’ compensation. We maintain insurance coverage for other business risks including general liability insurance. We retain exposure to potential losses based on deductibles, coverage limits, and self-insured retentions. We maintain umbrella and excess liability coverage that generally provides $50 million of coverage for those instances in which our basic insurance coverage has been exhausted. Deductible / self-insured amounts on our various insurance coverages range from $10,000 per occurrence for fiduciary liability coverage to $100,000 per occurrence for health benefits (with a maximum self-insured aggregate of $2 million per year), to $500,000 per occurrence for worker’s compensation liabilities (with a generally applicable maximum self-insured workers’ compensation loss of approximately $3 million per year). We charged approximately $5.7 million, $5.2 million and $4.7 million to expense in 2009, 2008 and 2007, respectively, with respect to health benefits and workers’ compensation claims incurred and related insurance premiums for excess claim coverage. Our reserves at December 31, 2009 and 2008 consist of estimated amounts unpaid for reported and unreported claims incurred. As of December 31, 2009, we had $5 million in letters of credit outstanding as security for possible workers’ compensation claims. Our accrual for all self-insured risk retention as of December 31, 2009 was $6.6 million.

Selected financial and operating data for our reportable business segments for the most recent three fiscal years, as well as comparative interim information for the three months ended March 31, 2010 and 2009, is summarized below. This information, as well as the selected financial data provided in this Item 2 and our Consolidated Financial Statements and related notes provided in Item 13 of this registration statement, should be referred to when reading our discussion and analysis of results of operations below:

Results of Operations for the Three Months Ended March 31, 2010 and 2009:

 

           Variance  
(In thousands)    Three Months Ended March 31,     2009 to 2010  
   2010     2009     $     %  

Product revenues

   $ 35,054      $ 57,425      $ (22,371   -39.0

Service revenues

     122,096        68,549        53,547      78.1
                              

Total revenues

     157,150        125,974        31,176      24.7

Cost of product revenues

     26,324        39,966        (13,642   -34.1

Cost of service revenues

     105,569        59,778        45,791      76.6
                              

Cost of revenues

     131,893        99,744        32,149      32.2
                              

Gross profit

     25,257        26,230        (973   -3.7

Selling and administrative expenses

     10,859        10,524        335      3.2

Interest expense

     2,157        2,669        (512   -19.2

Reorganization expense (income)

     506        (132     638      -483.3

Income tax expense

     1,629        1,153        476      41.3

Income from discontinued operations

     (1,059     (618     (441   71.4
                              

Net income

   $ 11,165      $ 12,634      $ (1,469   -11.6
                              

Three months ended March 31, 2010 compared to the three months ended March 31, 2009

Revenues

Product Revenues . Total Product revenues declined $22.3 million, or 39.0%, to $35.1 million for the three months ended March 31, 2010 compared to $57.4 million for the corresponding prior period in 2009. The decline resulted largely from the continued reduction in the industrial demand for power and in the availability of project financing, both occurring as a result of the worldwide recession and both contributing to a sharp reduction in shipments of gas-fired turbines by original equipment manufacturers. The decline was also in part due to downward pricing pressure resulting from decreased demand leading to reduced margins on lower volumes during the downward part of the economic cycle.

Service Revenues . Total Service revenues increased $53.6 million, or 78.1%, to $122.1 million for the three months ended March 31, 2010, compared to $68.5 million for the corresponding prior period in 2009. This increase resulted from $53.5 million in new capital projects that began in the second half of 2009 and continuing into 2010 and increased scope of work provided in the course of refueling outages for existing customers.

Cost of Revenues

Cost of Product Revenues . The cost of Product revenues declined $13.7 million, or 34.1%, to $26.3 million for the three months ended March 31, 2010, compared to $40.0 million for the corresponding prior period in 2009, due primarily to a $10.5 million reduction in costs resulting from a decline in revenue, $1.1 million as a result of decrease in warranty expense related to the decrease in revenues and $2.1 million decrease attributable to pricing pressure, decreasing margin, on projects awarded in this part of the cycle.

Cost of Service Revenues . The cost of Service revenues increased $45.8 million, or 76.6%, to $105.6 million for the three months ended March 31, 2010, compared to $59.8 million for the corresponding prior period in 2009. The increase is directly attributable to the increase in Service revenues. Cost of Service revenues is typically proportionate to changes in Service revenues since they are comprised almost entirely of variable labor.

Selling and Administrative Expenses

Selling and administrative expenses increased $0.4 million, or 3.2%, to $10.9 million for the three months ended March 31, 2010, compared to $10.5 million for the corresponding period in 2009. The increase resulted from a $0.4 million increase in professional fees related to our efforts to prepare the form 10 registration statement and comply with public reporting requirements.

Interest Expense

Interest expense declined $0.5 million, or 19.2%, to $2.2 million for the three months ended March 31, 2010, compared to $2.7 million for the corresponding period in 2009. The decline was primarily attributable to a $0.9 million decrease in the interest expense for the long-term debt facility due to principal payments that reduced the balance by $59.1 million at March 31, 2010 as compared to the balance at March 31, 2009. These principal payments included $8.7 million in mandatory amortization payments and payments totaling $50.4 million made in April 2009 ($14.8 million) and January 2010 ($15.0 million) and March 2010 ($20.6 million) in compliance with the annual excess cash flow sweep provision of our Credit Facility. This decrease was offset by a $0.4 million increase in letters of credit fees and amortization of debt issuance costs for the three months ended March 31, 2010 as compared to the corresponding period in 2009.

Reorganization Expense (Income)

Total reorganization expenses increased $0.6 million to $0.5 million for the three months ended March 31, 2010, compared to a credit of $0.1 million for the corresponding period in 2009. The increase is the result of a $0.4 million claim reduction in the first quarter of 2009, which did not occur in 2010, and a $0.2 million increase in the estimate of liabilities subject to compromise as of March 31, 2010.

Income Tax Expense

Income tax expense for interim periods is based on estimates of the effective tax rate for the entire fiscal year. The Company’s income tax provision for the three months ended March 31, 2010 totaled $1.6 million, or 13.9% of pretax income, compared to $1.1 million, or 8.8% of pretax income, for the three months ended March 31, 2009. The effective income tax rate is based upon the estimated income for the year, the estimated composition of the income in different jurisdictions and discrete adjustments, if any, in the applicable quarterly periods for settlements of tax audits or assessments, and the resolution or identification of tax position uncertainties. For the three months ended March 31, 2010 and 2009, the effective income tax rates were lower than the federal statutory tax rate mainly due to the effects of operating in foreign jurisdictions with lower statutory tax rates and domestic valuation allowances.

Income from Discontinued Operations

Income from discontinued operations increased $0.5 million, or 71.4%, to $1.1 million for the three months ended March 31, 2010 compared to $0.6 million for the corresponding period in 2009. The increase was attributable to a $0.9 million increase in the amount of deferred revenue recognized on completion agreements from Deltak’s legacy large-scale HRSG contracts and $0.4 million related to reduction in other expenses. As milestones contained within the completion agreements are met, deferred revenues are removed from the balance sheet and recognized as income from discontinued operations; these are non-cash events. At March 31, 2010, $2.1 million of the original $34.0 million remains as deferred revenue to be recognized on future completions.

Results of Operations for the years ended December 31, 2009, 2008 and 2007:

 

(In thousands)

         Variance
   Years Ended December 31,     2008 to 2009    2007 to 2008
   2009     2008     2007     $     %    $     %

Product revenues

   $ 193,150      $ 311,603      $ 208,085      $ (118,453   -38.0%    $ 103,518      49.7%

Service revenues

     347,460        245,161        195,333        102,299      41.7%      49,828      25.5%
                                                 

Total revenues

     540,610        556,764        403,418        (16,154   -2.9%      153,346      38.0%

Cost of product revenues

     150,137        239,447        159,796        (89,310   -37.3%      79,651      49.8%

Cost of service revenues

     310,048        217,337        171,132        92,711      42.7%      46,205      27.0%
                                                 

Cost of revenues

     460,185        456,784        330,928        3,401      0.7%      125,856      38.0%
                                                 

Gross profit

     80,425        99,980        72,490        (19,555   -19.6%      27,490      37.9%

Selling and administrative expenses

     46,664        50,418        45,179        (3,754   -7.4%      5,239      11.6%

Interest expense

     9,667        11,667        10,057        (2,000   -17.1%      1,610      16.0%

Reorganization expense

     1,030        23,574        33,102        (22,544   -95.6%      (9,528   -28.8%

Income tax expense

     5,282        3,151        5,121        2,131      67.6%      (1,970   -38.5%

(Income) loss from discontinued operations

     (7,369     (23,668     5,170        16,299      -68.9%      (28,838   -557.8%

(Gain) on disposal of discontinued operations

     (2,736     —          (11,198     (2,736   -100.0%      11,198      -100.0%
                                                 

Net income (loss)

   $ 27,887      $ 34,838      $ (14,941   $ (6,951   -20.0%    $ 49,779      -333.2%
                                                 

Year ended December 31, 2009 compared to year ended December 31, 2008

Revenues

Product Revenues. Total Product revenues declined $118.5 million, or 38.0%, to $193.2 million for 2009 compared to $311.6 million for 2008. The decline resulted largely from reductions in the industrial demand for power and in the availability of project financing, both occurring as a result of the worldwide recession and both contributing to a sharp reduction in shipments of gas-fired turbines by original equipment manufacturers. The decline was also in part due to downward pricing pressure resulting from decreased demand leading to reduced margins on lower volumes during the downward part of the economic cycle. While we benefited from the run-off of our 2008 backlog, primarily related to Middle East projects, 2009 revenues from multi-turbine Middle East projects were $48.7 million below 2008 revenues from that market. Auxiliary power equipment volumes were also down $40.9 million in the U.S. and Canada and $8.7 million in international markets other than the Middle East. These declines were partially offset by increases of $10.6 million in Europe and $8.1 million in Asia. Total Product revenues for 2008 also included $20.2 million of revenue recognized in that year on one large HRSG project.

 

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Service Revenues. Total Service revenues increased $102.3 million, or 41.7%, to $347.5 million for 2009 compared to $245.2 million for 2008. The increase resulted from $71.0 million in capital project services performed for new customers in 2009 and $36.2 million of services due to increased scope of work provided in the course of refueling outages for existing customers. Specialty services for 2009 decreased $4.9 million from 2008 due to lower levels of activity within our customer base as a result of poor economic conditions, increases in the competitive environment resulting from the lower activity levels, and fewer capital projects in the fossil fuel energy sector.

Cost of Revenues

Cost of Product Revenues. The cost of Product revenues declined $89.3 million, or 37.3%, to $150.1 million for 2009 compared to $239.4 million for 2008. The primary components of the decline were a $94.6 million reduction in costs resulting from a decline in revenue, a $3.1 million reduction in warranty costs and a $2.3 million reduction in fabrication and material costs offset by a $10.7 million additional cost recognized related to one contract.

Cost of Service Revenues. The cost of Service revenues increased $92.7 million, or 42.7%, to $310.0 million for 2009 compared to $217.3 million for 2008. The increase is directly attributable to the $102.3 million increase in Service revenues. Our cost of Service revenues are typically proportionate to changes in Service revenues since they are comprised almost entirely of variable labor.

Selling and Administrative Expenses

Selling and administrative expenses declined $3.8 million, or 7.4%, to $46.6 million for 2009 compared to $50.4 million for 2008. The decline resulted from $2.5 million in cost reductions implemented within our Products Division attributable to reductions in force and control of operating expenditures. Additionally, we had a $1.3 million reduction in incentive compensation tied to financial performance. These savings were partially offset by increases in operating expenditures attributable to increased headcount and accounting support in our Services Division required in connection with an expanding volume of business in that division.

Interest Expense

Interest expense declined $2.0 million, or 17.1%, to $9.7 million for 2009 compared to $11.7 million for 2008. The decline was primarily attributable to a decrease in the interest expense for the long-term debt facility due to principal payments that reduced the balance by $19.70 million during 2009. These principal payments included $5.0 million in mandatory quarterly amortization payments and a payment of $14.7 million made in April 2009 in compliance with the annual excess cash flow sweep provision of our Credit Facility.

Reorganization Expense

Total reorganization expenses declined $22.5 million, or 95.6%, to $1.0 million for 2009 compared to $23.6 million for 2008 due primarily to a $14.3 million increase in the estimate of liabilities subject to compromise during 2008, which did not reoccur in 2009, and an $8.1 million decrease in professional expenses. Reorganization expenses recognized in 2008 included funding of a $34 million reserve with respect to Deltak and significant professional fees incurred in connection with the January 22, 2008 emergence from Chapter 11 protection.

Income Tax Expense

Income tax expense increased by $2.1 million, or 67.6%, to $5.3 million for 2009 compared to $3.2 million for 2008. Our effective tax rate was 15.9% for 2009, compared to 8.4% for 2008. The differences between our effective tax rate and the U.S. federal statutory rate of 35% principally result from the geographical distribution of our taxable income, fluctuations in the valuation allowance we use in connection with deferred tax assets, and permanent differences between the book and tax treatment of certain items. Our foreign earnings are normally taxed at lower rates than our U.S. earnings. We reduce our deferred tax assets in amounts determined by a valuation allowance when we are unable to conclude that we are more likely than not to realize a particular tax asset. Reductions we make in the valuation allowance reduce our effective tax rate. Conversely, if we increase the valuation allowance, the result is to increase our effective tax rate. Reductions we made to the valuation allowance reduced our effective tax rate by approximately 32% in 2009 and 15% in 2008. Permanent differences between book and tax treatment of certain items increased our effective tax rate by approximately 5% for 2009 and 2% for 2008. (In each case, these percentage differences are from the levels computed before taking into account the reductions in valuation allowance or the permanent differences, as the case may be.) At the end of 2009, we had approximately $50.9 million of federal and $44.6 million of state net operating loss carryforwards and $7.5 million of foreign tax credits available for possible use in future years.

 

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Income (Loss) from Discontinued Operations

Income from discontinued operations declined $16.3 million, or 68.9%, to $7.4 million for 2009 compared to $23.7 million for 2008. The decline was attributable to a $16.9 million decrease in the amount of deferred revenue recognized on completion agreements from Deltak’s legacy large-scale HRSG contracts, partially offset by $0.6 million for recoveries of bad debts during 2009. As milestones contained within the completion agreements are met, deferred revenues are removed from the balance sheet and recognized as income from discontinued operations; these are non-cash events. At December 31, 2009, only $3.0 million of an original $34.0 million remains as deferred revenue to be recognized on future completions.

Gain on Disposal of Discontinued Operations

Gain on disposal of discontinued operations was $2.7 million for 2009, resulting from a November 2009 release of escrow funds attributable to our October 2007 sale of Global Power Asia, Ltd. No comparable gain was recognized in 2008.

Year ended December 31, 2008 compared to year ended December 31, 2007

Revenues

Product Revenues . Product revenues increased $103.5 million, or 49.7%, to $311.6 million for 2008 compared to $208.1 million for 2007. The increase reflected a more robust overall market for auxiliary power equipment in 2008 as compared to 2007 and included $83.7 million attributable to an increase in multi-turbine power projects and $19.8 million of increased sales of mid-sized HRSG, aftermarket, and oil and gas related projects.

Service Revenues . Service revenues increased $49.8 million, or 25.5%, to $245.2 million for 2008 compared to $195.3 million for 2007. The increase reflected a $35.0 million increase in plant maintenance service revenues, of which $26.0 million was due to a larger number of refueling outages in 2008 than in 2007, and $9.0 million was due to scope expansions in particular refueling outage projects. Another $14.8 million of the increase was due to the addition of one large customer for Williams not related to plant maintenance.

Cost of Revenues

Cost of Product Revenues . Cost of Product revenues increased $79.7 million, or 49.8%, to $239.4 million for 2008 compared to $159.8 million for 2007. The increase was primarily due to an increase in revenue resulting in a $75.1 million increase in cost of revenues with gross margins remaining flat overall for the year and by a $4.6 million accrual for weld repair work on one contract.

Cost of Service Revenues . Cost of Service revenues increased $46.2 million, or 27.0%, to $217.3 million for 2008 compared to $171.1 million for 2007. The increase was directly attributable to an increased number of refueling outage projects and expanded scope on existing projects. Our cost of Service revenues are typically proportionate to changes in Service revenues. Gross margin percentage decreased year over year by one percent due to a slight change in the overall mix of services.

Selling and Administrative Expenses

Selling and administrative expenses increased $5.2 million, or 11.6%, to $50.4 million for 2008 compared to $45.2 million for 2007. The increase included $1.5 million of increased Products Division expenses from the addition of sales and application engineering personnel related to additional project requirements, a $0.5 million increase in Services Division expenses due to the write-off of a bad debt, and a $3.2 million increase in corporate expenses incurred to address regulatory compliance issues not previously addressed during our bankruptcy reorganization.

Interest Expense

Interest expense increased $1.6 million, or 16.0%, to $11.7 million for 2008 compared to $10.1 million for 2007. Interest expense increased by $8.7 million related to the new $90 million term loan pursuant to a new Credit Facility that we secured in connection with our emergence from Chapter 11 protection in January 2008 as well as an increase in interest expense related to bankruptcy of $0.4 million partially offset by $2.3 million decrease in interest resulting from the repayment of the $20 million debtor-in-possession Credit Facility upon our emergence from Chapter 11. In addition, amortization of debt issuance costs, included in interest expense, decreased by $2.3 million, interest resulting from letters of credit decreased by $2.5 million, and $0.4 million of additional interest income.

 

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Reorganization Expense

Reorganization expenses declined $9.5 million, or 28.8%, to $23.6 million for 2008 compared to $33.1 million for 2007. The decline reflects a $21.8 million decrease in professional expenses incurred in connection with our bankruptcy, partially offset by a $12.3 million increase in the estimate of liabilities subject to compromise. A substantial portion of the reorganization expenses incurred in 2008 were incurred in the first quarter of 2008 during which we emerged from Chapter 11 protection. See “Bankruptcy Reorganization” in Item 1 of this Form 10 for further information regarding our bankruptcy proceedings.

Income Tax Expense

Income tax expense declined by $2.0 million, or 38.5%, to $3.2 million for 2008 compared to $5.1 million for 2007. Our effective tax rate was 8.4% for 2008, compared to a negative 32.3% for 2007. The differences between our effective tax rate and the U.S. federal statutory rate of 35% principally result from the geographical distribution of our taxable income, fluctuations in the valuation allowance we use in connection with deferred tax assets, and permanent differences between the book and tax treatment of certain items. Our foreign earnings are normally taxed at lower rates than our U.S. earnings. We reduce our deferred tax assets in amounts determined by a valuation allowance when we are unable to conclude that we are more likely than not to realize a particular tax asset. Reductions we make in the valuation allowance reduce our effective tax rate. Conversely, if we increase the valuation allowance, the result is to increase our effective tax rate. Reductions we made to the valuation allowance reduced our effective tax rate by approximately 15% in 2008 and by approximately 91% in 2007. Permanent differences between book and tax treatment of certain items increased our effective tax rate by approximately 2% for 2008 and reduced our effective tax rate by approximately 14% for 2007. (In each case, these percentage differences are from the levels computed before taking into account the reductions in valuation allowance or the permanent differences, as the case may be.) At the end of 2008, we had approximately $59.3 million of federal and $47.3 million of state net operating loss carryforwards and $4.9 million of foreign tax credits available for possible use in future years.

Income (Loss) from Discontinued Operations

Income from discontinued operations increased $28.8 million to $23.7 million for 2008 compared to a net loss of $5.2 million for 2007. The increase included $22.8 million of income on deferred revenues recognized on completion agreements from the wind-down of Deltak’s large-scale HRSG product line and $1.5 million attributable to other income from discontinued operations in Brazil and Italy. This income was partially offset by $0.7 million in expenses related to discontinued operations. None of the net losses experienced in 2007 were repeated in 2008.

Gain on Disposal of Discontinued Operations

No gain (or loss) was recognized on disposal of discontinued operations during 2008. We recognized an $11.2 million gain on the disposal of discontinued operations in 2007 from the sale of Global Power Asia, Ltd. in October 2007.

Liquidity and Capital Resources

We believe a strong balance sheet is a necessary pre-requisite for creating sustainable growth in stockholder value. During the strong part of an economic cycle, adequate liquidity can be used to finance organic growth; during the weak part of an economic cycle, adequate liquidity engenders discipline on price terms and risk assumption. Through all phases of recurring economic cycles, adequate liquidity facilitates all material transactions, whether with bankers, insurance providers, vendors or customers. Adequate liquidity also provides a cushion against operational challenges such as uninsured costs or claims or adverse litigation outcomes and opens up a broader scope and larger scale of strategic alternatives, including potential acquisitions. Our liquidity position as of December 31, 2009 was strong; we had $103.2 million of cash on our balance sheet and outstanding borrowings of $65.3 million on our $150 million Credit Facility.

Sources and Uses of Cash. Our primary sources of cash are net cash flow from operations and borrowings under our credit facilities. Our primary uses of cash are principal and interest payments on our indebtedness, capital expenditures, working capital and general corporate purposes.

 

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Cash and Cash Equivalents. Cash and cash equivalents increased $45.6 million, or 79.2%, to $103.2 million at December 31, 2009 from $57.6 million at December 31, 2008, primarily due to cash provided by operations which reflects the benefit of working capital expended in 2008 resulting in a higher volume of cash receipts during 2009. This increase was partially offset by the use of $19.7 million of cash to pay down term debt during 2009.

Credit Facility. We entered into a $150 million Credit Facility on December 20, 2007 to be effective upon our emergence from Chapter 11 protection. The Credit Facility, which remains in effect in amended form, consists of a $90 million term loan facility and a $60 million revolving letter of Credit Facility with a cash advance sub-facility. Upon emergence from Chapter 11 protection on January 22, 2008, we borrowed $90 million under the term loan and issued $30 million of letters of credit under the revolving letter of Credit Facility, with no borrowings under the cash advance sub-facility. We used the $90 million of proceeds from the term loan facility to retire our $20 million debtor-in-possession Credit Facility; pay claims and other obligations in connection with our emergence from bankruptcy as contemplated by our Plan of Reorganization; fund working capital and other corporate needs; and pay fees and expenses associated with the financing of the facilities. The agreement governing the Credit Facility was amended in July 2008 to increase the cash advance sub-facility from its original level of $10 million to its current level of $25 million and to modify the liquidity covenant under the agreement to make it more favorable to us. The agreement was further modified effective December 31, 2009 to modify a fixed charges coverage ratio under the agreement to provide us with greater operational flexibility.

The Credit Facility includes affirmative and negative covenants, including customary limitations on the creation of new indebtedness and liens and restrictions on transactions and payments as well as the following three specific financial covenants:

 

   

Our maximum consolidated leverage ratio cannot exceed specified limits (3.75 at December 31, 2009; 3.75 at March 31, 2010). For these purposes, our consolidated leverage ratio on any date is the ratio of our consolidated debt to our domestic entity consolidated EBITDA for the four most recent quarters.

 

   

Our consolidated fixed charge ratio must be maintained at least at specified minimum levels (1.4 at December 31, 2009; 1.45 at March 31, 2010). For these purposes, our consolidated fixed charge ratio is the ratio of (a) our domestic entity consolidated EBITDA for the four most recent quarters reduced by our consolidated capital expenditures during and by our tax provision for that period, to (b) our domestic entity consolidated fixed charges (consisting of interest and scheduled principal payments on indebtedness) for that period.

 

   

We must maintain at all times a minimum level of liquidity ($10 million). For these purposes, our liquidity is equal to the sum of the amount available to our domestic entity to be borrowed (but not yet borrowed) as revolving loans under the Credit Facility plus all cash and cash equivalents held by our domestic entity.

If we fail to comply with any of these financial covenants, if we fail to comply with certain other customary affirmative or negative covenants, if we fail to make payments when due, or if we experience a change of control or become subject to insolvency proceedings, we will be in default under the Credit Facility. For these purposes, a change of control will occur if any one person or group obtains control of 35% of our outstanding stock or if continuing directors cease to constitute at least a majority of the members of our Board of Directors. If we default, the participating banks may restrict our ability to borrow additional funds under the Credit Facility, may require that we immediately repay all outstanding loans with interest and may require the cash collateralization of outstanding letter of credit obligations. We have given a first priority lien on substantially all of our assets as security for the Credit Facility. At March 31, 2010, and December 31, 2009, we were in compliance with all financial and other covenants under the Credit Facility.

Issuance of Common Stock and Warrants. Upon emergence from bankruptcy on January 22, 2008, we issued 5,266,885 shares of our new common stock to pre-petition equity holders in exchange for stock held before the bankruptcy on a one-for-one basis. On that same date, pursuant to the rights offering, a related private placement, and our Management Incentive Co-Investment Plan, we issued an additional 9,589,138 shares of our new common stock in exchange for $72.5 million in new equity capital. The applicable price of our common stock in the rights offering was $7.65 per share. Also on January 22, 2008 and in connection with the rights offering, we issued warrants to acquire 1,807,223 shares of our common stock at an exercise price of $7.9254 per share to the group of then-existing stockholders that backstopped the rights offering. The warrants expire on January 22, 2013. Through July 13, 2010, warrants were exercised to purchase 52,084 shares of our common stock in cashless transactions. We withheld 71,980 shares of common stock in connection with those exercises and the shares so withheld are now held by us as treasury shares. (All of the share and per share numbers in this Form 10 reflect the effect of the 1-for-9 reverse stock split of all of our outstanding shares of common stock that was effective June 30, 2010. For further information about the reverse split, see Item 11 of this Form 10.)

Liabilities Subject to Compromise. Liabilities subject to compromise include unsecured and under secured liabilities, including secured liabilities as to which there is uncertainty as to whether the value of the collateral securing the liabilities is less than, equals or exceeds such liabilities, incurred before the petition date. As of December 31, 2009, we had $0.5 million of liabilities subject to compromise, down from $136.8 million of liabilities subject to compromise as of our January 22, 2008 exit from bankruptcy protection. These amounts represent our estimates of known or potential pre-petition date claims that are likely to be resolved in connection with the Chapter 11 filings. These claims remain subject to further adjustments. Adjustments result from negotiations, actions of the Bankruptcy Court, rejection of executory contracts, the determination as to the value of any collateral securing claims, proofs of claim or other events.

 

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Changes in cash and cash equivalents for the years ended December 31, 2009, 2008 and 2007 are as follows:

 

(In thousands)

   Years Ended December 31,     Three Months Ended March 31,  
   2009     2008     2007     2010     2009  
               (Debtor-in-
Possession)
    (unaudited)  

Operating activities:

        

Statement of cash flow data:

          

Cash flows provided by (used in):

          

Operating activities

   $ 63,388      $ (119,472   $ 1,170      $ 1,418      $ 19,755   

Investing activities

     999        (3,397     11,707        493        (701

Financing activities

     (19,740     130,877        (1,925     (40,996     (1,315

Effect of exchange rate changes on cash

     940        (2,051     413        (1,508     (1,286
                                        

Change in cash and cash equivalents

   $ 45,587      $ 5,957      $ 11,365      $ (40,593   $ 16,453   
                                        

Operating Activities

We believe that cash generated from our operations and available to us under our Credit Facility will be adequate to meet our working capital requirements for the foreseeable future.

During the three months ended March 31, 2010, cash provided by our operating activities was $1.4 million. The principal sources of cash from operating activities were:

 

   

net income of $11.2 million, adjusted for non-cash charges of $1.6 million in depreciation and amortization, $0.4 million in stock based compensation, partially offset by $0.9 million in deferred revenue recognized on completion agreements.

 

   

a $19.5 million decrease in cash resulting from a decrease in billings in excess of costs and estimated earnings attributable to the expansion of scope and capital projects in our Services Division noted above.

 

   

a $12.9 million increase in cash resulting from a $10.4 million decrease in accounts receivable attributed to the collection of receivables from orders booked during a more robust part of the economic cycle and a $2.5 million decrease in other current assets and liability accounts.

 

   

a $4.3 million decrease in cash resulting from a $3.4 million decrease in billings in excess of costs and estimated earnings, a $2.6 million decrease in accounts payable due primarily to invoices paid at the end of the period; these were partially offset by a $1.7 million decrease in other accrued liabilities.

During 2009, cash provided by our operating activities was $63.4 million. The principal sources of cash from operating activities were:

 

   

net income of $27.9 million, adjusted for non-cash charges of $5.4 million for depreciation and amortization, a $3.8 million deferred income tax provision and $1.8 million in stock based compensation charges; these were partially offset by a $5.7 million in deferred revenue recognized on completion agreements and a $2.7 million gain recognized on the sale of discontinued operations.

 

   

a $24.6 million increase in cash resulting from a $24.4 million decrease in costs and estimated earnings in excess of billings and a $0.2 million decrease in inventories. The decrease in cost and estimated earnings in excess of billings is due primarily to the realization of work-in-process in 2009.

 

   

a $21.7 million increase in cash resulting from a $16.6 million increase in accounts payable caused by the expansion of scope and capital projects in our Services Division noted above, and $5.1 million increase in other accrued liabilities.

 

   

a $13.4 million decrease in cash resulting from a $6.3 million decrease in trade receivables due primarily to lower shipment volumes and a $7.1 million decrease in other current assets and liability accounts.

During 2008, cash used in operating activities was $119.5 million, primarily as a result of:

 

   

a $121.8 million decrease in cash resulting from a decrease in liabilities subject to compromise reflecting claims paid upon emergence from bankruptcy in January 2008.

 

   

a $17.4 decrease in cash resulting from an increase in accounts receivable due primarily to activity in the Products Division.

 

   

net income of $34.8 million, adjusted for non-cash charges of $5.3 million for depreciation and amortization, $1.1 million for deferred income tax provision, $1.4 million in stock based compensation offset by $21.2 million in deferred revenue recognized on completion agreements.

 

   

a $1.5 million decrease in cash reflecting changes in other current assets and liability accounts.

During 2007, cash provided by our operating activities was $1.2 million, primarily as a result of

 

   

a $16.9 million increase in cash resulting from a $11.4 million decrease in accounts receivable due primarily to increased collections from customers post bankruptcy proceedings, a $5.0 million decrease in inventory and a $0.5 million increase in other assets.

 

   

a $34.8 million increase in cash resulting from a $24.9 million increase in accounts payable primarily due to higher professional fees related to the emergence from bankruptcy and a $9.9 million increase in billings in excess of costs in estimated earnings.

 

   

a $4.9 million decrease in cash resulting from a $3.5 million decrease in other accrued liabilities and a $1.1 million decrease in liabilities subject to compromise reflecting the payment of claims associated with bankruptcy proceedings.

 

   

net loss of $14.9 million, adjusted for non-cash charges of $7.2 million for depreciation and amortization, a $3.7 million deferred income tax provision, a $1.9 million write off of debt issuance costs and $0.8 million in stock based compensation charges; these were partially offset by a $11.2 million gain recognized from the sale of discontinued operations and a $5.2 million in deferred revenue recognized on completion agreements.

Investing Activities

Cash provided by investing activities for the three months ended March 31, 2010 was $0.5 million, made up primarily of decreases in restricted cash offset by purchases of fixed assets.

Cash provided by investing activities in 2009 was $1.0 million, made up primarily of decreases in restricted cash and proceeds from the sale of discontinued operations offset by purchases of fixed assets.

Cash used in investing activities for 2008 was $3.4 million, made up primarily of purchases of fixed assets.

Cash provided by investing activities for 2007 was $11.7 million, made up primarily of proceeds from the sale of discontinued operations, offset partially by purchases of fixed assets and increases in restricted cash.

Financing Activities

Cash used in financing activities for the three months ended March 31, 2010 was $41.0 million, resulting from principal payments made on our Credit Facility which includes: $35.7 million payments on the excess cash flow provision calculated as of December 31, 2009 and $5 million pre-payment of the 2010 quarterly Amortization payments offset by $0.3 million in debt issuance costs incurred.

Cash used in financing activities for 2009 was $19.7 million, primarily the result of principal payments made on our Credit Facility.

Cash provided by financing activities for 2008 was $130.9 million, primarily the result of proceeds from the Credit Facility and issuance of common stock, offset partially by principal payments made on the debtor-in-possession Credit Facility and payments of debt issuance costs.

Cash used in financing activities for 2007 was $1.9 million, primarily the result of payments of debt issuance costs.

 

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Contractual Obligations

Contractual obligations at December 31, 2009:

 

       Payments due by period (in thousands)
       Total      Less than
1 year
     1-3
years
     3-5
years
     More than
5 years

Long-Term Debt Obligations

     $ 65,325      $ 40,692      $ 15,000      $ 9,633      $ —  

Interest on Long-Term Debt (1)

       7,217        2,701        4,321        195        —  

Capital Lease Obligations (2)

       58        34        24        —          —  

Operating Lease Obligations (3)

       3,407        1,365        1,687        355        —  
                                            

Total

     $ 76,007      $ 44,792      $ 21,032      $ 10,183      $ —  
                                            

 

(1)

Refer to Notes 2 and 10 to the consolidated financial statements included in Item 15 “Financial Statements and Exhibits” of this Form 10. Amounts reflect an estimated interest rate of 8% on an outstanding balance of $65.3 million, adjusted for known principal payments, on our Credit Facility due January 2014.

 

(2)

Outstanding capital leases at December 31, 2009 are primarily comprised of copier leases.

 

(3)

Our operating leases are for leases for office and warehouse spaces.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk. Our primary market risk exposure is volatility of interest rates, primarily in the United States. We manage interest rates through the use of a combination of fixed and floating rate debt and interest rate swap agreements. We are subject to interest rate changes on our LIBOR-based variable interest $150 million Credit Facility. As of March 31, 2010 and December 31, 2009, respectively, we had $24.6 million and $65.3 million of outstanding borrowings on our Credit Facility. Per Amendment No. 3 to the Credit Facility, we made a principal payment in the amount of $20.0 million on January 9, 2010. On March 31, 2010, we made an annual excess cash flow sweep payment that reduced the outstanding principal balance to $24.6 million. To hedge against some of our variable interest rate exposure, on March 31, 2008, we entered into an interest rate swap agreement to convert $60 million of the Credit Facility from a variable rate of interest to a fixed rate of 2.97% per annum. That hedge agreement terminated in March 2010.

Interest rate sensitivity – Based on our level of variable rate debt at March 31, 2010, a 50 basis point fluctuation in short-term interest rates would have an approximate $0.1 million impact on our expected pre-tax income on an annual basis. At December 31, 2009, a similar fluctuation would have an approximate $0.2 million impact on our expected pre-tax income.

Foreign Currency Exchange Rate Risk. We have foreign currency exposures related to buying and selling in currencies other than the U.S. dollar. To manage these risks, we enter into foreign currency forward agreements. At March 31, 2010 and at December 31, 2009, our most significant foreign currency exposures involved the Euro and the South Korean Won. Based on currency forward contracts in place at each of these dates, a 10% strengthening or weakening in the Euro from year-end exchange rates would decrease or increase our pretax income by approximately $0.4 million (at March 31, 2010) and $0.5 million (at December 31, 2009) and a similar change in the South Korean Won would decrease or increase our pretax income by approximately $0.3 million at either date.

 

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Item 3. Properties.

Our corporate offices are currently located in Tulsa, Oklahoma. The lease for this facility expires in October 2010. We have eight other U.S. facilities, as well as facilities in the Netherlands, Mexico and China. The following table sets forth information about our material facilities at December 31, 2009:

 

Location

  

Owned/Leased

(Expiration Date)

  

Principal Uses

Products Division

     

Heat Recovery Equipment

     

Plymouth, Minnesota*

   leased (8/30/10)    Administrative office

Plymouth, Minnesota

   owned    Manufacturing and administrative office

Auxiliary Power Equipment

     

Tulsa, Oklahoma

   leased (8/31/11)    Manufacturing and administrative office

Auburn, Massachusetts

   owned    Manufacturing and administrative office

Heerlen, The Netherlands

   leased (7/31/13)    Administrative office

Monterrey, Mexico

   owned    Manufacturing

Shanghai – Waigaoqiao Free Trade Zone, China

   leased (2/28/11)    Warehouse

Shanghai – Xuhui District, China

   leased (11/16/10)    Administrative office

Services Division

     

Tucker, Georgia

   leased (10/31/14)    Administrative office

Stone Mountain, Georgia

   leased (4/30/10)    Warehouse

Lakeland, Florida

   leased (month-to-month)    Administrative office

Roxboro, North Carolina

   leased (month-to-month)    Administrative office

We consider each of our facilities to be in good operating condition and sufficient for its current use. Each of our owned domestic real properties is encumbered by a lien under our Credit Facility.

 

* The lease on this property was early terminated on February 28, 2010.

 

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Item 4. Security Ownership of Certain Beneficial Owners and Management.

Before we filed this Form 10, holders of more than five percent of our common stock have not been required to file ownership reports with the SEC and only one such holder, Brown Advisory Holdings Incorporated, has filed such a report with the SEC since our emergence from bankruptcy in January 2008. Based on stockholder voting at our April 22, 2010 annual meeting of stockholders, we believe it is likely that other entities hold more than five percent of our common stock. However, we do not know how many shares any of these other entities hold or whether they continue to hold those shares. We have included Brown Advisory Holdings Inc. in the following table and have reflected information set forth in the Schedule 13G that firm filed with the SEC. Except as indicated otherwise, the following table sets forth certain information, as of July 13, 2010, regarding the beneficial ownership of our common stock by each of our current directors, each of our executive officers named in the Summary Compensation Table, and all of our directors and executive officers as a group. (All of the share and per share numbers in this Form 10 reflect the effect of the 1-for-9 reverse stock split of all of our outstanding shares of common stock that was effective June 30, 2010. For further information about the reverse split, see Item 11 of this Form 10.)

 

     Common Stock Beneficially Owned  

Name of Beneficial Owner

   Number of
Shares (#)
   Percentage of
Class (%) (1)
 

Greater than Five Percent Holders

     

Brown Advisory Holdings Incorporated (2)

   1,848,336    12.0

Directors:

     

Carl Bartoli (3)

   18,688    ––   

Terence J. Cryan (3)

   18,688    ––   

Eugene I. Davis (3)

   18,688    ––   

Charles Macaluso (3)

   18,688    ––   

Frank E. Williams, Jr. (3)

   26,325    ––   

Executive Officers

     

David L. Keller (4)

   100,000    ––   

John M. Matheson (5)

   90,898    ––   

David L. Willis (6)

   159,878    1.0

Dean J. Glover (7)

   159,486    1.0

Kenneth W. Robuck (8)

   197,836    1.3

Gene F. Schockemoehl (9)

   197,314    1.3

Directors and executive officers as a group (11 persons) (10)

   1,006,489    6.4

 

(1) As reported by such persons as of July 13, 2010 (except in the case of Mr. Matheson, where the beneficial ownership is based on information in our records as of the last day of his employment with us) and including, in the case of our executive officers, restricted share units which are treated for purposes of this table on an as-converted basis. Percentages are based on 15,467,604 shares of our common stock issued and outstanding, except as indicated otherwise and except where the person has the right to acquire shares within the next 60 days, which increases the number of shares beneficially owned by such person and the number of shares outstanding for determining that person’s percentage of ownership. We have determined beneficial ownership in accordance with the rules of the SEC. Unless otherwise indicated in the footnotes to this table, each stockholder named in the table has sole voting and investment power with respect to all shares shown as beneficially owned by that stockholder. We have omitted percentages of less than 1% from the table.

 

(2) The shares listed are reported on Schedule 13G, filed with the SEC on February 17, 2010 with respect to holdings as of December 31, 2009. Brown Advisory Holdings Incorporated (“Brown Advisory”) is the beneficial owner of 1,848,366 shares of our common stock with regard to which it has shared investment power. The shares are owned by clients of NSB Advisors LLC, an investment advisor and a subsidiary of Brown Advisory. The Schedule 13G does not disclose, and we are unable to determine, who has the ultimate voting or investment control over the shares held by Brown Advisory. The mailing address of Brown Advisory is 901 South Bond Street, Suite 400, Baltimore, Maryland 21231.

 

(3) The 18,688 shares listed for each of our non-employee directors (other than Mr. Williams who joined our Board of Directors on October 13, 2009) were received as grants of restricted stock under our 2008 Directors’ Equity Incentive Plan. The 26,325 shares held by Mr. Williams include 3,472 shares received as a grant of restricted stock under our 2008 Directors’ Equity Incentive Plan and 22,853 shares of our common stock that he has personally acquired, 9,363 of which shares are held by Williams Family L.P. with regard to which he has sole voting and shared investment power.

 

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(4) Mr. Keller is our President and Chief Executive Officer. He also serves on our Board of Directors. His beneficial ownership includes 79,167 restricted stock units and 20,833 shares of our common stock received upon the vesting of restricted stock units.

 

(5) Mr. Matheson, our former President, Chief Executive Officer and Director, resigned from all positions with us effective as of September 14, 2009.

 

(6) Mr. Willis’ beneficial ownership includes 125,075 restricted stock units and 34,803 shares of our common stock received upon the vesting of restricted stock units.

 

(7) Mr. Glover’s beneficial ownership includes 99,352 restricted stock units, 33,618 shares of our common stock received upon the vesting of restricted stock units, 885 registered shares converted as part of our emergence from bankruptcy, and 17,087 purchased shares and 8,544 incentive shares issued under our Management Co-Investment Incentive Plan.

 

(8) Mr. Robuck’s beneficial ownership includes 129,683 restricted stock units, 41,637 shares of our common stock received upon the vesting of restricted stock units, 885 registered shares converted as part of our emergence from bankruptcy, and 17,087 purchased shares and 8,544 incentive shares issued under our Management Co-Investment Incentive Plan.

 

(9) Mr. Schockemoehl’s beneficial ownership includes 89,598 restricted stock units, 33,287 shares of our common stock received upon the vesting of restricted stock units, 48,798 registered shares converted as part of our emergence from bankruptcy, and 17,087 purchased shares and 8,544 incentive shares issued under our Management Co-Investment Incentive Plan.

 

(10) Represents beneficial ownership of our common stock held by our directors and executive officers as a group as of July 13, 2010. Includes 90,898 shares indicated in our records as being owned, as of the date on which he was last employed by us, by Mr. Matheson, our former President, Chief Executive Officer and Director, who resigned from those positions effective as of September 14, 2009.

 

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Item 5. Directors and Executive Officers.

Directors

The following table sets forth information regarding our current directors:

 

Charles Macaluso    Chairman of the Board
Carl Bartoli    Director
Terence Cryan    Director
Eugene I. Davis    Director
David L. Keller    Director
Frank E. Williams, Jr.    Director

Charles Macaluso , 66, has served as Chairman of our Board of Directors since January 2008. Since 1998, Mr. Macaluso has been a principal of Dorchester Capital, LLC, a management consulting and corporate advisory service firm focusing on operational assessment, strategic planning and workouts.

Mr. Macaluso currently serves as a director of the following companies: Global Crossing Ltd., a public company where he serves on the Audit Committee; Lazy Days RV SuperCenters, Inc., where he serves on the Audit Committee; GEO Specialty Chemicals, Inc., a private company where he serves as Chairman of the Board and a member of the Compensation Committee; Darling International Inc., a public company where he serves as Lead Director; Pilgrim’s Pride Corporation, a public company; and Wellman Holdings, Inc., a private company where he serves as Chairman of the Board.

Director Qualifications. Mr. Macaluso is an invaluable member of our Board, having had a career focused on operational assessment, strategic planning, crisis management and turnaround advisory services, most recently with Dorchester Capital LLC. Dorchester Capital also has a significant commitment to representing the interests of investor groups as a member of the boards of directors at a diverse array of companies, and Mr. Macaluso brings with him a strong commitment to stockholders’ interests. He also has extensive executive and financial expertise. In addition, Mr. Macaluso brings significant board expertise, including service as Chairman on a number of public and private company boards and committees.

Carl Bartoli , 71, has served as our Director since January 2008. Mr. Bartoli is retired from Foster Wheeler Corporation where he served as President and Chief Executive Officer of Foster Wheeler USA Corporation and Executive Vice President of Foster Wheeler International Corporation for 12 years. As President and Chief Executive Officer of Foster Wheeler USA Corporation, he was also responsible for the Process Plant Division, the Fire Heater Division, Foster Wheeler Constructors Corporation and Foster Wheeler Environmental Corporation. This followed a career in project and construction management at ABB Lummus Global (now CB&I/Lummus) and M.W. Kellogg Company (now KBR, Inc.) covering virtually all facets of the engineering, procurement, and construction of power generation, process, pharmaceutical and infrastructure facilities.

Since his retirement from Foster Wheeler, Mr. Bartoli has established and serves as President of C. Bartoli Consultants, LLC serving the utility and process industry in the development and execution of capital projects. He has also participated in the preparation of strategic plans, organizational restructuring and acquisition due diligence of engineering and construction firms. Mr. Bartoli has been affiliated with the Construction Industry Institute (CII), a research organization serving the engineering and construction industry, as a member of the Board of Advisors and Executive Committee.

Mr. Bartoli holds a Master of Science in Mechanical Engineering from Columbia University and a Bachelor of Science in Mechanical Engineering from Fairleigh Dickinson University.

Director Qualifications . Mr. Bartoli is an engineering and construction business executive with over 35 years of domestic and international experience in the process and utility industry. His experience covers all facets of the engineering and construction industry, including project management, project development, senior line management and executive P & L positions. Mr. Bartoli has also served on the boards of directors of a number of Foster Wheeler Corporation affiliated companies. Since his retirement from Foster Wheeler and the establishment of C. Bartoli Consultants, LLC, he has participated in many consulting assignments for the power generation, process and energy industries. He is also a consultant leader with the Gerson Lehrman Group in the energy and industrials sector and is an advisor to Anellotech, Inc., a company developing a cellulosic biomass conversion technology for the production of petrochemicals.

 

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Terence J. Cryan , 47, has served as our Director since January 2008. Mr. Cryan has over 20 years of international business experience as an investment banker based in both the United States and Europe. In 2001, Mr. Cryan co-founded Concert Energy Partners, an investment banking and private equity firm based in New York City, and continues to serve as Managing Director. He has also served as President and Chief Executive Officer of Medical Acoustics LLC from April 2007 through April 2010. Prior to 2001, Mr. Cryan was a Senior Managing Director in the Investment Banking Division at Bear Stearns.

Earlier in his career, Mr. Cryan was a Managing Director, Energy & Natural Resources Industry Group Head and member of the Investment Banking Operating Committee at Paine Webber. Mr. Cryan joined Paine Webber following its acquisition of Kidder, Peabody in 1994.

Mr. Cryan is an adjunct professor at the Metropolitan College of New York Graduate School of Business, serves as a director of a number of international companies, including public companies such as Uranium Resources, Inc. (October 2006 to present), The Providence Service Corporation (May 2009 to present), and Gryphon Gold Corporation (August 2009 to present), and is a frequent speaker at finance and energy industry gatherings.

Mr. Cryan holds a Master of Science in Economics from the London School of Economics and a Bachelor of Arts from Tufts University.

Director Qualifications. Mr. Cryan possesses extensive expertise in financings, mergers and acquisitions. He also has a broad energy industry background and executive level experience. Mr. Cryan has over 20 years of experience in international business as an investment banker in the United States and Europe. As a co-founder of Concert Energy Partners and as former Managing Director, Energy & Natural Resources Industry Group Head at Paine Webber, Mr. Cryan has in depth knowledge of the energy industry. In addition, Mr. Cryan brings extensive board level experience, serving on the boards of a number of international companies.

Eugene I. Davis , 55, has served as our Director since January 2008. Mr. Davis is the Chairman and Chief Executive Officer of PIRINATE Consulting Group, LLC, a privately-held consulting firm specializing in turn-around management, merger and acquisition consulting, hostile and friendly takeovers, proxy contests and strategic planning advisory services for domestic and international public and private business entities. Since forming PIRINATE in 1997, Mr. Davis has advised, managed, sold, liquidated and/or acted as a Chief Executive Officer, Chief Restructuring Officer, Director, Committee Chairman and/or Chairman of the Board of a number of businesses, including companies operating in the telecommunications, automotive, manufacturing, high-technology, medical technologies, metals, energy, financial services, consumer products and services, import-export, mining and transportation and logistics sectors.

Prior to forming PIRINATE, Mr. Davis served as President, Vice-Chairman and Director of Emerson Radio Corp., a public company in the consumer electronics business, and Chief Executive Officer and Vice-Chairman of Sport Supply Group, Inc., a marketer, manufacturer and distributor of sporting goods. Mr. Davis began his career as an attorney and international negotiator with Exxon Corp. and Standard Oil Company (Indiana) and as a partner in two Texas-based law firms where he specialized in corporate/securities law, international transactions and restructuring advisory.

Mr. Davis currently serves as a director on the boards of seven public companies. During the past five years, he has served as a director on the boards of the following public companies: American Commercial Lines Inc., Atlas Air Worldwide Holdings, Inc., Exide Technologies, iPCS, Inc., Knology, Inc., Oglebay Norton Company, Tipperary Corporation, Viskase Companies, Inc., McLeodUSA Incorporated, Granite Broadcasting Corporation, Footstar, Inc., PRG-Schultz International, Inc., Silicon Graphics, Inc., SeraCare Life Sciences, Inc., Foamex International Inc., Ion Media Networks, Inc., Delta Air Lines, Inc., Atari, Inc., Solutia Inc., Media General, Inc., Rural/Metro Corporation, TerreStar Corporation, Spectrum Brands, Inc., Ambassadors International, Inc. and Dex One Corporation (f/k/a R.H. Donnelley Corporation).

Mr. Davis holds a Bachelor of Arts from Columbia College, a Masters of International Affairs in International Law and Organization from the School of International Affairs of Columbia University and a Juris Doctorate from the Columbia University School of Law.

Director Qualifications. Mr. Davis has substantial public board experience and expertise in the corporate governance arena acquired through his service on a number of public company boards and as the Chairman and Chief Executive Officer of PIRINATE Consulting Group, LLC. Mr. Davis is a well-seasoned businessman and brings to us significant executive experience in a variety of industries, including power and energy, telecommunications, automotive, manufacturing, high-technology, medical technologies, metals, financial services, consumer products and services, import-export, mining and transportation and logistics. In addition, he has significant financial expertise.

 

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David L. Keller , 56, has served as our President, Chief Executive Officer and Director since September 2009.

Mr. Keller served as the President and Chief Operating Officer of The Babcock & Wilcox Company (B&W), a wholly owned subsidiary of McDermott International, Inc., from March 2001 until his retirement in June 2007. B&W, a company with approximately $2 billion in revenues in 2006, supplies fossil-fuel fired boilers, commercial nuclear steam generators, environmental equipment and components, and boiler auxiliary equipment and provides related services, including construction services. Mr. Keller’s prior position was President of Diamond Power International, Inc., a wholly owned subsidiary of B&W, from March 1998 to February 2001. During his tenure with B&W, Mr. Keller served as a Board Chairman or Director of subsidiaries and joint ventures in the Peoples Republic of China, Denmark, the United Kingdom, Australia and South Africa.

He holds a Bachelor of Science degree in Mathematics from the University of Akron.

Director Qualifications. Mr. Keller has comprehensive knowledge of the power generation industry. He brings with him a career of experience and understanding in the businesses we engage in. In addition to his breadth of knowledge in the industry, Mr. Keller also has significant executive management experience. Prior to joining us, Mr. Keller served as the President and Chief Operating Officer of The Babcock & Wilcox Company, where he directly oversaw sales, manufacturing, accounting, legal, supply chain and personnel functions and where the revenues reached approximately $2 billion under Mr. Keller’s management in 2006.

Frank E. Williams, Jr ., 75, has served as our Director since October 2009. Since 1969, Mr. Williams has served as Chairman and principal owner of Williams Enterprises of Georgia, Inc., a holding company controlling six subsidiaries active in various facets of the steel industry. Since 1995, he has also served as Chairman, Chief Executive Officer, and a 50 percent owner of Bosworth Steel Erectors, Inc. of Dallas, Texas, an erector of steel products in the Southwestern United States and as Chairman and a major shareholder of Willfab, Inc., a structural steel fabricator located in Cherokee County, Georgia. Mr. Williams is the Managing Partner and principal owner of Industrial Alloy Fabricators, LLC of Richmond, Virginia, a fabricator of alloy plate products for the pulp and chemical industries, and of Industrial Alloy Erectors, LLC of Richmond, Virginia, an erector of structural steel and steel plate products.

Mr. Williams continues to serve on the Board of Williams Industries, Inc., a public company, which owns five subsidiaries active in the steel industry, including Williams Bridge Company, one of the largest fabricators of steel plate for bridge structures in the Mid-Atlantic region. The company was founded by Mr. Williams, who served as its President, Chief Executive Officer and Chairman through 1994. Mr. Williams was appointed in 2005 as Chairman of the Board of Directors of Kaiser Group Holdings, Inc., a public company, where he has been on the Board of Directors since 2002. He has served on the Board of Directors of Diamondhead Casino Corporation, a public company, since July 2002. In addition, Mr. Williams served for 23 years (including three years as Chairman) on the Board of Directors of Hemisphere Bank, which was reorganized to become Capital Bank, and currently serves as a Director of Capital Bank, N.A. He also serves on the Boards of Directors of Prudent Capital and Verdant Power, Inc., both private companies.

Mr. Williams has served as Chairman and Chief Executive Officer of the Gulf States Steel Reorganization Group. He has been appointed by bankruptcy courts as an official representative serving in a pro bono capacity on behalf of investors and debt holders of public companies in bankruptcy and he represented holders of our equity securities during our bankruptcy in 2007 and 2008.

Mr. Williams holds a Bachelor of Civil Engineering degree from the Georgia Institute of Technology.

Director Qualifications. Mr. Williams brings us wide-ranging industry knowledge having been involved throughout his career with the types of businesses that we pursue. Mr. Williams has over 40 years of experience in the steel industry. His in-depth experience and knowledge covers all facets of the steel industry, including steel fabrication and erection and fabrication of alloy plate products for the pulp and chemicals industries. Mr. Williams is the principal owner of Williams Enterprises of Georgia, Inc., a holding company controlling six subsidiaries active in various facets of the steel industry. In addition to his extensive knowledge of our industry, Mr. Williams brings significant public company experience.

Messrs. Macaluso, Bartoli, Cryan and Davis were appointed as our directors by the Bankruptcy Court upon our emergence from bankruptcy in January 2008. The Board appointed Mr. Keller as a director in September 2009 simultaneously with his employment as our President and Chief Executive Officer and appointed Mr. Williams as a director in October 2009. All of our directors were reelected for new one year terms at our annual meeting of stockholders held on April 22, 2010. Except for our bankruptcy, from which we emerged in January 2008, none of our directors has been involved in any legal proceeding enumerated in the SEC’s Regulation S-K, Item 401, within the time periods described in that regulation.

 

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Executive Officers

The following table sets forth information regarding our current executive officers:

 

David L. Keller    President, Chief Executive Officer and Director
David L. Willis    Senior Vice President and Chief Financial Officer
Dean J. Glover    Senior Vice President, President of Products Division
Kenneth W. Robuck    Senior Vice President, President of Services Division
Gene F. Schockemoehl    Senior Vice President and President of Braden Manufacturing, LLC
Tracy D. Pagliara    General Counsel, Secretary, and Vice President of Business Development
John J. Long    President of Williams Plant Services, LLC
Jeff J. Davis    President of Deltak Specialty Boiler Systems

David L. Keller , 56, has served as our President and Chief Executive Officer and as a Director since September 2009. His biographical information is provided under the caption “Directors” above.

David L. Willis , 38, has been our Senior Vice President and Chief Financial Officer since January 2008. Mr. Willis has a broad range of leadership experience across a range of industries: restructuring advisory services, telecommunications, energy companies and public accounting. From October 2001 to January 2008, he was with the restructuring practice of Alvarez & Marsal LLC, a global professional services firm, where he served clients in advisory and interim management capacities, most recently as Senior Director, overseeing the development and implementation of initiatives to improve operational and financial performance.

Prior to Alvarez & Marsal, Mr. Willis held positions with The Williams Communications Group and Ernst & Young. Mr. Willis received his Bachelor of Business Administration degree from the Price College of Business at the University of Oklahoma and holds an M.B.A. from the University of Tulsa. He is a Certified Public Accountant and has a Certified Insolvency and Restructuring Advisor certification (inactive).

Dean J. Glover , 44, is Senior Vice President and President of the Products Division of Global Power Equipment Group Inc. Mr. Glover joined Braden Manufacturing in December 2005 as Chief Operating Officer and was promoted to his positions at Global Power and Deltak in September 2008. Mr. Glover has extensive international experience having lived in various international locations for most of his career. Mr. Glover has over 15 years of commercial and technical experience in the power industry. Prior to joining Global Power, Mr. Glover led the global supply chain, including manufacturing for Diebold Inc. Prior to this, Mr. Glover spent 13 years with General Electric in various managerial and technical roles and is a certified Six Sigma Master Blackbelt. Mr. Glover holds a Bachelors Degree in Mechanical Engineering from the University of Nebraska and an M.B.A. from the Kellogg Graduate School of Management, Northwestern University.

Kenneth W. Robuck , 50, is Senior Vice President and President of the Services Division of Global Power Equipment Group Inc. Mr. Robuck originally joined the Williams Group in 1995; he left the company for a brief period and returned in 2005 to run Williams Plant Services, LLC, the largest of the Williams’ subsidiaries, which is responsible for all major maintenance and construction services work. In early 2006, Mr. Robuck assumed the additional responsibility of Chief Operating Officer and was appointed President of the Williams Group in October 2007. Mr. Robuck has over 27 years experience in the nuclear power, fossil-fuel power, petrochemical and related industrial industries. Mr. Robuck is a graduate of Auburn University with a B.S. in Civil Engineering.

Gene F. Schockemoehl , 60, is Senior Vice President of Global Power Equipment Group Inc., and President of our subsidiary Braden Manufacturing, LLC. Mr. Schockemoehl has served as President of Braden since January 1994 and as Vice President of Global Power since June 1998. He was named President of Consolidated Fabricators Inc. in October 2003.

Mr. Schockemoehl began his employment at Braden in September 1968, progressing through the plant production area into management positions, and became Vice President of Operations in 1990. He served as Vice President of Sales from 1991 until his appointment as President in January 1994. Mr. Schockemoehl has a manufacturing and general business education background, having attended both Tulsa Community College and Rogers State College.

Tracy D. Pagliara, 47, has served as our General Counsel, Secretary, and Vice President of Business Development since April 2010. Prior to joining our company, Mr. Pagliara served as the Chief Legal Officer of Gardner Denver, Inc., a leading global manufacturer of highly engineered compressors, blowers, pumps and other fluid transfer equipment, from August 2000 through August 2008. He also had responsibility for other roles during his tenure with Gardner Denver, including Vice President of Administration, Chief Compliance Officer, and Corporate Secretary.

 

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Prior to joining Gardner Denver, Mr. Pagliara held positions of increasing responsibility in the legal departments of Verizon Communications/GTE Corporation from August 1996 to August 2000 and Kellwood Company from May 1993 to August 1996, ultimately serving in the role of Assistant General Counsel for each company. Mr. Pagliara has a B.S. in Accounting and a J.D. from the University of Illinois. He is a member of the Missouri and Illinois State Bars and a Certified Public Accountant.

John J. Long , 58, has been President of Williams Plant Services, LLC, our subsidiary since March 2010. Prior to joining Williams, Mr. Long was involved through the construction phases of several nuclear power plants from 1974 through 1985 with Fluor / Daniel before becoming a regional director with responsibility for overseeing maintenance and modification through 1999. From 2000 through 2009, Mr. Long served in the role of Vice President and Senior Vice President for Atlantic Union Resources, Inc., a provider of maintenance services to the power industry, and Day & Zimmermann NPS, where he was responsible for maintenance and modification support in the Midwest and West regions.

Mr. Long has over 30 years experience in the nuclear and fossil-fuel power industry. He has a B.S. from Troy University and an M.B.A. from William Woods University.

Jeff J. Davis , 52, has served as President of Specialty Boiler Systems of Deltak, our subsidiary, since January 2007. Mr. Davis joined Deltak in 1985. Prior to his promotion as President in October 2006, Mr. Davis held positions as application engineer, Sales Manager, and Vice President of Specialty Boiler Systems. Before joining Deltak, Mr. Davis worked at Econontherm Energy Systems as a project manager and applications engineer. Mr. Davis is a graduate of the University of Colorado with a B.S. in Chemical Engineering.

Except for our bankruptcy, from which we emerged in January 2008, none of our executive officers has been involved in any legal proceeding enumerated in the SEC’s Regulation S-K, Item 401, within the time periods described in that regulation.

 

Item 6. Executive Compensation.

The Compensation Discussion and Analysis below contains a description and analysis of the compensation arrangements and decisions we made for 2009 for our executive officers named in the Summary Compensation Table that immediately follows this section. Throughout this Form 10, we sometimes refer to the persons included in that Summary Compensation Table as our “named executive officers”.

Compensation Discussion and Analysis

Introduction

The Compensation Committee of our Board of Directors establishes and implements our compensation policies and programs for named executive officers. Our current named executive officers and their primary executive positions are David L. Keller – Chief Executive Officer, David L. Willis – Chief Financial Officer, Dean J. Glover – President of our Products Division, Kenneth W. Robuck – President of our Services Division, and Gene F. Schockemoehl – President of Braden Manufacturing.

From January 22, 2008, when we successfully emerged from bankruptcy, through October 13, 2009, when Frank E. Williams, Jr. joined our Board as a fifth non-executive director, our Compensation Committee was comprised of all four of the non-executive directors who became directors on January 22, 2008: Charles Macaluso, Carl Bartoli, Terence J. Cryan, and Eugene I. Davis. When Mr. Williams joined our Board on October 13, 2009, the Compensation Committee was reconstituted to its current three-member composition and is now comprised of Messrs. Bartoli, Cryan, and Williams. Mr. Bartoli has served continuously as Chairman of our Compensation Committee since January 22, 2008. Each of our non-executive directors, and therefore, each of the members of the Compensation Committee as it has been constituted since January 22, 2008, qualifies as independent in accordance with the listing standards of NASDAQ. Mr. Bartoli was asked to chair the Compensation Committee based upon his experience in compensation matters gained while serving as President and Chief Executive Officer of Foster Wheeler USA Corporation and in the course of his consulting career. Mr. Cryan and Mr. Williams each have extensive experience in dealing with compensation matters on the boards of other corporations.

The Committee’s functions include reviewing and making recommendations to our Board with respect to executive compensation policies and programs. The Committee has the exclusive authority to establish and adjust the base salaries of, approve cash bonuses for, and grant equity awards to, our named executive officers. Before making compensation decisions with respect to our named executive officers, the Committee takes into account the recommendations of our Chief Executive Officer (for named executive officers other than himself).

 

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Our Compensation Philosophy

Our compensation and benefits programs recognize the importance of our named executive officers to our overall success. The objectives of our compensation program are to:

 

   

attract and retain talented individuals;

 

   

motivate our executive team to achieve our goals and objectives; and

 

   

align the interests of our executives with those of our stockholders.

We believe each named executive officer’s compensation should be correlated with the performance of the named executive officer and our performance. The primary financial measure of performance we use for purposes of our compensation plans and programs is EBITDA, which we define as our earnings before interest, taxes, depreciation and amortization, adjusted for reorganization expense and calculated based on the results of our two operating divisions without any charge for overhead or corporate allocations. When we refer to “EBITDA” in this Item 6, we are referring to EBITDA calculated in this manner. The annual bonuses we provide to our named executive officers are tied in part to achievement of EBITDA targets that are set annually by the Committee and in part to achievement of individual goals and objectives. The long-term incentive compensation we provide to our named executive officers vests over time based in part on achievement of those annual EBITDA targets and in part on continuing employment of the named executive officer by us over time. In making compensation decisions regarding each of our named executive officers, we also take into account the named executive officer’s compensation history and his past and expected individual contributions to our goals.

Our compensation program for our named executive officers has four principal components:

 

   

annual base salary;

 

   

short-term incentive awards (annual cash bonuses);

 

   

long-term incentive awards (equity-based awards); and

 

   

benefits.

Each named executive officer receives a base salary and is eligible to receive an annual cash bonus. Each named executive officer is also eligible to receive an annual grant of restricted stock units. We granted restricted stock units to executives in 2008 and 2009 under our 2008 Management Incentive Plan, which was put in place in connection with our emergence from bankruptcy proceedings and originally became effective on January 22, 2008.

The Committee determines base salaries primarily based on an analysis of relevant market data, by reference to the Committee members’ knowledge of the market, and the recommendations of our Chief Executive Officer (other than for himself). We view these base salaries as recognizing an individual executive’s regular commitment to his job and we take into consideration the executive’s knowledge, skills, and experience. We have employment agreements with each of our named executive officers that provide for a minimum level of annual base salary (effective as of the date on which the particular employment agreement became effective) and generally contemplate annual reviews that may, but need not, result in increases in the annual base salary payable to the named executive officer.

The Committee uses annual cash bonuses as a short-term incentive to motivate our named executive officers to increase the value of our company. Since 2008, we have provided short term bonuses pursuant to an annually adopted Incentive Compensation Plan that specifies threshold, target, and maximum performance hurdles for EBITDA of our designated business units and individual goals for each of our named executive officers. We have employment agreements with each of our named executive officers that specify their respective annual target and maximum bonus potential in terms of percentages of the executive’s annual base salary. Target bonuses as a percentage of base salary are set in these employment agreements at 55% for our Chief Financial Officer and the President of Braden Manufacturing, at 65% for the Presidents of each of our Products Division and our Services Division, and at 80% for our Chief Executive Officer. Maximum bonus percentages for each of our named executive officers are exactly twice these respective target bonus percentages. The effect of these increasing bonus percentages is to tie more of the compensation we pay to more senior executive officers to annual achievement of our business goals and the executive officer’s personal performance.

We make equity awards to our named executive officers each year to motivate them to increase the value of our company over time and as a means of encouraging our named executive officers to remain in the Company’s employ. In 2009 we made equity awards under the 2008 Management Incentive Plan in the form of restricted stock units. These restricted stock units generally vest over a four year period. Vesting as to one half of the units granted is contingent on achievement by the Company of annual EBITDA targets established by the Committee and the continuing employment of the named executive officer. Vesting as to the other half of the units granted is contingent only upon the continuing employment of the named executive officer.

 

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Those three of our named executive officers who were with us when we emerged from bankruptcy (Messrs. Glover, Robuck and Schockemoehl) participated in our Management Incentive Co-Investment Plan by purchasing, as of January 22, 2008, a certain number of shares of our common stock at a purchase price of $7.65 per share. In connection with those purchases, we granted to each of these named executive officers, at no cost to the named executive officer, an additional number of shares equal to one half of the number of shares purchased. In general, the granted shares will vest on January 22, 2011, provided the named executive officer remains in the employ of the Company through that date. We provided the one time opportunity to participate in our Management Incentive Co-Investment Plan to our named executive officers and other members of management in 2008 as a means to provide additional compensation and an incentive to stock ownership as we emerged from bankruptcy.

We make available to each of our named executive officers certain benefits that are generally available to all salaried employees including medical, dental, vision, life, accidental death and dismemberment, travel accident and short and long-term disability insurance. We make these benefits available so that we can provide a competitive compensation package to our salaried employees and our named executive officers. We require each of our named executive officers to undergo a physical examination once every year or two years (depending upon the executive’s age), the cost of which is borne by the Company. We also reimburse our named executive officers for documented business expenses and (except in the case of Mr. Keller) for expenses incurred in the preparation of annual tax returns. We cover club dues for those of our named executive officers who were with us when or shortly after we emerged from bankruptcy (all of our named executive officers other than Mr. Keller). The Committee determined not to provide club dues to Mr. Keller when he joined the Company on September 14, 2009 and has determined that it will not provide club dues to any other new hire. All of our named executive officers are entitled to participate in the Company’s 401(k) plan and its flexible spending benefit plan and to four weeks of paid vacation each year.

How We Make Compensation Decisions

The general structure of the Company’s compensation practices for our named executive officers since January 22, 2008 has been in large part determined by the Plan of Reorganization pursuant to which we successfully emerged from bankruptcy protection on that date. The Plan of Reorganization affirmed previously existing employment agreements of the Company’s executive officers, including those three of our current named executive officers who were with us during the bankruptcy (Messrs. Glover, Robuck, and Schockemoehl). These employment agreements effectively established the rates of annual base salary and the percentage annual bonus potential of the Company’s executive officers upon its emergence from bankruptcy. They also specified the benefits to be provided by the Company to those executive officers. The Plan of Reorganization also reserved up to 10% of the shares of our common stock at the time we emerged from bankruptcy for distribution to members of management under what became the 2008 Management Incentive Plan. All of our grants of restricted stock units to named executive officers since we emerged from bankruptcy have been made pursuant to that plan.

At least once each year the Compensation Committee reviews annual base salaries and makes any adjustments it deems appropriate, sets EBITDA targets, target payout amounts, personal goals, and the extent to which each named executive officer’s bonus for the year under our annual Incentive Compensation Plan will be dependent upon those various elements, and determines the amount of equity to be granted to named executive officers as long-term incentive compensation. The Committee makes its decisions on each of these matters based on review of information from a variety of sources, including the experience of the members of the Committee, publicly available statistical studies of compensation both in companies that are similar in size to the Company and companies in a broader range of sizes, and reports and recommendations from the Company’s management. After the completion of each year, the Committee meets to review audited financial information to determine the extent to which the Company’s financial performance has fallen short of, met, or exceeded the EBITDA target for the year and to review the extent to which individual named executive officers have achieved their individual goals under our Incentive Compensation Plan. Decisions by the Committee are generally made in Committee meetings that are attended by all of the members of the Committee following substantial consideration of all available information, including review of such reports by management or by various members of the Committee as may be relevant to the particular determination being made.

The Compensation Committee directs Company management to propose each year the EBITDA target and the target aggregate amount of annual bonuses to be paid for the year pursuant to our annual Incentive Compensation Plan. The Compensation Committee takes these recommendations into account but makes its own determinations as to the appropriate level for the EBITDA target and as to the target aggregate amount of annual bonuses to be paid out under the plan.

 

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The Compensation Committee also directs Company management to propose each year the aggregate number of restricted stock units to be distributed to employees as long term incentive compensation under the Company’s 2008 Management Incentive Plan and the manner in which those restricted stock units should be apportioned between members of the Company’s officers and senior management group, on the one hand, and other key employees of the Company, on the other hand. The Compensation Committee takes these recommendations into account but makes its own determinations as to the number of restricted stock units to be distributed and the apportionment of those restricted stock units among the Company’s employees.

In its annual review of the Company’s financial performance and the performance of individual named executive officers as relevant to the payment of annual bonuses to named executive officers and other management employees, the Committee discusses with members of management the extent to which financial performance during the year falls short of, meets, or exceeds the EBITDA targets that were set by the Committee for the year and receives a report and recommendations from the Company’s Chief Executive Officer with respect to the accomplishments during the year of each named executive officer (other than the Chief Executive Officer) and the extent to which each named executive officer (other than the Chief Executive Officer) has met individual goals relevant to the determination of payment of annual bonuses. As to the extent to which the Chief Executive Officer has met the individual goals and objectives set for him by the Committee, the Committee discusses the matter initially with the Chief Executive Officer and then in executive session without the Chief Executive Officer being present.

Tax, Accounting, and Other Considerations

The Committee considers the potential tax implications to the Company and to the recipient when making decisions regarding compensation. Cash compensation, such as base salary and cash bonuses, is taxable as ordinary income to our named executive officers upon receipt. Shares received when vesting restrictions on restricted stock unit awards lapse are taxable to our named executive officers as ordinary income upon receipt.

When reviewing preliminary recommendations, and in connection with approving the terms of equity awards under the 2008 Management Incentive Plan, the Committee considers the accounting implications of the awards, including the estimated expense, and carefully considers the dilution that will occur to our stockholders. The Committee recognizes that our equity-based awards are dilutive to our existing stockholders, but believes that these awards are necessary to attract and retain the talent that we need to drive positive performance for the Company.

Specific Compensation Elements

Annual Base Salaries. In establishing and adjusting base salaries for our named executive officers, the Committee takes into account the individual named executive officer’s base salary history and considers market forces and other general factors believed to be relevant, including the executive’s experience and breadth of responsibilities and the Company’s need for the named executive officer’s specific skills and talents. Additionally, the Committee takes into account the relative salaries of our named executive officers and determines what it believes are appropriate compensation level distinctions between and among our named executive officers.

Effective January 1, 2009, the Committee increased the annual base salary of Mr. Willis by $33,000 (15%) to $253,000, based largely on a determination that he was undercompensated in the context of the named executive officer group as a whole and in the market generally. The Committee also increased the annual base salaries payable: to Mr. Matheson, our former Chief Executive Officer, by $21,250 (5%) to $446,250; to Mr. Glover by $6,000 (2%) to $306,000; and to Mr. Robuck by $14,650 (5%) to $307,650. The Committee did not increase Mr. Schockemoehl’s base salary but left it at $275,000 per year. Each of the increases was made in view of the Committee’s understanding of market rates and conditions.

The Committee set the base salary for Mr. Keller at $435,000 per year upon his coming to work for the Company as our new Chief Executive Officer effective September 14, 2009. The Committee chose this level of base salary for Mr. Keller based upon the Committee’s understanding of market rates and in view of the rates at which the Company pays base salary to our other named executive officers.

Short-Term Incentive Compensation . The purpose of our annual Incentive Compensation Plan is to motivate employees to increase the value of the Company. For 2009, the Committee established threshold, target, and maximum EBITDA levels for each of our Products and Services Divisions and corresponding bonus payout levels for each participant in the Incentive Compensation Plan. The Committee set a combined target EBITDA level of $42,506,000, which is the sum of the target EBITDA of $27,661,000 for our Products Division plus the target EBITDA of $14,845,000 for our Services Division (in each case calculated without any charge for overhead or corporate allocations). The Committee set threshold EBITDA at 90% of the corresponding target EBITDA. No bonuses would have been payable under the plan for 2009 if combined EBITDA for the Company was less than the 90% threshold for combined EBITDA of $38,255,000. The Committee set the maximum EBITDA levels for our Products and Services Divisions, respectively, at 125% and 120% of target EBITDA levels. The Committee determined that bonuses equal to 8.5% of aggregate EBITDA would be available for payment if target EBITDA was achieved. At the 90% threshold level EBITDA, bonuses equal to 90% of target bonuses would be available for payment. At maximum levels of EBITDA, bonuses equal to two times target bonuses would be available for payment.

 

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The threshold, target and maximum bonus levels for each of our named executive officers, expressed as a percentage of base salary, are set forth in the following table:

 

     Threshold    Target    Maximum

David L. Keller

   72%    80%    160%

David L. Willis

   49.5%    55%    110%

Dean J. Glover

   58.5%    65%    130%

Kenneth W. Robuck

   58.5%    65%    130%

Gene F. Schockemoehl

   49.5%    55%    110%

For each of our named executive officers the Committee determined the extent to which the amount available for payment as an annual bonus for 2009 would be tied to EBITDA of our Products Division and to EBITDA of our Services Division. During 2009, our Products Division EBITDA was $28,706,000, or 103.8% of target, and our Services Division EBITDA was $26,462,000, or 178.3% of target. To the extent the amount available for payment as a bonus to any of our named executive officers for 2009 was based on Products Division EBITDA, that available amount was calculated at 117.7% of the individual named executive officer’s target bonus (by interpolation between Products Division EBITDA at target and Products Division EBITDA achieved). To the extent the amounts available for payment as a bonus to any of our named executive officers was based on Services Division EBITDA, that available amount was calculated at 200% of the individual named executive officer’s target bonus (this being the maximum bonus level available) because Services Division achieved EBITDA was more than the 120% of Services Division target EBITDA that the Committee had set as the upper limit for bonus calculation purposes.

Named Executive Officers . For each of our corporate level named executive officers who were with us at the beginning of 2009 (Mr. Willis, our Chief Financial Officer, and Mr. Matheson, our former Chief Executive Officer), 60% of the amount available for payment was based on achievement of EBITDA; 30% was based in equal proportions on the achievement of three standard financial ratios compared to budget; and 10% was based on the Committee’s evaluation of the named executive officer’s performance on two specified personal goals. For each of our Division Presidents, 50% of the amount available for payment was based on achievement of EBITDA, 40% was based on achievement of specified tactical and operational goals, and 10% was based upon the Committee’s subjective evaluation of the Division President’s performance during 2009. Because Mr. Keller joined us as Chief Executive Officer on September 14, 2009 to replace our former Chief Executive Officer at a time when the 2009 bonus year was already two thirds completed, the Committee chose not to develop a list of separately specified tactical and operational goals with associated percentage bonus opportunities for him. Instead, while the Committee followed that part of the program that had been in place for our former Chief Executive Officer that based 60% of the bonus opportunity on achievement of EBITDA, the Committee determined that the entire remaining 40% of the bonus opportunity for Mr. Keller during his first partial year with the Company would be based entirely on the Committee’s subjective evaluation of his performance during his first three plus months on the job. The Committee’s subjective evaluation of a particular named executive officer’s performance during 2009 was thus relevant to only 10% of the bonus opportunity for each of our Division Presidents but was relevant to 40% of the bonus opportunity for Mr. Keller. In subjectively evaluating any of these named executive officer’s performance during 2009 for these purposes, the Committee considered such factors as demonstration of leadership, effectiveness of communication with other senior management (and, in Mr. Keller’s case, with the Board and with stockholders), ability to address developing challenges faced during the course of the year, and efforts at improvement in operations under the executive’s direction. In its subjective evaluations of named executive officers other than Mr. Keller, the Committee sought and considered the recommendation of Mr. Keller as to the percentage of the bonus tied to subjective evaluation that should be awarded. The Committee’s subjective evaluation of Mr. Keller’s performance was conducted without Mr. Keller being present in the meeting and consisted of a wide ranging discussion, which included the factors described above but was not tied to any “scorecard” or similar document, of Mr. Keller’s performance since he joined us on September 14, 2009.

Mr. Keller . For the period from September 14, 2009 when he joined us through December 31, 2009, the Committee determined that the amount available for payment as an annual bonus to Mr. Keller would be based 65% on EBITDA of our Products Division and 35% on EBITDA of our Services Division. Based on EBITDA actually achieved, $152,642 (this being the sum of 65% of target bonus multiplied by the Products Division EBITDA factor of 117.7% plus 35% of target bonus multiplied by the Services Division EBITDA factor of 200%) was available for payment as an annual bonus to Mr. Keller for 2009. The Committee further determined that of this available amount, 60% ($91,585) would be based only upon the relevant EBITDA figures and 40% ($61,057) would be based upon the Committee’s subjective evaluation of Mr. Keller’s performance during 2009. The Committee determined to pay out 90% of the potential 40% based on its subjective evaluation of Mr. Keller’s performance during 2009 with the result that we paid him an aggregate annual bonus for services during 2009 of $146,356. This amount equals 112.5% of the base salary earned by him during 2009.

Mr. Matheson . At the beginning of 2009, the Committee determined that the parameters for payment of an annual bonus to Mr. Matheson would be the same as those for Mr. Willis that are set out immediately below this paragraph (except that a greater percentage of base salary was available to Mr. Matheson as a threshold, target, and maximum bonus and that one of Mr. Matheson’s personal goals related to compliance rather than reporting). In connection with his resignation on September 14, 2009 and the Separation Agreement we entered into with him, we paid Mr. Matheson the amount of $500,000 as a bonus for that part of 2009 ending on this termination date. We paid this amount to Mr. Matheson as a bonus to facilitate the execution of the Separation Agreement and the transition of the Chief Executive Officer’s duties and responsibilities to Mr. Keller.

 

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Mr. Willis . For 2009, the Committee determined that the amount available for payment as an annual bonus to Mr. Willis would be based 65% on EBITDA of our Products Division and 35% on EBITDA of our Services Division. Based on EBITDA actually achieved, $203,870 (this being the sum of 65% of target bonus multiplied by the Products Division EBITDA factor of 117.7% plus 35% of target bonus multiplied by the Services Division EBITDA factor of 200%) was available for payment as an annual bonus to Mr. Willis for 2009.

 

   

Of the available amount:

 

   

The first 60% ($122,322) was payable based only upon the relevant EBITDA figures;

 

   

10% ($20,387) was payable based in equal parts upon the Committee’s evaluation of Mr. Willis’s performance during 2009 on each of two specified personal goals, these being (1) developing financial policies and procedures to support a relisting of the Company’s Common Stock and (2) restructuring divisional finance department to enhance efficiency; and

 

   

The remaining 30% ($61,161) was payable based in equal parts on the Company’s performance on three standard financial measures compared to budget, these being (1) EBITDA margin (consolidated), (2) corporate EBITDA, and (3) sales per employee.

Based on the Committee’s evaluation of Mr. Willis’s performance on his two personal goals and the performance of the Company on the three standard financial ratios, the Committee determined to pay out the full 10% payable with respect to the personal goals and the full 30% payable with respect to the financial measures with the result that we paid to Mr. Willis an aggregate annual bonus for services during 2009 of $203,870. This amount equals 80.6% of his annual base salary.

Division Presidents . For each of Mr. Glover, President of our Products Division, Mr. Robuck, President of our Services Division, and Mr. Schockemoehl, President of Braden Manufacturing, 50% of the amount available for payment as an annual bonus was based on achievement of EBITDA. As to the other 50% available for payment, 10% was payable at the discretion of the Committee based upon its subjective evaluation of the named executive officer’s performance during 2009 and the remaining 40% was payable based on the extent the Committee determined that the named executive officer achieved specified tactical goals and on the performance of the relevant operating unit on standard financial measures.

Mr. Glover . For 2009, the Committee determined that the amount available for payment as an annual bonus to Mr. Glover would be based 80% on EBITDA of our Products Division and 20% on EBITDA of our Services Division. Based on EBITDA actually achieved, $266,856 (this being the sum of 80% of target bonus multiplied by the Products Division EBITDA factor of 117.7% plus 20% of target bonus multiplied by the Services Division EBITDA factor of 200%) was available for payment as an annual bonus to Mr. Glover for 2009.

 

   

Of the available amount:

 

   

The first 50% ($133,428) was payable based only upon the relevant EBITDA figures;

 

   

Another 10% ($26,686) was payable at the discretion of the Committee based upon its subjective evaluation of Mr. Glover’s performance during 2009; and

 

   

The remaining 40% ($106,742) was payable based on the extent the Committee determined that Mr. Glover achieved tactical goals relating to increased integration of accounting, finance, supply chain, and procurement functions within the Products Division (7.5%), development of an enhanced international quality control infrastructure (7.5%), implementing web-based integrity training and a new document retention program (5%), and expanded marketing of mid-size HRSG capabilities (5%) and on achievement by the Products Division of budgeted EBITDA margin (7.5%) and sales per employee (7.5%).

The Committee determined to pay out 90% of the potential 10% based on its subjective evaluation of Mr. Glover’s performance during 2009, the full potential percentage based on each tactical goal set for Mr. Glover, the full 7.5% based on the Products Division EBITDA margin, and no amount on the Products Division sales per employee as the Products Division did not meet the goal that had been set on that parameter. As a result of these determinations, we paid to Mr. Glover an aggregate annual bonus for services during 2009 of $244,174. This amount equals 79.8% of his annual base salary.

Mr. Robuck. For 2009, the Committee determined that the amount available for payment as an annual bonus to Mr. Robuck would be based 80% on EBITDA of our Services Division and 20% on EBITDA of our Products Division. Based on EBITDA actually achieved, $367,033 (this being the sum of 80% of target bonus multiplied by the Services Division EBITDA factor of 200% plus 20% of target bonus multiplied by the Products Division EBITDA factor of 117.7%) was available for payment as an annual bonus to Mr. Robuck for 2009.

 

   

Of the available amount:

 

   

The first 50% ($183,517) was payable based only upon the relevant EBITDA figures;

 

   

Another 10% % ($36,703) was payable at the discretion of the Committee based upon its subjective evaluation of Mr. Robuck’s performance during 2009; and

 

   

The remaining 40% ($146,813) was payable based on the extent the Committee determined that Mr. Robuck achieved tactical goals relating to increased sales initiatives (4%), establishing new management positions within the Services Division and recruiting personnel to fill those positions (4%), overseeing development of improved employment policies and procedures (3%), completion of web-based integrity training by identified divisional employees (3%), completion of a training matrix for Williams Industrial Services Group supervisory employees (3.5%), continuing improvement in safety record (3.5%), improvement of margin on time and materials projects (3.5%), implementing changes in the finance department to enhance efficiency (6%), establishing new plant service supervisory positions and recruiting personnel to fill those positions (3%), and on achievement of budgeted EBITDA by Williams Industrial Services Group (3.5%) and by Williams Plant Services (3.5%).

 

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The Committee determined to pay out 70% of the potential 10% based on its subjective evaluation of Mr. Robuck’s performance during 2009, 50% of the potential 4% based on increased sales initiatives, 86% of the potential 3.5% based on completion of a training matrix for Williams Industrial Services Group supervisory employees, and the full potential percentage based on each other tactical and EBITDA goal that had been set for Mr. Robuck. As a result of these determinations, we paid to Mr. Robuck an aggregate annual bonus for services during 2009 of $346,846. This amount equals 112.7% of his annual base salary.

Mr. Schockemoehl . For 2009, the Committee determined that the amount available for payment as an annual bonus to Mr. Schockemoehl would be based 80% on EBITDA of Braden Manufacturing and 20% on EBITDA of our Services Division. Based on EBITDA actually achieved, $302,500 (this being the sum of 80% of target bonus multiplied by the Braden Manufacturing EBITDA factor of 200% plus 20% of target bonus multiplied by the Services Division EBITDA factor of 200%) was available for payment as an annual bonus to Mr. Schockemoehl for 2009.

 

   

Of the available amount:

 

   

50% ($151,250) was payable based only upon the relevant EBITDA figures;

 

   

Another 10% ($30,250) was payable at the discretion of the Committee based upon its subjective evaluation of Mr. Schockemoehl’s performance during 2009; and

 

   

The remaining 40% ($121,000) was payable based on the extent the Committee determined that Mr. Schockemoehl achieved specified tactical goals relating to improvements in billing and collections procedures (7.5%), ensuring appropriate hedging of foreign currency risks on ongoing projects (7.5%), implementing web-based integrity training and a new document retention program (5%), and increased sales initiatives (5%), and the achievement of Braden EBITDA margin (7.5%) and sales per employee (7.5%).

The Committee determined to pay out 90% of the potential 10% based on its subjective evaluation of Mr. Schockemoehl’s performance during 2009, the full potential percentage based on each tactical goal set for Mr. Schockemoehl, except for, and no amount on the Braden sales per employee as Braden did not meet the goal that had been set on that parameter. As a result of these determinations, we paid to Mr. Schockemoehl an aggregate annual bonus for services during 2009 of $276,788. This amount equals 100.7% of his annual base salary.

Long-Term Incentive Compensation. We view grants of equity to our named executive officers as a means of motivating them to increase the value of the Company over time and as a means of encouraging them to remain in the Company’s employ. In 2009, all of our equity awards to named executive officers were made under the 2008 Management Incentive Plan in the form of restricted stock units. These restricted stock units generally vest over a four year period with vesting dates of March 31 of each of 2010 through 2013. One half of the restricted stock units that may vest on any March 31 will vest only if the named executive officer remains in the employ of the Company through that date and the Company achieved the annual EBITDA target for the immediately preceding year. The other half of the restricted stock units that may vest on any March 31 will vest based solely on the continued employment of the named executive officer by the Company through that date. If we achieve the annual EBITDA targets established by the Committee for each of the years 2009 through 2012 and a particular named executive officer remains in our employ at least through March 31, 2013, the restricted stock units granted to the named executive officer in 2009 would vest in four equal installments, one each on March 31 of 2010, 2011, 2012, and 2013.

On February 9, 2009, we granted restricted stock units to each of our named executive officers who were employed by us on that date in the following respective amounts (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split):

 

Executive Officer

   Number of Restricted
Stock Units  Granted

John Matheson

   83,317

David L. Willis

   69,430

Dean J. Glover

   64,802

Kenneth W. Robuck

   64,802

Gene F. Schockemoehl

   40,556

We granted these restricted stock units to the named executive officer under our 2008 Management Incentive Plan that was put in place in connection with our emergence from bankruptcy proceedings and originally became effective on January 22, 2008. The Committee determined the number of restricted stock units to be granted to each named executive officer after receiving the recommendation of Mr. Matheson, who was then our Chief Executive Officer (as to grants to named executive officers other than himself) and taking into account the provisions in the Plan of Reorganization approved by the Bankruptcy Court in connection with our emergence from bankruptcy protection that contemplated grants to management of up to 10% of our outstanding common stock. The Committee believed that the number of units granted to each of our named executive officers as reflected in the above table was appropriate given the aggregate amount of stock available for grant under our Plan of Reorganization and in light of the relative contributions to our success made and expected to be made by each individual named executive officer.

 

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On September 14, 2009, in connection with his employment by the Company, the Company granted 83,333 restricted stock units to Mr. Keller. The Committee determined the size of this grant by reference to the size of grants made to our other named executive officers and based upon their judgment as to the number of restricted stock units appropriate to provide to Mr. Keller to induce him to accept the offer of employment as our Chief Executive Officer and to align his interests with those of our stockholders.

The Company achieved its EBITDA target for 2009 of $42,506,000, as set by the Committee for purposes of our annual Incentive Compensation Plan. Accordingly, all of the restricted stock units that might have vested in 2009 for each of our named executive officers vested fully on March 31, 2010. This included both the one half of those units as to which vesting was contingent only on continued employment and the one half of those units as to which vesting was contingent on a combination of continued employment and the achievement of target EBITDA.

Severance Payments. In order to provide protection to our named executive officers, we have included severance provisions in their employment agreements that provide continuing payments and benefits, generally for one year after the termination of employment, if their employment with the Company is terminated by us without cause or by the named executive officer for good reason. In addition, the restricted stock unit agreements that we have entered into with our named executive officers provide for accelerated partial or full vesting if the named executive officer’s employment is terminated without cause or by the named executive officer for good reason. These restricted stock unit agreements also provide for full accelerated vesting of all restricted stock units (including both restricted stock units that otherwise would have vested based in part on achievement of target EBITDA and restricted stock units that otherwise would have vested based entirely on continued employment) if we undergo a change of control. Generally, a change of control will be deemed to have occurred if someone acquires 50% or more of our voting stock, someone acquires control of our board, or we effect a merger, dissolution, or sale of all or substantially all of our assets.

The Committee believes that the immediate vesting upon a change of control in our restricted stock unit agreements is appropriate on the basis that our named executive officers should receive the full benefit of restricted share units if the Company is sold or comes under the control of an outside party. The Committee believes that the promises to pay severance compensation made in the employment agreements and the severance and change of control provisions of the restricted stock unit agreements are an appropriate part of overall compensation payable to our named executive officers for their continuing services to the Company.

Separation Agreement. On September 11, 2009, we entered into a separation agreement with Mr. Matheson, our former Chief Executive Officer, pursuant to which he resigned from all positions with us effective as of September 14, 2009. Under the separation agreement, we paid to Mr. Matheson a separation payment consisting of $446,250, representing one year’s base salary, $14,514, representing our estimate of one year’s cost of his benefits, $2,195, representing three months of club dues (in each case as required by the terms of Mr. Matheson’s employment agreement), and $500,000, representing an agreed upon amount of bonus for the part of 2009 ending on October 14, 2009, the date on which Mr. Matheson ceased to provide transitional services to us. We further agreed to pay all accrued, but unpaid, base salary and vacation time and reasonable legal costs incurred in connection with the negotiation of the separation agreement. On October 14, 2009, 41,132 restricted stock units held by Mr. Matheson vested with 30,021 restricted stock units vesting on that date by reason of Mr. Matheson’s service through that date and an additional 11,111 restricted stock units vesting by reason of us waiving any contrary provisions in the restricted stock unit agreements with Mr. Matheson. We paid the $500,000 agreed amount to Mr. Matheson as a bonus for 2009 and waived vesting requirements under restricted stock unit agreements to facilitate the execution of the Separation Agreement and the transition of the Chief Executive Officer’s duties and responsibilities to Mr. Keller.

 

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2009 Summary Compensation Table

The following table presents information regarding the compensation for 2009 for our current and former Chief Executive Officers, our Chief Financial Officer and the next three highest paid executive officers employed by us at the end of 2009. We sometimes refer to these individuals collectively in this Form 10 as our “named executive officers”.

 

Name and Principal Position

     Salary
($)
     Stock
Awards
($) (1)
     Non-Equity
Incentive Plan
Compensation
($) (2)
     All Other
Compensation
($) (3)
     Total
($)

David L. Keller (4)
Chief Executive Officer

     $ 130,229      $ 562,500      $ 146,537      $ 11,700      $ 850,966

John M. Matheson (5)
Former Chief Executive Officer

       409,029        311,735        —          1,399,616        2,120,380

David L. Willis
Chief Financial Officer

       253,000        242,769        203,870        14,726        714,365

Dean J. Glover
President of Products Division

       306,000        228,402        244,174        12,772        791,348

Kenneth W. Robuck
President of Services Division

       307,650        259,214        346,846        25,656        939,366

Gene F. Schockemoehl
President of Braden Manufacturing, LLC

       275,000        175,813        276,788        12,534        740,135

 

(1) The dollar amounts shown for Stock Awards reflect the aggregate grant date fair value of restricted stock unit awards computed in accordance with FASB Accounting Standards Codification (“ASC”) Topic 718. Restricted stock units we grant generally vest over four years. One half of the units vest in four equal installments on March 31 of each of the first four years after the grant date if the grantee remains in our employ through that March 31. The other half of the units are also scheduled to vest in four equal installments on those same March 31 dates, but each of those installments will vest only if the grantee remains in our employ and our performance for the immediately preceding year meets the EBITDA target established by the Compensation Committee of our Board of Directors for that year. If our performance for any year falls short of that EBITDA target, the performance based installment that would otherwise vest for that year is forfeited. For purposes of the ASC Topic 718 calculation, we assume, as of the date of grant, that the grantee will remain in our employ through the end of the four year vesting period and we have therefore included in this column for 2009, as to the restricted stock units that vest solely on continued employment, their entire grant date value, determined as of the date of grant. As to any performance based installment, we do not assume that the installment will vest until the EBITDA target for each year is set. Once the EBITDA target for a year is set, we assume that all performance based installments of restricted stock units that may vest in that year will in fact vest, using as the grant date the date on which the EBITDA target is set. Accordingly, for 2009, we included in this column one performance based installment of the restricted stock units granted to Mr. Keller in 2009 (10,417 restricted stock units with a value of $112,500). Similarly, for each other named executive officer, we included in this column one performance based installment of restricted stock units granted in 2009 and another installment of restricted stock units granted in 2008, in each case using as a grant date the date on which the EBITDA target for 2009 was set. Details regarding 2009 stock awards can be found in the table “2009 Grants of Plan-Based Awards”. Details regarding the 2009 stock awards that are still outstanding can be found in the table “Outstanding Equity Awards at December 31, 2009”. We did not grant any options during 2009. For a discussion of the assumptions we made in valuing the stock awards, see Note 9 – Stockholders’ Equity in the notes to our consolidated financial statements contained in this Form 10.

 

(2) This column reflects amounts earned by our named executive officers under our annual Incentive Compensation Plan. The terms of the plan are described more fully in the “Compensation Discussion and Analysis” section of this Form 10.

 

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(3) The amounts in the All Other Compensation column are valued on the basis of the aggregate incremental cost to us and consist of the following compensation items: For Mr. Keller, relocation expenses of $5,832 and housing reimbursement of $5,868; for Mr. Matheson, 401(k) match of $10,227, tax preparation expenses of $475, club dues of $7,639, and severance of $1,381,275; for Mr. Willis, 401(k) match of $8,223, tax preparation expenses of $485, club dues of $5,393 and family travel of $625; for Mr. Glover, 401(k) match of $10,322 and club dues of $2,450; for Mr. Robuck, 401(k) match of $12,306, tax preparation expenses of $801, car allowance of $12,350, and family travel of $199; for Mr. Schockemoehl, 401(k) match of $8,779, tax preparation expenses of $1,085 and club dues of $2,670. The family travel amount represent the aggregates incremental cost, if any, of commercial travel and/or meals and entertainment for spouses to attend company-related events. The $1,381,275 severance for Mr. Matheson includes $418,316, which is the value on his termination date of 41,132 shares of our common stock he received on the vesting of restricted stock units on that date, as well as other elements that are detailed in the “John Matheson’s Settlement Agreement” section of this Form 10.

 

(4) Mr. Keller was appointed as our President and Chief Executive Officer effective September 14, 2009.

 

(5) Mr. Matheson, our former President and Chief Executive Officer, resigned from all positions with us effective September 14, 2009 and his employment with us was terminated following a 30-day transition period on October 14, 2009. One consequence of that termination was the forfeiture of Mr. Matheson’s rights as to an aggregate of 107,608 restricted stock units with a fair value as of the termination date of $1,094,373.

 

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2009 Grants of Plan-Based Awards

The following table presents information relating to stock awards granted to our named executive officers in 2009 under our 2008 Management Incentive Plan and the payout of cash awards granted under our annual Incentive Compensation Plan (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split).

 

     Grant Date    Estimated Future Payouts Under
Non-Equity Incentive Plan Awards (1)
   Estimated
Future
Payouts
Under
Equity
Incentive
Plan
Awards
   All Other
Stock
Awards:
Number of
Common
Shares
   Grant Date
Fair Value
of Stock
Awards (2)

Name

      Threshold
($)
   Target
($)
   Maximum
($)
   Target
(#)
   (#)    ($)

David L. Keller

                    

Incentive Compensation Plan

   N/A    $ 93,765    $ 104,183    $ 208,366            N/A

2008 Management Incentive Plan

   9/14/2009             10,417       $ 112,500
   9/14/2009                41,667      450,000

John M. Matheson

                    

Incentive Compensation Plan

   N/A      321,300      357,000      714,000         

2008 Management Incentive Plan

   2/9/2009             10,904         164,868
   2/9/2009             10,415         157,468
   2/9/2009                41,658      319,208

David L. Willis

                    

Incentive Compensation Plan

   N/A      125,235      139,150      278,300            N/A

2008 Management Incentive Plan

   2/9/2009             4,362         27,969
   2/9/2009             8,679         42,960
   2/9/2009                34,715      171,840

Dean J. Glover

                    

Incentive Compensation Plan

   N/A      179,010      198,900      397,800            N/A

2008 Management Incentive Plan

   2/9/2009             4,354         27,922
   2/9/2009             8,100         40,096
   2/9/2009                32,401      160,384

Kenneth W. Robuck

                    

Incentive Compensation Plan

   N/A      179,975      199,973      399,945            N/A

2008 Management Incentive Plan

   2/9/2009             9,159         58,734
   2/9/2009             8,100         40,096
   2/9/2009                32,401      160,384

Gene F. Schockemoehl

                    

Incentive Compensation Plan

   N/A    $ 136,125    $ 151,250    $ 302,500            N/A

2008 Management Incentive Plan

   2/9/2009             7,851         50,344
   2/9/2009             5,070         25,094
   2/9/2009                20,278    $ 100,375

 

(1) These columns show the dollar value of the potential payout to each named executive officer for 2009 under our annual Incentive Compensation Plan at threshold, target and maximum levels. Amounts we actually paid during 2010 for 2009 under the Incentive Compensation Plan are included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table (except in the case of Mr. Matheson whose bonus amount for 2009 is included in his severance payment and reflected in the “All Other Compensation” column of the Summary Compensation Table).

 

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(2) These amounts reflect the aggregate grant date fair value of restricted stock unit awards computed in accordance with FASB ASC Topic 718. The awards of performance-based restricted stock units (reflected in the column captioned “Estimated Future Payouts Under Equity Incentive Plan Awards – Target”) provide only for a single estimated payout. If the target level of performance is not achieved, there is no payout. If the target level of performance is achieved, the estimated issuance is equal to the Grant Date Fair Value of Stock Awards shown in this column, and only that amount, even if performance is far better than target. Therefore, the values of the performance-based restricted stock units included in this column represent the grant date fair value at both “target” and “maximum”. (In the case of Mr. Matheson, the amounts shown include the fair value of all stock awards included in the table as of the date granted plus the fair value of some of those stock awards as of the date of his termination of employment, on which date the awards were accelerated.) For a discussion of the assumptions we made in valuing the stock awards, see Note 9 – Stockholders’ Equity in the notes to our consolidated financial statements contained in this Form 10.

Stock Awards

We grant restricted stock units to our named executive officers pursuant to our 2008 Management Incentive Plan. One half of the restricted stock units granted to each named executive officer vests in equal installments over four years based on continued employment through each vesting date. The other half of the restricted stock units granted to each named executive officer vests in four equal installments over four years, with the vesting of each installment subject to both continued employment and satisfaction of the EBITDA performance condition for the relevant year. For this second half of the restricted stock units, we establish performance targets on an annual basis and, therefore, for purposes of reporting the value of grants made to our named executive officers in accordance with applicable SEC rules, we consider each installment of these performance-based restricted stock units to be the subject of a separate annual grant.

Cash Incentive Awards

We provide an annual cash incentive opportunity to our named executive officers under our annual Incentive Compensation Plan. The purpose of our Incentive Compensation Plan is to motivate employees to increase the value of the Company. Cash incentive awards under the plan for each year are calculated based on our designated business units’ actual financial performance, per our audited internal financial statements, as compared to threshold, target and maximum performance hurdle levels for EBITDA, as determined for that year by our Compensation Committee. The total amount available for payout as a bonus to any named executive officer is purely a function of performance of the designated business units against EBITDA targets. A portion of this total amount available is paid to the named executive officer based on the level of EBITDA achieved, without reference to individual performance. A further portion of the total amount available is paid to the named executive officer based upon the extent to which the Compensation Committee determines the executive’s personal goals and/or financial measures relevant to the executive have been achieved. In general, a named executive officer is required to be employed on the payout date (typically in March of the following year), to receive payment of a bonus under the Incentive Compensation Plan. For detail on the cash incentive opportunities available to each of our named executive officers during 2009, see the table set forth under the caption “Short-Term Incentive Compensation” in the Compensation Discussion and Analysis section of this Form 10.

Employment Agreements

The key terms of our employment agreements with each of our named executive officers are set forth below.

David L. Keller’s Employment Agreement. Effective as of September 14, 2009, we entered into a three-year employment agreement with Mr. Keller, our President and Chief Executive Officer. We also agreed to use our best efforts to cause him to be elected to our Board of Directors at each stockholder meeting at which the directors are elected. By June 13, 2012, we will discuss with Mr. Keller whether we wish to mutually agree to extend his agreement for an additional year through September 13, 2013.

Pursuant to his employment agreement, Mr. Keller receives a salary of $435,000 per year and is entitled to an annual bonus opportunity under our annual Incentive Compensation Plan, with a target bonus equal to 80 percent, and a maximum bonus equal to 160 percent, of his base salary. Mr. Keller is entitled to participate in our 401(k) and flexible benefit plans and to four weeks of paid vacation per year. We also provide to Mr. Keller life, accidental death and dismemberment, short and long-term disability, travel accident insurance (but not medical or dental insurance), cover the costs of an apartment for his personal use, and reimburse his documented business expenses.

 

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Mr. Keller’s employment agreement provides that upon the termination of his employment by us for cause, by him without good reason or upon expiration of the term, he would only receive his unpaid base salary through the termination date. Upon the termination of his employment by us without cause or by him for good reason, Mr. Keller would be entitled to severance payments, including his base salary and continuing insurance coverage through the termination date, any unpaid annual bonus with respect to the immediately preceding calendar year, a pro rata annual bonus (if his employment is terminated not earlier than three months after the beginning of the bonus plan year) based on our actual financial results for the entire bonus year and his individual performance during the part of the bonus year ending on the termination date, and, subject to execution or waiver of a release, a continuation of his base salary through the earlier of the end of the then-current term or the first anniversary of the termination date.

The terms “cause” and “good reason” are each defined in Mr. Keller’s employment agreement. “Cause” means (1) consistent failure to perform his duties and responsibilities, (2) a material breach of confidentiality or noncompetition covenants, (3) a material breach of any other provision of the employment agreement, which breach is not cured within 30 days of notice, (4) commission of a felony or any crime involving theft, dishonesty or moral turpitude, (5) commission of one or more acts or omissions that are willful and deliberate and taken or omitted with intent to injure our business, operations, financial condition or reputation, (6) disregard of directives of our Board of Directors, (7) drunkenness or use of drugs that interferes with the performance of duties under the employment agreement, or (8) any action to secure any personal profit in connection with our business without first obtaining the unanimous consent of our Board of Directors other than the executive. “Good reason” means (1) a material diminution of duties and responsibilities or (2) a material breach of our obligations under the employment agreement, in each case subject to notice requirements and cure provisions.

Under his employment agreement, if Mr. Keller’s employment were terminated by death or disability, he would receive his base salary through the termination date, any unpaid annual bonus with respect to the immediately preceding calendar year, and a pro rata amount of his annual bonus (if the termination date is at least three months after the beginning of the bonus plan year). In the case of termination for disability, Mr. Keller would also receive the difference between his base salary and monthly benefits under our company-sponsored short-term disability insurance for a period of up to six months.

On September 14, 2009, we granted 83,333 restricted stock units to Mr. Keller under our 2008 Management Incentive Plan. Subject to the plan’s acceleration provisions: one half of these restricted stock units will vest in four equal installments, one each on March 31 of each year starting with 2010 through 2013, if Mr. Keller remains employed by us through each particular March 31; and the other half of these restricted stock units will also vest in four equal installments on the same March 31 dates but only if Mr. Keller remains employed by us through each particular March 31 date and, as to any particular March 31 date, we achieve our EBITDA target for the immediately preceding calendar year. If Mr. Keller remains employed by us through September 13, 2012 but his employment agreement is not extended to September 13, 2013, the restricted stock units scheduled to vest on March 31, 2013 will vest on that date to the same extent as if Mr. Keller had remained employed by us through that date.

John M. Matheson’s Employment Agreement and Separation Agreement. During 2009, we had an employment agreement with Mr. Matheson, our former President, Chief Executive Officer and Director, that had been most recently amended and restated as of November 21, 2006. Pursuant to his employment agreement, Mr. Matheson was entitled to receive a base salary of $446,250 per year and an annual bonus opportunity under our annual Incentive Compensation Plan, with a target bonus equal to 80 percent of his base salary. Mr. Matheson was also entitled to participate in our 401(k), profit sharing and flexible benefit plans and to four weeks of paid vacation per year. We also provided to Mr. Matheson medical, dental, life, accidental death and dismemberment, travel accident and short and long-term disability insurance, covered his club dues and expenses for preparation of annual taxes, and reimbursed his documented business expenses.

In accordance with the terms of a separation agreement we entered into with Mr. Matheson on September 11, 2009, he resigned from all positions with us effective as of September 14, 2009 and agreed to provide transitional services through October 14, 2009, on which date his employment with us terminated. Under the separation agreement, we paid to Mr. Matheson a separation payment consisting of $446,250, representing one year’s base salary, $14,514, representing our estimate of one year’s cost of his benefits, $2,195, representing three months of club dues, in each case as required by the terms of Mr. Matheson’s employment agreement, and $500,000, representing an agreed upon amount of bonus for the part of 2009 ending on October 14, 2009, the date on which Mr. Matheson ceased to provide transitional services to us. We further agreed to pay all accrued, but unpaid, base salary and vacation time and reasonable legal costs incurred in connection with the negotiation of the separation agreement. A total of 41,132 restricted stock units held by Mr. Matheson vested on October 14, 2009, with 30,021 restricted stock units vesting on that date by reason of Mr. Matheson’s service through that date and an additional 11,111 restricted stock units vesting on that date by reason of us waiving any contrary provisions in the restricted stock unit agreements with Mr. Matheson. Mr. Matheson forfeited all of his other restricted stock units (107,608 restricted stock units). All 8,544 incentive shares issued to Mr. Matheson under our Management Incentive Co-Investment Plan were fully vested on October 14, 2009, without further action by either party. We paid the $500,000 agreed amount to Mr. Matheson as a bonus for 2009 and waived vesting requirements under restricted stock unit agreements to facilitate the execution of the Separation Agreement and the transition of the Chief Executive Officer’s duties and responsibilities to Mr. Keller. If we ask Mr. Matheson to provide any services to us after October 14, 2009, we will pay him for those services at the rate of $1,500 per full working day and we will reimburse him for reasonable travel or related costs and expenses incurred.

Employment Agreements with Our Other Named Executive Officers. We have two-year employment agreements with all of our other named executive officers. At the end of the initial or additional employment term, each agreement automatically renews for a one-year term unless we have provided the officer with at least 60-days advance written notice of termination. Pursuant to the employment agreements, we pay each named executive officer base salary and provide them an annual cash bonus opportunity. In addition, each named executive officer is entitled to participate in our 401(k), profit sharing and flexible benefit plans and to four weeks of paid vacation per year. We also provide each named executive officers with medical, dental, life, accidental death and dismemberment, travel accident and short and long-term disability insurance, cover the executive’s club dues and expenses for preparation of annual taxes, and reimburse the executive’s documented business expenses.

The employment agreements with each of our other named executive officers provide that upon the termination of the officer’s employment by us with cause or by the officer without good reason, the officer would be entitled to receive all previously earned and accrued but unpaid base salary and vacation time up to the termination date, but not any accrued but unpaid bonus as of the termination date. Upon the termination of employment by us without cause or by an officer for good reason, the officer would receive all previously earned and accrued but unpaid base salary and vacation time up to the termination date. If the officer executed a general release, he would also be entitled to severance payments, payable within 60 days of the termination date, equal to the sum of any unpaid bonus earned during any bonus year that ended before the termination date, a pro rata target bonus for the year in which the termination occurs (based on the number of days in the year before the termination date and, in Mr. Schockemoehl’s case, only if the termination date is at least three months after the beginning of the year), one year’s base salary, the cost of medical, dental, life and travel accident insurance for twelve months, and the cost of club dues for three months.

 

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The terms “cause” and “good reason” are each defined in each employment agreement. “Cause” means (1) a material breach of confidentiality, noncompetition or nonsolicitation covenants, (2) commission of a felony or any crime involving theft, dishonesty or moral turpitude, (3) commission of one or more acts or omissions that are willful and deliberate acts intended to harm or injure our business, operations, financial condition or reputation, (4) disregard of the directives of our Board of Directors, (5) drunkenness or use of drugs that interferes with the performance of duties under the employment agreement, or (6) any attempt to secure any personal profit in connection with our business without prior written approval by unanimous consent of our Board of Directors. “Good reason” means (1) a material reduction in the annual base salary, employee benefits or percentage participation in our annual Incentive Compensation Plan, (2) subject to limited exceptions, a material modification to our annual Incentive Compensation Plan that materially and adversely affects the determination of the officer’s bonus, (3) a requirement to be based at any office or location more than 50 miles from Tulsa, Oklahoma (Tucker, Georgia, in the case of Mr. Robuck), or (4) a removal of the officer from the position specified in his employment agreement by action of the Board of Directors without cause and without the officer’s consent.

Under these employment agreements, upon the termination of employment due to death or disability, a named executive officer would receive all previously earned and accrued but unpaid base salary and vacation time up to the termination date or date of death, a pro rata bonus earned by the officer during the year in which the termination occurs (based on the number of days in the year before the termination date and, in Mr. Schockemoehl’s case, only if the termination date is at least three months after the beginning of the year) and any unpaid bonus earned by the officer during any year that ended before the termination date or date. In the case of termination for disability, the officer would also receive the difference between the officer’s base salary and monthly benefits under our company-sponsored short-term disability insurance for a period of up to six months.

The employment agreements with all of our named executive officers, including Mr. Keller, also contain customary confidentiality, nonsolicitation and noncompetition covenants. The nonsolicitation and noncompetition obligations continue for twelve months after termination. The confidentiality obligations continue indefinitely.

Outstanding Equity Awards at December 31, 2009

The following table shows outstanding equity awards for each of our named executive officers who were employed by us at December 31, 2009 (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split). Mr. Matheson’s employment with us terminated on October 14, 2009 and, accordingly, there were no outstanding equity awards for him at December 31, 2009.

 

          Stock Awards

Name

        Number of
Shares or Units
That Have Not
Vested (#)
   Market Value of
Shares or Units
That Have Not
Vested($) (1)
   Equity Incentive
Plan Awards:
Number of
Unearned
Shares or Units
That Have Not
Vested(#) (2)
   Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares or Units
That Have Not
Vested ($) (1)(2)

David L. Keller

              
   2008 Management Incentive Plan (3)    41,667
   558,750    41,667    558,750
   Total    41,667    558,750    41,667    558,750
              

David L. Willis

              
   2008 Management Incentive Plan (3)    47,800    640,997    47,800    640,997
   Total    47,800    640,997    47,800    640,997
              

Dean J. Glover

              
  

Management Incentive Co-Investment Plan (3)

   8,544    114,571    —      —  
   2008 Management Incentive Plan (3)    45,464    609,669    45,464    609,669
   Total    54,008    724,240    45,464    609,669
              

Kenneth W. Robuck

              
  

Management Incentive Co-Investment Plan (3)

   8,544    114,571    —      —  
   2008 Management Incentive Plan (3)    59,879    802,976    59,879    802,976
   Total    68,423    917,547    59,879    802,976
              

Gene F. Schockemoehl

              
  

Management Incentive Co-Investment Plan (3)

   8,544    114,571    —      —  
   2008 Management Incentive Plan (3)    43,831    587,766    43,831    587,766
   Total    52,375    702,337    43,831    587,766

 

(1) The market value of the time-vesting shares and restricted stock units reported in this column is computed by multiplying the closing market price of our common stock on the last trading day of 2009 by the number of shares and units held by each named executive officer.
(2) Our awards of performance-based restricted stock units provide only for a single issuance, which is reported in this column.
(3) Incentive shares were granted under our Management Incentive Co-Investment Plan on January 22, 2008 and will cliff vest on the third anniversary of the grant date if the holder of those shares remains in our employ through that third anniversary. Restricted stock units were granted under our 2008 Management Incentive Plan in 2008 and in 2009. One half of the restricted stock units granted to each named executive officer vests in equal installments over four years based on continued employment through successive March 31 vesting dates, the first of which is March 31 of the year immediately following the year in which the grant was made. The other half of the restricted stock units granted to each named executive officer vests in four equal installments over four years on the same vesting dates, with the vesting of each installment subject to both continued employment and satisfaction of the EBITDA performance condition for the relevant year. The following table shows the vesting schedules for the unvested incentive shares and restricted stock units outstanding as of December 31, 2009 (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split).

Vesting Schedule for Unvested Incentive Shares and Restricted Stock Units

 

          Vesting Schedule (#)

Name

  

Type of

Award                       

   March 31,
2010
   January 22,
2011
   March 31,
2011
   March 31,
2012
   March 31,
2013

David L. Keller

   RSUs    20,833    —      20,833    20,833    20,833

David L. Willis

   RSUs    26,081    —      26,081    26,081    17,358

Dean J. Glover

   Incentive Shares    —      8,544    —      —      —  
   RSUs    24,909    —      24,909    24,909    16,200

Kenneth W. Robuck

   Incentive Shares    —      8,544    —      —      —  
   RSUs    34,519    —      34,519    34,519    16,200

Gene F. Schockemoehl

   Incentive Shares    —      8,544    —      —      —  
   RSUs    25,841    —      25,841    25,841    10,139

2009 Stock Awards Vested

The following table shows information regarding aggregate stock awards vested during 2009 and the aggregate value realized on that vesting for each of our named executive officers (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split).

 

     Stock Awards

Name

   Number of
Shares Acquired
on Vesting

(#)
   Value Realized
on Vesting
($) (1)

David L. Keller

   —      $ —  

John M. Matheson

   71,484      613,155

David L. Willis

   8,723      43,180

Dean J. Glover

   8,709      43,108

Kenneth W. Robuck

   18,319      90,678

Gene F. Schockemoehl

   15,702      77,724

 

(1) The value realized on the vesting of our restricted stock units is determined by multiplying the number of shares received upon that vesting by the market price of our common stock on the date of vesting.

Potential Payments Upon Termination or Change in Control

The employment of any of our named executive officers may be terminated under several possible scenarios. In certain of these scenarios, our plans, agreements, arrangements or typical practices would provide severance benefits in varying amounts to the executive. We have employment agreements with each of our named executive officers. In addition, our plans may provide for specified benefits upon a change in control or for an acceleration of benefits. Our various agreements and plans that could provide severance and other benefits to our named executive officers upon a termination of employment or change in control are filed as exhibits to this Form 10. Although we have summarized the key provisions of these agreements and plans in the following discussion, stockholders are encouraged to read the entire documents for additional detail.

Payments under Employment Agreements. For a detailed discussion of the payments that would be made to each of our named executive officers upon termination under the terms of their respective employment agreements, see the summary of terms of those employment agreements under the general headings “David L. Keller’s Employment Agreement,” “John M. Matheson’s Employment Agreement and Separation Agreement,” and “Employment Agreements with Our Other Named Executive Officers” in the Employment Agreements portion of this Form 10.

Restricted Stock Unit Agreements. The restricted stock unit award agreements that we have entered into with our named executive officers pursuant to our 2008 Management Incentive Plan provide that if we terminate an officer’s employment for cause, any restricted stock units that have not vested before the termination will terminate upon the termination. The definition of “cause” is the same as described above in the summary of Employment Agreements With Our Other Named Executive Officers. Upon a voluntary termination by a named executive officer that occurs before the officer has completed two years of service from the service start date specified in the restricted stock unit agreement, all unvested restricted stock units would terminate. Upon a voluntary termination after an officer has completed two years of service from that service start date, a portion of unvested restricted stock units would vest. The earliest service start date in any outstanding restricted stock unit agreements is January 22, 2008, the date on which we emerged from bankruptcy protection.

If we terminated a named executive officer’s employment without cause before the officer had completed three years of service from the service start date specified in the Restricted Stock Unit Agreement, a pro rata portion of the restricted stock units that would otherwise have vested on the following March 31 will vest (based on the number of days in the year before the termination date). If we terminated a named executive officer’s employment without cause after the officer had completed three years of service from that service start date, all of the officer’s unvested restricted stock units would immediately vest. If a named executive officer other than Mr. Keller terminated his employment for good reason, all of the officer’s unvested restricted stock units would immediately vest. In Mr. Keller’s case, a termination by him for good reason would have the same effect on vesting of his restricted stock units as a termination of his employment by us without cause. The definition of “good reason” is the same as in the applicable employment agreement.

Upon the consummation of a change of control of our company, all unvested restricted stock units held by any named executive officer would immediately vest. Upon a named executive officer’s death or disability, unvested restricted stock units held by the officer would partially vest.

 

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2008 Management Incentive Plan. Under our 2008 Management Incentive Plan, we may grant awards of restricted stock, restricted stock units, stock options and other equity interests in our company to our employees and officers and to the employees and officers of our subsidiaries as well as to any other person who is determined by our Board of Directors to have made (or is expected to make) contributions to us. Unless otherwise expressly provided in an award agreement, in connection with the occurrence of a change of control, our Board of Directors may accelerate the date of exercise or vesting of an award. In addition, if the surviving or acquiring entity refuses to assume or substitute for an award, a named executive officer would become fully vested in that award. A “change of control” under our 2008 Management Incentive Plan means (1) with limited exceptions, the acquisition by any individual, entity or group of beneficial ownership of 50 percent or more of the then outstanding shares of our voting stock, (2) our incumbent directors (determined as of the effective date of the plan) ceasing to constitute a majority of our Board of Directors (except that any director, whose election or nomination for election is approved by a majority of our Board of Directors and whose initial assumption of office is not in connection with an actual or threatened election contest, tender offer or a proposed merger, reorganization or consolidation is deemed to be an incumbent director), (3) consummation of a reorganization, merger or consolidation with respect to which beneficial owners of our voting stock immediately before the transaction do not continue, immediately after the transaction, to own beneficially more than 50 percent of the then outstanding shares of common stock of the corporation resulting from the transaction, (4) a complete liquidation or dissolution of our company, or (5) the sale or other disposition of all or substantially all of our assets.

If we terminate the employment of a named executive officer for “cause,” our Board of Directors may terminate the executive’s awards on the date of the termination and we would have the right to repurchase any shares of our common stock subject to the executive’s restricted stock awards whether or not those shares have vested. The definition of “cause” under our 2008 Management Incentive Plan is the same as described above in the Summary of Employment Agreements with our other named executive officers.

Management Incentive Co-Investment Plan. Our Board of Directors approved our Management Incentive Co-Investment Plan on December 4, 2007 to reward certain senior managers of ours and our subsidiaries for their commitment and maximum efforts to us during our reorganization pursuant to Chapter 11 of the Bankruptcy Code and to incentivize their efforts to grow the value of our company upon our exit from bankruptcy. Participation in the plan was subject to our successful emergence from bankruptcy. The plan was not intended to be a capital-raising device, and all securities issued pursuant to the plan were intended to be exempt from registration under Rule 701 of the Securities Act of 1933, as amended, as compensatory securities issued under a “bona fide” incentive compensation plan.

Twenty nine senior managers, including all of our named executive officers who were with us when we emerged from bankruptcy, participated in the plan by purchasing a total of 196,078 shares of our common stock (these purchased shares, the “MIP Shares”) at a purchase price of $7.65 per share. Pursuant to the plan, we granted an additional 98,038 shares (these additional shares, the “Incentive Shares”) to the participants at no cost, at the rate of one Incentive Share for every two MIP Shares purchased by the participant. The MIP Shares were fully vested upon issuance to a participant on January 22, 2008, the date we emerged from bankruptcy protection. Incentive Shares generally will vest on the third anniversary of that date, January 22, 2011, provided the participant remains in our employ through that date. Incentive Shares will vest immediately upon a participant’s death, disability or retirement before January 22, 2011. If we terminate a participant for cause or if a participant voluntarily terminates employment with us, in either case before January 22, 2011, all of the participant’s Incentive Shares will be automatically forfeited. If we terminate a participant without cause or if a change of control occurs, in either case before January 22, 2011, all Incentive Shares will vest immediately. For purposes of our Management Incentive Co-Investment Plan, “change of control” means any transaction that would constitute an ownership change of our company, as that term is defined in Section 382(g) of the Internal Revenue Code of 1986, as amended, or a sale by us of substantially all of our assets.

Incentive Compensation Plan. Pursuant to our annual Incentive Compensation Plan, we grant cash awards to our named executive officers in order to motivate them to increase the value of our company. Except in cases of death or disability, participants are generally required to be employed on the payout date (typically in March of the year following the year with respect to which an award bonus is earned) to receive their awards under the plan. If a participant’s employment is terminated due to death or disability during a plan year, the participant will receive a pro rata award based upon the base salary earned by the participant before the termination.

 

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The following table summarizes the amounts that would have been payable under the agreements and plans described above to each of our named executive officers upon termination under specified circumstances or upon a change of control, assuming the termination or change in control occurred on December 31, 2009. (Mr. Matheson is not included in the table because his employment was terminated before December 31, 2009 and the amounts paid to him upon that termination are set forth above under the caption “John M. Matheson’s Separation Agreement.”)

 

Event(1)(2)

   David L.
Keller
   David L.
Willis
   Dean J.
Glover
   Kenneth W.
Robuck
   Gene F.
Schockemoehl

Disability(3)

              

Annual Bonus

   $ 146,537    $ 203,870    $ 244,174    $ 346,846    $ 276,788

Disability Benefit

     219,584      127,000      154,268      154,235      139,920

Accelerated Vesting of Restricted Stock Units

     279,375      349,743      334,030      462,901      346,523

Accelerated Vesting of Incentive Shares

     —        —        114,571      114,571      114,571

Total:

     645,496      680,613      847,043      1,078,553      877,802

Death(4)

              

Annual Bonus

     146,537      203,870      244,174      346,846      276,788

Accelerated Vesting of Restricted Stock Units

     279,375      349,743      334,030      462,901      346,523

Accelerated Vesting of Incentive Shares

     —        —        114,571      114,571      114,571

Total:

     425,912      553,613      692,775      924,318      737,882

Termination Without Cause(5)

              

Salary

     435,000      253,000      306,000      307,650      275,000

Annual Bonus

     146,537      139,150      198,900      199,973      151,250

Cost of Benefits

     —        14,527      14,527      14,527      14,527

Club Dues

     —        1,992      1,937      —        667

Accelerated Vesting of Restricted Stock Units

     279,375      349,743      334,030      462,901      346,523

Accelerated Vesting of Incentive Shares

     —        —        114,571      114,571      114,571

Total:

     860,912      758,412      969,965      1,099,622      902,538

Termination for Good Reason(6)

              

Salary

     435,000      253,000      306,000      307,650      275,000

Annual Bonus

     146,537      139,150      198,900      199,973      151,250

Cost of Benefits

     —        14,527      14,527      14,527      14,527

Club Dues

     —        1,992      1,937      —        667

Accelerated Vesting of Restricted Stock Units

     279,375      1,281,995      1,219,342      1,605,952      1,175,533

Accelerated Vesting of Incentive Shares

     —        —        114,571      114,571      114,571

Total:

     860,912      1,690,664      1,855,277      2,242,673      1,731,548

Retirement(7)

              

Accelerated Vesting of Incentive Shares

     —        —        114,571      114,571      114,571

Total:

     —        —        114,571      114,571      114,571

Change in Control(8)

              

Accelerated Vesting of Restricted Stock Units

     1,117,500      1,281,995      1,219,342      1,605,952      1,175,533

Accelerated Vesting of Incentive Shares

     —        —        114,571      114,571      114,571

Total:

   $ 1,117,500    $ 1,281,995    $ 1,333,913    $ 1,720,523    $ 1,290,104

 

(1) No named executive officer would be entitled to any severance payments if we terminated him for cause or he terminated his employment with us without good reason.

 

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(2) Amounts shown for the accelerated vesting of restricted stock units and Incentive Shares are based on the December 31, 2009 per share closing price of our common stock.

 

(3) If terminated due to disability, each named executive officer is entitled, pursuant to his employment agreement, to receive, by March 15 of the year following termination, a pro rata portion of the full-year bonus that would have been earned by him had he remained in our employ through the regular time for payment of that full-year bonus. The amount shown in the table for each named executive officer assumes a December 31, 2009 termination and therefore is equal to 100 percent of the full-year bonus earned for 2009. Upon termination due to disability, each named executive officer would also be entitled to receive, pursuant to his employment agreement, monthly payments equal to the difference between his base salary and the monthly benefit payable to him under company-sponsored short-term disability insurance for six months following termination. In Mr. Keller’s case, assuming a termination on December 31, 2009, the last four of these six payments (all of which would otherwise be made after March 15, 2010) would be paid in a single lump sum by not later than March 15, 2010. If terminated due to disability, each named executive officer is also entitled to pro rata vesting with respect to those restricted stock units that would otherwise vest on the following March 31 if the executive remained in our employ through that date (taking into account, as to one half of those restricted stock units, whether or not we achieved the EBITDA target for the year in which the termination occurred). The amount shown in the table for each named executive officer assumes a December 31, 2009 termination and therefore is equal to 100 percent of the value of the full-year’s restricted stock units that would otherwise have vested if the executive had remained in our employ through March 31, 2010 (which takes into account, as to one half of those restricted stock units, that we did achieve the EBITDA target for 2009). Upon any termination for disability, all Incentive Shares held by a named executive officer vest in full (these Incentive Shares would otherwise vest in full on January 22, 2011 if the executive remained in our employ through that date).

 

(4) Upon termination of employment by reason of death, a named executive officer’s personal representative is entitled to the same pro rata bonus, pro rata vesting of restricted stock units, and full vesting of incentive shares that the named executive officer would be entitled to upon termination by reason of disability. Accordingly, the values shown for bonus, restricted stock units, and Incentive Shares upon termination for death are identical to those shown for those items upon termination for disability.

 

(5) Upon termination by us without cause, Mr. Keller would be entitled to any earned but unpaid bonus from a prior year, a pro rata bonus for the year of termination (but only if the termination occurs at least three full months after the beginning of the bonus year) to be based on our company and his personal performance and to be paid at the same time as the full-year bonus would have been paid if Mr. Keller had continued in our employ through March 15 of the following year (but not later than that March 15), and continuation of base salary through the earlier of the then-current term or the first anniversary of the termination date. We would be relieved of our obligation to make salary continuation payments to Mr. Keller if he failed to execute a general release of all claims in our favor. Upon termination by us without cause, each named executive officer other than Mr. Keller would be entitled to be paid, within 60 days of the termination date, an amount equal to the sum of any earned but unpaid bonus from a prior year, a pro rata bonus for the year of termination determined at target bonus levels, a full year’s base salary, an amount equal to the cost we would incur if we continued to provide medical, dental, life, and travel accident insurance to the executive for one year after the termination date, and an amount equal to the cost of three months of club dues. We would be relieved of our obligation to pay this aggregated amount to an executive officer who was terminated by us without cause if the officer failed to execute a general release of all claims in our favor. If terminated by us without cause, each named executive officer (including Mr. Keller) would also be entitled to pro rata vesting with respect to those restricted stock units that would otherwise vest on the following March 31 if the executive remained in our employ through that date (taking into account, as to one half of those restricted stock units, whether or not we achieved the EBITDA target for the year in which the termination occurred). The amount shown in the table for each named executive officer assumes a December 31, 2009 termination and therefore is equal to 100 percent of the value of the full-year’s restricted stock units that would otherwise have vested if the executive had remained in our employ through March 31, 2010 (which takes into account, as to one half of those restricted stock units, that we did achieve the EBITDA target for 2009). Upon any termination of a named executive officer by us without cause, all Incentive Shares held by the officer vest in full (these incentive shares would otherwise vest in full on January 22, 2011 if the executive remained in our employ through that date).

 

(6) If any of our named executive officers terminated his employment with us for good reason, he would be entitled to the same severance benefits as upon his termination by us without cause, except that the officer’s (other than Mr. Keller’s) restricted stock units would vest in full. If Mr. Keller terminated his employment with us for good reason, his restricted stock units would vest in the same proportion as upon his termination by us without cause.

 

(7) Our Management Incentive Co-Investment Plan provides for immediate vesting of all Incentive Shares held by our named executive officers upon their retirement.

 

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(8) Upon a change in control, all restricted stock units and Incentive Shares held by a named executive officer that had not previously vested would fully vest.

Compensation Risk Monitoring

Our Board is aware that compensation programs, if not carefully structured, can incentivize company employees to take imprudent business risks. Our Board, and in particular our Compensation Committee, consider such risks when developing and implementing our compensation programs. The Board believes that our compensation programs contain features that both focus our employees on achieving our performance goals and control against incentives to engage in imprudent risk-taking. The Board has concluded that our compensation programs and practices are not reasonably likely to have a material adverse effect on our Company. Base salary constitutes a substantial portion of the compensation opportunity, so our employees are not dependent on achieving high incentive compensation to meet their basic financial needs. Incentive opportunities include both short-term cash bonuses and longer-term awards of restricted stock units, limiting motivation to inappropriately manage for short-term goals at the expense of long-term performance. Our Compensation Committee believes that our financial incentives are based on performance targets that are attainable without the need to take inappropriate risks or make material changes to our business or strategy. Equity awards include both service-based awards as well as performance and service-based awards that vest over a four-year period, promoting achievement of long-term stockholder value and further mitigating against taking short-term risks. In addition, we grant restricted stock units rather than stock options, lessening any incentive to manage for short-term price gains at the expense of long-term value.

Director Compensation

We provide our non-employee directors with a compensation program designed to attract and retain highly qualified directors, to compensate them fairly for the substantial time commitment they are required to make in fulfilling their duties, and to align our directors’ interests with the interests of our stockholders. Mr. Keller, our President and Chief Executive Officer, does not receive additional remuneration for his services as a director. The compensation we provided to our non-employee directors for their services during 2009 are described below.

Cash Compensation. We paid each non-employee director an annual cash retainer of $35,000. We paid additional cash retainers of $20,000 to our Chairman of the Board, $15,000 to the Chair of the Audit Committee, and $12,500 each to the Chairs of the Compensation Committee and the Nominating and Corporate Governance Committee. We also paid an additional retainer of $10,000 to each member of a listed Board committee (other than the Chair of that committee). Non-employee Directors were also paid the following per diem fees: an “in-person” Board meeting attendance fee of $1,500, a telephonic Board meeting fee of $1,000, and a committee meeting attendance fee of $1,000. In addition, if any of our non-employee directors were requested to attend any meetings outside of normal Board and committee meetings, we compensated them for such “in person” general meeting attendance at a rate of $1,500 per day.

Restricted Stock. As part of our ongoing compensation to directors, each director is entitled to receive an equity award valued at $50,000 each year. We made two separate grants of restricted stock during 2009 to each of our non-employee directors (other than Mr. Williams who joined our Board on October 13, 2009). The first of these two grants was for 6,536 shares of our common stock and was made on January 22, 2009 (the first anniversary of our emergence from bankruptcy protection), to compensate our directors for their service during 2008. This first grant was priced (for purposes of determining the number of restricted shares to be granted) at our January 22, 2008 per share value of $7.65. The second of these two grants was for 8,681 shares of our common stock and was made on February 9, 2009, to compensate our directors for their service during 2009. This second grant was priced (for purposes of determining the number of restricted shares to be granted) at our January 22, 2009 per share value of $5.76 (January 22, 2009 being the first anniversary of our emergence from bankruptcy). Restricted shares granted under these awards generally vest in four equal annual increments on January 22 of each of the four years immediately following the year in which the restricted shares were granted (except that one fourth of the restricted shares granted on January 22, 2009 vested immediately on that date in light of the fact that those restricted shares were intended to compensate the directors for services during 2008). As of December 31, 2009, there were 105,800 shares of our common stock available for future grants under our 2008 Director’s Equity Incentive Plan.

Other. We do not pay any other compensation to our non-employee directors, but reimburse all of our directors for the reasonable expenses incurred by them in connection with carrying out their duties as directors.

Review of Director Compensation. Our Nominating and Corporate Governance Committee periodically reviews our director compensation program to ensure that it both fairly compensates our directors for the responsibilities and time commitment that they undertake in connection with service on our Board and enables us to continue to attract and retain highly qualified directors.

 

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2009 Director Compensation Table

The following table sets forth information regarding the compensation of our non-employee directors for 2009. Information about the compensation of Messrs. Keller and Matheson for their services during 2009 is reflected in the 2009 Summary Compensation Table.

 

Name

   Fees Earned
or Paid in
Cash

($)
     Stock  Awards
($) (1)(2)
     Total
($)

Carl Bartoli

   $ 98,203      $ 80,616      $ 178,819

Terence J. Cryan

     82,540        80,616        163,156

Eugene I. Davis

     61,500        80,616        142,116

Charles Macaluso

     103,209        80,616        183,825

Frank E. Williams, Jr.

     21,375        —          21,375

 

(1) The $80,616 dollar amount shown for each non-employee director (other than Mr. Williams) in this column reflects the aggregate grant date fair value of the two grants of restricted stock awards we made to each of those directors in 2009, computed in accordance with FASB ASC Topic 718. As noted above under the caption “Restricted Stock”, the number of shares of restricted stock we granted to those directors with respect to services during 2008 was determined using the per share price of our stock on January 22, 2008 and the number of shares of restricted stock we granted to those directors with respect to services during 2009 was determined using the per share price of our stock on January 22, 2009. Variations between the per share price of our common stock on January 22, 2008 and January 22, 2009 (the latter being the date on which the grant with respect to services rendered in 2008 was made) and between the per share price of our common stock on January 22, 2009 and February 9, 2009 (the latter being the date on which the grant with respect to services rendered in 2009 was made) account for the difference between the $100,000 nominal aggregate value of stock to be provided to each director for his services during 2008 and 2009 and the $80,616 amount shown in the table. The $80,616 amount is the sum of the $37,647 grant date fair value of 6,536 restricted shares granted on January 22, 2008 and the $42,969 grant date fair value of 8,680 restricted shares granted on February 9, 2009.
(2) The aggregate number of all unvested stock awards outstanding as of December 31, 2009, for each non-employee director is as follows (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split):

 

Director

  Stock Awards Outstanding(#)

Carl Bartoli

  13,582

Terence J. Cryan

  13,582

Eugene I. Davis

  13,582

Charles Macaluso

  13,582

Frank E. Williams, Jr.

 

Compensation Committee Interlocks and Insider Participation

No member of our Compensation Committee is or has been an officer or employee of ours or of any of our subsidiaries. In addition, no member of our Compensation Committee has or has had any relationships with us or any other entity that is required to be disclosed in this Form 10 pursuant to the SEC’s rules. During 2009, none of our executive officers served on the Compensation Committee (or equivalent) or Board of another entity whose executive officers served on our Compensation Committee or Board of Directors.

 

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Item 7. Certain Relationships and Related Transactions, and Director Independence.

Director Independence

After considering all relevant facts and circumstances, including each director’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, our Board of Directors has affirmatively determined that Messrs. Bartoli, Cryan, Davis, Macaluso and Williams each qualifies as independent in accordance with the listing standards of NASDAQ. In addition, each member of our Audit, Compensation and Nominating and Corporate Governance Committees is independent in accordance with the listing standards of NASDAQ.

Related Party Transactions

Except as specified below, since January 1, 2007, there has not been, and there is not currently proposed, any transaction or series of similar transactions, to which we were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which any director, executive officer, a holder of more than five percent of our common stock, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.

Before he joined us in January 2008, David L. Willis, our Senior Vice President and Chief Financial Officer, was Senior Director within the restructuring practice of Alvarez & Marsal LLC (“A&M”). A&M served as a financial advisor to us during our bankruptcy but Mr. Willis was not part of the engagement team at any time. During 2008 and 2007, we paid $8.0 million and $5.0 million, respectively, to A&M for its services rendered to us.

Candice Cheeseman, our former Vice President of Administration, General Counsel and Secretary, resigned on February 19, 2010. Ms. Cheeseman’s husband is a partner at Conner & Winters, LLP. During 2009, 2008 and 2007, we paid $0.1 million, $0.1 million and $0.2 million, respectively, to Conner & Winters, LLP for legal services rendered to us.

Policies and Procedures for Review, Approval or Ratification of Related Person Transactions

Pursuant to policies and procedures adopted by our Board of Directors, our Audit Committee reviews all relationships and transactions in which we and our directors or executive officers, or their immediate family members, are participants in advance for review and approval. All existing related party transactions are reviewed at least annually by our Audit Committee. Any director or officer with an interest in a related party transaction is expected to recuse himself or herself from any consideration of the matter.

During its review of such relationships and transactions, our Audit Committee or our full Board of Directors considers the following: (1) the nature of the related person’s interest in the transaction; (2) the material terms of the transaction, including the amount and type of transaction; (3) the importance of the transaction to the related person and to us; (4) whether the transaction would impair the judgment of a director or executive officer to act in our best interest; and (5) any other matters the Committee deems appropriate.

In addition, to the extent that the transaction involves an independent director, consideration is also given, as applicable, to the listing standards of NASDAQ and other relevant rules related to independence.

 

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Item 8. Legal Proceedings.

We are involved from time to time in legal actions that arise in the ordinary course of our business. Although the outcomes of any such legal actions cannot be predicted, we do not believe that the resolution of any currently pending actions, either individually or in the aggregate, will have a material adverse effect on our financial position or results of operations.

Deltak Fund for Unsecured Claims in Bankruptcy. On September 28, 2006, we and all of our U.S. subsidiaries, including Deltak, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Pursuant to an approved Plan of Reorganization, an administrator was appointed to administer a fund of approximately $34 million in cash that was intended to be distributed to the holders of allowed unsecured claims against Deltak. Under the Plan of Reorganization, the administrator has the right and duty to administer the fund and to “make, file and settle or otherwise resolve objections” to unsecured claims against Deltak.

Since January 22, 2008, the administrator has adjudicated and/or settled various unsecured claims and engaged in efforts to resolve the remaining disputed claims. As of July 13, 2010, approximately $12.3 million of cash remains in the fund subject to the control of the administrator.

Several disputed unsecured claims remain unresolved including proofs of claims filed by Mitsubishi Heavy Industries, Ltd. and Mitsubishi Power Systems Americas, Inc. which have collectively asserted claims of approximately $2.7 million. The administrator continues to contest and otherwise seek to resolve these and all other remaining disputed claims.

Asbestos Cases. Since we emerged from bankruptcy on January 22, 2008, we have been named as a defendant in nine asbestos personal injury lawsuits, of which only three are currently active. Through the date on which we emerged from bankruptcy, approximately 25 asbestos personal injury lawsuits had been filed against our Deltak subsidiary. Neither we nor our predecessors ever mined, manufactured, produced or distributed asbestos fiber, the material that allegedly caused the injury underlying these actions. The bankruptcy court’s discharge order issued when we emerged from bankruptcy extinguished the claims made by all plaintiffs who had filed asbestos claims against Deltak before that time. We also believe the bankruptcy court’s discharge order should serve as a bar against any later claim filed against us or any of our subsidiaries based on alleged injury from asbestos at any time before we emerged from bankruptcy. In any event, to date, we have been successful in having the asbestos cases that were filed against us post-bankruptcy dismissed without liability. We intend to vigorously defend the three currently active actions, just as we defended the other actions that have since been dismissed, all without liability, and we do not anticipate that any of these actions will have a material adverse effect on our financial position, results of operations or liquidity.

 

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Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

Market Price of Our Common Stock

We emerged from bankruptcy in January 2008, and no established market exists for our common stock. Our common stock issued upon our emergence from bankruptcy is presently quoted on the over-the-counter “Pink Sheets” under the symbol “GLPWD”. We filed an application to list our common stock on the NASDAQ Global Market but our application remains subject to review and approval by NASDAQ. We can provide no assurance that our application will be approved or that an active public market will develop for our common stock. We can further provide no assurance as to the degree of price volatility in any market for our common stock that may develop.

We implemented a 1-for-9 reverse stock split of all of our outstanding shares of common stock effective as of the close of business on June 30, 2010. For further information about the reverse split, see Item 11 of this Form 10. All of the share and per share numbers in this Form 10 reflect the effect of this reverse split.

The following table sets forth the high and low sales prices per share of our common stock, as traded on the over-the-counter “Pink Sheets”, during each calendar quarter during 2008 and 2009 and the first quarter of 2010. The closing price per share of our common stock reported on the “Pink Sheets” on July 13, 2010 was $15.75.

 

2008 Quarter Ended

  High      Low

March 31, 2008

  $ 13.05      $ 8.55

June 30, 2008

  $ 12.60      $ 9.00

September 30, 2008

  $ 12.15      $ 1.35

December 31, 2008

  $ 10.53      $ 0.90

2009 Quarter Ended

  High      Low

March 31, 2009

  $ 7.20      $ 2.25

June 30, 2009

  $ 13.05      $ 3.60

September 30, 2009

  $ 11.79      $ 8.10

December 31, 2009

  $ 13.50      $ 9.18

2010 Quarter Ended

  High      Low

March 31, 2010

  $ 17.10      $ 12.96

June 30, 2010

  $ 19.08      $ 13.50

Period from July 1, 2010 through July 13, 2010

  $ 16.00      $ 15.25

As of July 13, 2010, we had 15,467,604 shares of our common stock outstanding, which were held by approximately 125 stockholders of record. In addition to our outstanding shares of common stock, as of July 13, 2010, we have reserved 1,683,171 shares of our common stock for issuance upon the exercise of outstanding warrants, and 1,232,721 shares of our common stock for issuance upon the conversion of outstanding restricted stock units. The transfer agent and registrar for our common stock is Computershare Trust Company, N.A. The transfer agent’s address is 350 Indiana Street, Suite 750, Golden, CO 80401, and the transfer agent’s telephone number is (303) 262-0678.

As of July 13, 2010, out of our 15,467,604 shares outstanding:

 

   

12,175,648 shares were issued following our emergence from bankruptcy under an exemption from registration · pursuant to Section 1145 of the Bankruptcy Code;

 

   

2,535,745 shares were issued pursuant to a private placement in reliance on Section 4(2) of the Securities Act of 1933, as amended (“the Securities Act”), including 52,085 shares issued upon conversion of the warrants issued to the back-stop investors in connection with the private placement; and

 

   

756,211 shares were issued pursuant to our equity compensation plans in reliance on Rule 701 of the Securities Act.

Our shares issued under Section 1145 of the Bankruptcy Code are freely tradeable, subject to restrictions applicable under Rule 144 of the Securities Act (“Rule 144”) to persons holding these shares that may be deemed to be our affiliates. Commencing 90 days after the effectiveness of this Form 10, our shares issued in connection with our private placement in reliance on Section 4(2) or under our compensatory plans in reliance on Rule 701 (in the aggregate, 3,211,168 of our shares) will be eligible for resale pursuant to Rule 144. The holders of our shares issued in the private placement will generally meet the minimum holding period requirements of Rule 144, and will therefore be able to sell those shares under Rule 144, after the effectiveness of this Form 10 .

Our affiliates will be required to comply with the volume limitations under Rule 144, which will prevent any affiliate from selling within any three-month period a number of our shares in excess of the greater of one percent of our shares then outstanding and the average weekly trading volume of our shares on the NASDAQ Global Market during the four calendar weeks before the filing by the affiliate of a Form 144 with the SEC with respect to such sales or, if no such notice is required, the date of receipt of the order to execute the sales. Sales by our affiliates will also be subject to requirements under Rule 144 relating to manner of sale, notice filings and the availability of current public information about us.

In general, under Rule 701 of the Securities Act, any of our directors, officers and employees who have acquired our shares before the effectiveness of this Form 10 under our equity compensation plans will be eligible to resell those shares, beginning 90 days after the effectiveness of the Form 10, by complying with the requirements of Rule 144 applicable to our affiliates and, in the case of non-affiliates, without having to comply with any of the requirements of Rule 144. We intend to file a registration statement on Form S-8 to cover the issuance of shares of our common stock remaining to be issued pursuant to our employee benefit plans.

Therefore, we believe that after the effectiveness of this Form 10, all of our outstanding shares of common stock will be freely transferable, subject to compliance with the requirements of Rule 144 by our affiliates. Persons who may be deemed to be our affiliates generally include individuals or entities that control, are controlled by, or are under common control with us, and may include some or all of our directors and executive officers. Our affiliates will be permitted to sell their shares of our common stock only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act such as Rule 144.

Pursuant to a registration rights agreement, dated as of January 22, 2008, we have agreed to provide piggyback registration rights with respect to approximately 3,906,000 shares of our common stock to investors in connection with a private placement. The registration rights agreement obligates us to bear registration expenses, including reasonable expenses incurred by one legal firm for all the investors and one accounting firm. If we withdraw a registration statement in good faith, our only obligation is to pay the registration expenses. The registration rights agreement does not provide for cash penalties or liquidated damages but the investors may be entitled to specific performance if we do not comply with the covenants of the agreement. Shares cease to be covered by the agreement when, among other things, all registrable shares held by the investor become immediately salable under Rule 144 in a single transaction.

Dividend Policy

We have not paid any cash dividends to date and currently have no intention of paying any cash dividends on our common stock in the foreseeable future. The declaration and payment of dividends is subject to the discretion of our Board of Directors. In addition, our Credit Facility currently prohibits us from paying cash dividends to our stockholders. The timing, amount and form of dividends, if any, will depend on our results of operations, financial condition and such other requirements as deemed relevant by our Board of Directors. You should not purchase our common stock with the expectation of receiving cash dividends.

 

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Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information, as of December 31, 2009, relating to our equity compensation plans pursuant to which grants of options, restricted stock, restricted stock units and other rights to acquire our common stock may be granted from time to time (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split).

Equity Compensation Plan Information

 

Plan category

   Number of
common shares
to be issued upon
conversion of
restricted stock
units (a)
    Weighted-
average exercise
price of
outstanding
restricted stock
units ($)
    Number of
common shares
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
 

Equity compensation plans approved by security holders

   —        —        —     

Equity compensation plans not approved by security holders

   1,232,721 (1)     N/A (2)     580,603 (3)  

Total

   1,232,721      N/A      580,603   

 

(1) This column represents the number of shares of our common stock that may be issued in connection with the conversion of restricted stock units granted under our 2008 Management Incentive Plan. The shares subject to outstanding awards under that plan can be forfeited and therefore can again become available for issuance under the plan.

 

(2) The weighted-average exercise price is not applicable because restricted stock units have no exercise price.

 

(3) This column includes 191,652 shares of our common stock that are available for future awards under our 2008 Management Incentive Plan and 88,439 shares of our common stock that are available for future awards under our 2008 Director’s Equity Incentive Plan. A summary of the material terms of these plans follows below.

2008 Management Incentive Plan

Pursuant to our 2008 Management Incentive Plan, we may grant awards of restricted stock, restricted stock units, stock options and other equity interests in our company to the employees or officers of ours and our subsidiaries or any other person who is determined by our Board of Directors to have made (or is expected to make) contributions to us. No participant may be granted awards during any one year to purchase more than 444,444 shares of our common stock. 1,661,562 shares of common stock were initially available for grant under the plan, with 191,652 shares remaining available for grant as of December 31, 2009. If any award expires, is canceled, forfeited, settled in cash or by delivery of fewer shares than the number of shares underlying the award, or is otherwise terminated without delivery of the shares underlying the award, the underlying shares will again become available under the plan for subsequent awards. Shares of our common stock withheld or otherwise surrendered for payment of an exercise price or taxes relating to the award will also again become available under the plan. Our Board of Directors may at any time accelerate any of the awards.

2008 Director’s Equity Incentive Plan

Pursuant to our 2008 Director’s Equity Incentive Plan, we may grant awards of restricted stock, restricted stock units, stock options and other equity interests in our company to our directors. 166,666 shares of our common stock were initially available for grant under the plan, with 88,439 shares remaining available for grant as of December 31, 2009. If any award expires, is canceled, forfeited, settled in cash, or otherwise terminated without delivery of the shares underlying such award to the holder of such award, the underlying shares will again become available under the plan for subsequent awards. If any award is settled by delivery of fewer shares of our common stock than the number of shares underlying such award, shares that were withheld from the award in payment of an exercise price or taxes related to the award will also again become available under the plan. Our Board of Directors may at any time accelerate any of the awards.

 

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Item 10. Recent Sales of Unregistered Securities.

Since our emergence from bankruptcy on January 22, 2008, we issued the following unregistered securities (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split). We did not use a principal underwriter for any of the issuances.

Exchange, Rights Offering, Private Placement

After our creditors voted in favor of our Plan of Reorganization, the Bankruptcy Court on December 20, 2007 issued an order confirming the Plan of Reorganization, and on January 22, 2008 we successfully emerged from bankruptcy protection. Pursuant to the Plan of Reorganization, on that date:

 

   

We issued 5,266,885 shares of our new common stock to pre-petition equity holders in exchange for stock held before the bankruptcy.

 

   

We issued an additional 9,589,138 shares of our new common stock in exchange for $72.5 million in new capital pursuant to a rights offering that was made available to our then-existing stockholders (6,797,386 shares), a related private placement (2,595,674 shares), and our Management Incentive Co-Investment Plan (196,078 shares).

 

   

We issued warrants to acquire an additional 1,807,222 shares, at an exercise price of $7.9254 per share, to the group of then-existing stockholders that back stopped the rights offering. The warrants expire on January 22, 2013.

The rights offering was exempt from registration pursuant to Section 1145 of the Bankruptcy Code. With respect to the private placement, we relied on Section 4(2) of the Securities Act and regulations promulgated thereunder on the basis that the issuances were sales principally to accredited investors not involving a public offering. All purchasers of securities represented to us that they were accredited investors and were acquiring our securities for investment purposes and not for resale.

Under the Plan of Reorganization, part of the funds from the rights offering were used to pay in full all allowed creditor claims of our company and our Braden and Williams subsidiaries, and a cash reserve of $34 million was established for the payment of allowed unsecured claims against our Deltak subsidiary.

Warrant Exercises

Through July 13, 2010, warrants to purchase an aggregate of 124,058 shares (out of the originally issued warrants to purchase 1,807,222 shares) had been exercised. All of the exercised warrants were exercised on a cashless basis with the result that, through July 13, 2010 we had, with respect to exercised warrants, withheld 71,974 shares and issued 52,084 shares of our common stock. The withheld shares are now held by us as treasury shares. Taking into account these exercises, 1,683,171 warrants remained outstanding as of July 13, 2010.

Compensation Plans

During 2008, 2009 and the first six months of 2010, we granted an aggregate of 1,469,908 restricted stock units to our employees pursuant to our 2008 Management Incentive Plan and an aggregate of 78,227 restricted shares of our common stock to our non-employee directors pursuant to our 2008 Director’s Equity Incentive Plan. In addition, we issued 196,075 shares of our common stock, at a purchase price of $7.65 per share, and an additional 98,038 Incentive Shares, to 29 senior managers pursuant to our Management Incentive Co-Investment Plan. The terms of these plans are described under Items 6 and 9 above. All shares issued pursuant to these plans were intended to be exempt from registration pursuant to Rule 701 of the Securities Act as compensatory shares issued under compensatory benefit plans.

 

Item 11. Description of Registrant’s Securities to be Registered.

General

We are authorized to issue 170,000,000 shares of common stock, par value $0.01 per share. As of July 13, 2010, we have 15,467,604 shares of our common stock outstanding (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split). In addition, there are (1) warrants outstanding for the purchase of 1,683,171 shares of our common stock at an exercise price of $7.9254 per share (these warrants were issued upon our emergence from bankruptcy on January 22, 2008, expire on January 22, 2013 and contain provisions to adjust the exercise price in certain circumstances, including upon any issuance by us of common stock or other equity that would be dilutive absent an adjustment in the exercise price); and (2) restricted stock units outstanding to our employees that may entitle them, in the aggregate, to receive 1,232,721 shares of our common stock.

No established market exists for our common stock. Our common stock is presently quoted on the over-the-counter “Pink Sheets” under the symbol “GLPWD”. We expect the symbol under which our common stock is quoted to revert to “GLPW” by approximately July 30, 2010. We have applied to list our common stock on NASDAQ, but our application remains subject to review and approval by NASDAQ. We can provide no assurance that our application will be approved or that an active public market will develop for our common stock. We can further provide no assurance as to the degree of price volatility in any market for our common stock that may develop.

 

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The following is a summary of the terms of our common stock. The rights of the holders of our common stock are defined by our Second Amended and Restated Certificate of Incorporation, as amended (our “Certificate of Incorporation”), our Second Amended and Restated By-Laws (our “By-Laws”) and the Delaware General Corporation Law. You should refer to those documents for more complete information regarding our common stock.

Reverse Stock Split

On June 30, 2010 we filed an amendment to our Second Amended and Restated Certificate of Incorporation to implement a 1-for-9 reverse stock split of all outstanding shares of our common stock. The reverse split had been authorized by our stockholders at our Annual Meeting of Stockholders held on April 22, 2010, and was implemented by our Board of Directors in accordance with that authority. Upon the implementation of the reverse stock split, all of our common stock outstanding on June 30, 2010 was converted, automatically and without action by any holder of those shares, into one ninth of the number of new shares of our common stock (adjusted to avoid fractional shares). We effected the reverse stock split to enable us to list the shares of our common stock on the NASDAQ Global Market. We cannot list on NASDAQ unless the per share price of our common stock before the listing is at least $4.00. Effecting the reverse stock split combined the previously issued and outstanding shares of our common stock into a smaller number of new shares with the result that the new shares trade at a higher price per share than pre-reverse stock split prices. The reverse stock split reduced the number of shares of our common stock reserved for issuance under our equity compensation plans and under outstanding warrants. It did not, however, change the number of shares of common stock that is authorized under our Certificate of Incorporation. Nor did it change the per share par value of our shares or the proportionate equity interests of our stockholders or the proportionate potential equity interests of holders of restricted stock units. All of the share and per share numbers in this Form 10 reflect the effect of the reverse stock split.

Common Stock

Holders of common stock are entitled to one vote per share on all matters upon which our stockholders are entitled to vote, including the election of directors. We are not authorized to issue any nonvoting common stock. In the election of directors, holders of our common stock do not have cumulative voting rights. The holders of our common stock have no preemptive right to purchase any of our securities or any securities that are convertible into or exchangeable for any of our securities. Our common stock is not subject to any provisions relating to redemption. Our common stock is not by its terms subject to any restrictions on alienation. Our common stock has no conversion rights and is not subject to further calls or assessments by us. All outstanding shares of our common stock are fully paid and nonassessable.

Holders of our common stock have equal rights to receive dividends as and when they may be declared by our Board of Directors out of funds legally available for the payment of dividends. We have not paid any cash dividends to date and currently have no intention of paying any cash dividends on our common stock in the foreseeable future. For more information, see “Dividend Policy” under Item 9 of this Form 10. In the event of our liquidation, dissolution or other voluntary or involuntary winding up, holders of our common stock are entitled to share ratably in all assets of the company remaining after payment of liabilities. We currently have no class of preferred stock authorized or outstanding. To increase the authorized number of shares of our common stock outstanding or create a class of preferred stock, the affirmative vote of the holders of at least a majority of our common stock outstanding would be required.

Amendment of Our Certificate of Incorporation and By-Laws

Under the Delaware General Corporation Law, the affirmative vote of the holders of at least a majority of our common stock outstanding would be required to amend our Certificate of Incorporation. With limited exceptions, our By-Laws may be amended by our Board of Directors by a majority vote of the directors then in office. Our stockholders may also amend the By-Laws by the vote of the holders of at least a majority of our common stock outstanding.

Voting at Stockholder Meetings

Our By-Laws provide that elections of nominees to our Board of Directors will be determined by a plurality of the votes cast at the meeting at which a quorum is present and, except as otherwise provided by law, our Certificate of Incorporation or our By-Laws, all other actions will be determined by the holders of a majority of the votes cast at the meeting.

Anti-Takeover Effects of Delaware Law and Provisions of Our Certificate of Incorporation and By-Laws

Delaware law, our Certificate of Incorporation and our By-Laws contain provisions that might have an anti-takeover effect. These provisions, which are summarized below, may have the effect of delaying, deterring or preventing a change in our control. They could also impede a transaction in which our stockholders might receive a premium over the then-current market price of our common stock and our stockholders’ ability to approve transactions that they consider to be in their best interests.

Business Combinations

We have elected in our Certificate of Incorporation to be governed by the provisions of Section 203 of the Delaware General Corporation Law, also known as the Delaware Merger Moratorium Statute. In general, Section 203, subject to specific exceptions, prohibits a publicly-held Delaware corporation from engaging in any “business combination” with any “interested stockholder” for a period of three years following the date that the stockholder became an interested stockholder, unless:

 

   

prior to that date, the Board of Directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

 

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upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85 percent of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by directors, officers and specific employee stock plans; or

 

   

on or after that date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of the holders of at least 66 2/3 percent of the outstanding voting stock that is not owned by the interested stockholder.

Section 203 defines “business combination” to include:

 

   

any merger or consolidation involving the corporation and the interested stockholder;

 

   

any sale, lease, exchange, mortgage, transfer, pledge or other disposition of 10 percent or more of the assets of the corporation involving the interested stockholder;

 

   

subject to limited exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

 

   

any transaction involving the corporation that has the effect of increasing the proportionate share of the corporation’s stock of any class or series beneficially owned by the interested stockholder; and

 

   

the receipt by the “interested stockholder” of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, an “interested stockholder” is an entity or individual who, together with affiliates and associates, owns, or within three years prior to the determination of the “interested stockholder” status owned, 15 percent or more of a corporation’s outstanding voting stock.

The provisions of Section 203 may encourage companies interested in acquiring us to negotiate in advance with our Board of Directors since the stockholder approval requirement would be avoided if our Board of Directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our management or may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests. We believe that the benefits of increased protection of our ability to negotiate with an unsolicited acquirer outweigh the disadvantages of discouraging such proposals because, among other reasons, the negotiation of such proposals could result in an improvement of their terms.

Authorized but Unissued Shares

The authorized but unissued shares of our common stock are available for future issuance without stockholder approval. These additional shares may be used for a variety of corporate purposes, including public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock could also render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Stockholder Meetings

Our By-Laws provide that our stockholders may call a special meeting of stockholders only upon the request of at least 25 percent of the holders of our issued and outstanding common stock entitled to vote. This provision could delay a stockholder vote on certain matters, such as a business combination or removal of directors, and could have the effect of deterring a change in our control. Our stockholders may, however, take action by written consent without a stockholder meeting.

Requirements for Advance Notice of Stockholder Proposals and Nominations at Meetings

Our By-Laws contain advance notice requirements that our stockholders must meet before submitting proposals or director nominations to be considered at stockholder meetings. As more fully described in our By-Laws, only such business may be conducted at a stockholder meeting as has been brought before the meeting by, or at the direction of, our Board of Directors or by a stockholder who has given our Corporate Secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting. In addition, only persons who are nominated by, or at the direction of, our Board of Directors or who are nominated by a stockholder who has given timely written notice, in proper form, to our Corporate Secretary prior to a meeting at which directors are to be elected will be eligible for election to our Board of Directors. To be timely, a stockholder’s notice regarding a proposal or director nomination to be brought before an annual meeting must generally be delivered to our Corporate Secretary not later than the close of business on the 90th day and not earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting. If we call a special meeting of stockholders for the purpose of director elections, a stockholder’s notice of director nominations will be considered timely if the stockholder delivers the notice to our Corporate Secretary not later than the close of business on the later of the 90th day prior to the special meeting and the tenth day following the day on which the notice is first given to the stockholder of the date of the special meeting and of the nominees proposed by our Board of Directors, and not earlier than the close of business on the 120th day prior to the meeting. Our By-Laws also specify requirements as to the content of a stockholder’s notice. In some instances, these provisions may preclude our stockholders from bringing proposals or making nominations for directors at our stockholder meetings.

 

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Item 12. Indemnification of Directors and Officers.

Limitation of Liability

As permitted by Section 102(b)(7) of the Delaware General Corporation Law (the “DGCL”), Article Eight of our Certificate of Incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages resulting from a breach of fiduciary duty, to the fullest extent permitted by the DGCL. Under the DGCL, directors will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability:

 

   

for any breach of the duty of loyalty to the corporation or its stockholders;

 

   

for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

 

   

under Section 174 of the DGCL (providing for director liability for unlawful payments of dividends or unlawful stock repurchases or redemptions); or

 

   

for any transaction from which the director derived an improper personal benefit.

This limitation of liability does not apply to non-monetary remedies that may be available, such as injunctive relief or rescission, nor does it relieve our directors from complying with federal or state securities laws.

Indemnification

Section 145 of the DGCL grants each Delaware corporation the power to indemnify its directors and officers against liability for certain of their acts. Article Eight of our Certificate of Incorporation provides, to the fullest extent permitted by law, for mandatory indemnification of our directors and officers and advancement of expenses incurred by such directors and officers in relation to any action, suit or proceeding, except as may otherwise be provided in our by-laws.

Article IV of our Second Amended and Restated By-Laws provides that we will, to the fullest extent permitted by law, indemnify each person who is or was our director or officer and may, to the fullest extent permitted by law, indemnify each person who is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (except that in derivative actions, such indemnification is mandatory). An officer or director will not be entitled to indemnification if:

 

   

The officer or director did not act in good faith and in a manner reasonably believed by him or her to be in, or not opposed, to our best interests; or

 

   

The officer or director is subject to criminal action or proceedings and had reasonable cause to believe his or her conduct was unlawful.

In addition, in derivative actions, no indemnification will be made in respect of any claim, issue or matter as to which the officer or director has been adjudged to be liable to us unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all circumstances of the case, such officer or director is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court deems appropriate.

Our employment agreements with our named executive officers generally provide for indemnification of the executive officer in accordance with our By-Laws. We also carry directors’ and officers’ liability insurance to insure our directors and officers against liability for certain errors and omissions and to defray costs of a suit or proceeding against an officer or director.

 

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Item 13. Financial Statements and Supplementary Data.

The financial statement information required by this Item 13 is set forth at the end of this Form 10 beginning on page F-1 and is hereby incorporated into this Item 13 by reference.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

 

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Item 15. Financial Statements and Exhibits.

Financial Statements : Please see the following financial statements set forth below beginning on page F-1

 

Page

  

Description

F-1    Consolidated financial statements as of and for the years ended December 31, 2009, 2008 and 2007.
F-28    Condensed consolidated financial statements as of March 31, 2010 and December 31, 2009, and for the three months ended March 31, 2010 and 2009.

Exhibits : The following exhibits are furnished as exhibits to this Form 10:

Number

  

Description

  3.1    Second Amended and Restated Certificate of Incorporation of Global Power Equipment Group Inc. (filed as Exhibit 3.1 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference).
  3.2    Certificate of Amendment, dated June 30, 2010, to Second Amended and Restated Certificate of Incorporation of Global Power Equipment Group Inc.
  3.3    Second Amended and Restated By-Laws of Global Power Equipment Group Inc. (filed as Exhibit 3.2 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference).
10.1    Credit Agreement, dated as of January 22, 2008 (the “Credit Agreement”), by and among Global Power Equipment Group Inc., certain of its subsidiaries, Morgan Stanley Senior Funding, Inc., Morgan Stanley & Co. Incorporated, The CIT Group/Business Credit Inc., General Electric Capital Corporation, and the other lenders from time to time party thereto. +
10.2    Amendment No. 1 to the Credit Agreement, effective as of April 24, 2008.
10.3    Amendment No. 2 to the Credit Agreement, effective as of July 30, 2008.+
10.4    Amendment No. 3 to the Credit Agreement, effective as of December 31, 2009 (filed as Exhibit 10.4 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference).
10.5    Backstop Purchase Agreement, dated as of October 23, 2007, by and among Global Power Equipment Group Inc. and the purchasers party thereto (filed as Exhibit 10.5 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference).
10.6    Registration Rights Agreement, dated as of January 22, 2008, by and among Global Power Equipment Group Inc. and the investors party thereto (filed as Exhibit 10.6 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference).
10.7    Form of Warrant, dated January 22, 2008 (filed as Exhibit 10.7 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference).
10.8    Management Incentive Co-Investment Plan of Global Power Equipment Group Inc., dated as of December 4, 2007 (filed as Exhibit 10.8 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.9    Global Power Equipment Group Inc. 2008 Management Incentive Plan (filed as Exhibit 10.9 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.10    Global Power Equipment Group Inc. Incentive Compensation Plan (filed as Exhibit 10.10 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.11    Form of Restricted Stock Award Agreement (filed as Exhibit 10.11 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.12    Form of 2008 Restricted Stock Unit Award Agreement (filed as Exhibit 10.12 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.13    Form of 2009 Restricted Stock Unit Award Agreement (filed as Exhibit 10.13 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.14    Global Power Equipment Group Inc. 2008 Director’s Equity Incentive Plan (filed as Exhibit 10.14 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.15    Employment Agreement, dated as of September 11, 2009, by and between Global Power Equipment Group Inc. and David L. Keller (filed as Exhibit 10.15 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.16    Amended and Restated Employment Agreement, dated as of November 21, 2006, by and between Global Power Equipment Group Inc. and John M. Matheson (filed as Exhibit 10.16 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.17   

Separation Agreement, dated as of September 11, 2009, by and between Global Power Equipment Group Inc. and John M. Matheson (filed as Exhibit 10.17 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *

10.18    Amended and Restated Employment Agreement, dated as of January 28, 2008, by and between Global Power Equipment Group Inc. and David L. Willis (filed as Exhibit 10.18 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.19    Amended and Restated Employment Agreement, dated as of September 1, 2008, by and between Global Power Equipment Group Inc. and Dean J. Glover (filed as Exhibit 10.19 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.20   

Amended and Restated Employment Agreement, dated as of October 1, 2007, by and among Global Power Equipment Group Inc., Williams Industrial Services Group, L.L.C. and Kenneth W. Robuck (filed as Exhibit 10.20 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *

10.21    Employment Agreement, dated as of November 21, 2006, by and among Global Power Equipment Group Inc., Braden Manufacturing, L.L.C. and Gene F. Schockemoehl (filed as Exhibit 10.21 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference). *
10.22    Employment Agreement, dated as of March 22, 2010, by and between Global Power Equipment Group Inc. and Tracy D. Pagliara. *
10.23    Amendment No. 4 to the Credit Agreement, effective as of June 25, 2010.
21.1    Subsidiaries of Global Power Equipment Group Inc. (filed as Exhibit 21.1 to the Company’s Form 10 filed with the commission on April 30, 2010 and incorporated herein by reference).

 

* Indicates a management contract or compensatory plan or arrangement.

 

+ The Company has requested confidential treatment of certain information contained in this exhibit. Such information has been filed separately with the Securities and Exchange Commission pursuant to an application by the Company for confidential treatment under 17 C.F.R. § 200.80 (b)(4) and § 240.24b-2.

 

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: July 20, 2010

 

GLOBAL POWER EQUIPMENT GROUP INC.
By:   / S /    D AVID L. K ELLER        
  David L. Keller, President
  and Chief Executive Officer

 

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Table of Contents

Global Power Equipment Group Inc.

and Subsidiaries

Contents

 

Report of Independent Registered Public Accounting Firm

   F - 2

Consolidated Financial Statements

  

Consolidated Balance Sheets as of December 31, 2009 and 2008

   F - 3

Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007

   F - 4

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2009, 2008 and 2007

   F - 5

Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007

   F - 6

Notes to Consolidated Financial Statements

   F - 7

Schedule II

   F-27

Condensed Consolidated Financial Statements

  

Condensed Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009

   F-28

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009

   F-29

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009

   F-30

Notes to unaudited Condensed Consolidated Financial Statements

   F-31

 

F - 1


Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Global Power Equipment Group Inc.

Tulsa, Oklahoma

We have audited the accompanying consolidated balance sheets of Global Power Equipment Group Inc. as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule 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 Company’s 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, as well as evaluating the overall presentation of the financial statements and schedule. 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 Global Power Equipment Group Inc. at December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule, 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.

As described in Note 5, the Company adopted ASC 740, Income Taxes, as it relates to uncertain tax positions, as if it were a public enterprise on January 1, 2007.

 

/s/ BDO Seidman, LLP
Dallas, Texas
March 23, 2010

 

F - 2


Table of Contents

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

     December 31,
     2009     2008

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 103,220      $ 57,633

Restricted cash

     2,018        3,013

Accounts receivable, net of allowance of $1,588 and $3,122

     62,267        55,953

Inventories

     4,659        4,963

Costs and estimated earnings in excess of billings

     31,518        55,922

Other current assets

     11,330        7,316
              

Total current assets

     215,012        184,800

Property, plant and equipment, net

     12,945        12,610

Goodwill

     80,400        80,400

Intangible assets, net

     14,749        16,509

Other assets

     6,114        6,720
              

Total assets

   $ 329,220      $ 301,039
              

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Current maturities of long-term debt

   $ 40,692      $ 19,675

Accounts payable

     28,913        12,337

Accrued liabilities

     19,498        18,303

Billings in excess of costs and estimated earnings

     34,357        36,728

Accrued warranties

     10,981        11,948

Deferred revenue

     3,006        8,695

Other current liabilities

     11,363        7,446
              

Total current liabilities

     148,810        115,132

Deferred tax liability

     14,768        11,100

Other long-term liabilities

     3,990        3,605

Long-term debt, net of current maturities

     24,633        65,325

Liabilities subject to compromise

     541        604
              

Total liabilities

     192,742        195,766

Commitments and contingencies (Note 10)

    

Stockholders’ equity:*

    

Common stock, $0.01 par value, 170,000,000 shares authorized and 15,263,066 and 14,954,061 shares issued, respectively and 15,220,726 and 14,954,061 shares outstanding, respectively

     1,374        1,346

Paid-in capital

     61,459        59,692

Accumulated comprehensive income

     2,655        1,128

Retained earnings

     70,994        43,107

Treasury stock, at cost (42,340 and 0 common shares, respectively)

     (4     —  
              

Total stockholders’ equity

     136,478        105,273
              

Total liabilities and stockholders’ equity

   $ 329,220      $ 301,039
              

*(all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split)

The accompanying notes are an integral part of these consolidated financial statements.

 

F - 3


Table of Contents

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

 

     For the Years Ended December 31,  
     2009    2008    2007  
               (Debtor-in-
Possession)
 

Product revenues

   $ 193,150    $ 311,603    $ 208,085   

Service revenues

     347,460      245,161      195,333   
                      

Total revenues

     540,610      556,764      403,418   

Cost of product revenues

     150,137      239,447      159,796   

Cost of service revenues

     310,048      217,337      171,132   
                      

Cost of revenues

     460,185      456,784      330,928   
                      

Gross profit

     80,425      99,980      72,490   

Selling and administrative expenses

     46,664      50,418      45,179   
                      

Operating income

     33,761      49,562      27,311   

Interest expense

     9,667      11,667      10,057   
                      

Income from continuing operations before reorganization items and income taxes

     24,094      37,895      17,254   

Reorganization items

     1,030      23,574      33,102   
                      

Income (loss) from continuing operations before income taxes

     23,064      14,321      (15,848

Income tax expense

     5,282      3,151      5,121   
                      

Income (loss) from continuing operations

     17,782      11,170      (20,969

Discontinued operations:

        

Income (loss) from discontinued operations, net of tax

     7,369      23,668      (5,170

Gain on disposal, net of tax

     2,736      —        11,198   
                      

Income from discontinued operations

     10,105      23,668      6,028   
                      

Net income (loss)

   $ 27,887    $ 34,838    $ (14,941
                      

Basic earnings per weighted average common share:*

        

Income (loss) from continuing operations

   $ 1.18    $ 0.78    $ (3.98

Income from discontinued operations

     0.66      1.65      1.14   
                      

Income (loss) per common share - basic

   $ 1.84    $ 2.43    $ (2.84
                      

Weighted average number of shares of common stock outstanding - basic

     15,124,289      14,365,413      5,262,233   
                      

Diluted earnings per weighted average common share:

        

Income (loss) from continuing operations

   $ 1.14    $ 0.77    $ (3.98

Income from discontinued operations

     0.65      1.62      1.14   
                      

Income (loss) per common share - diluted

   $ 1.79    $ 2.39    $ (2.84
                      

Weighted average number of shares of common stock outstanding - diluted

     15,566,242      14,592,637      5,262,233   
                      

*(all share and per share numbers reflect our June 30, 2010, 1-for-9 reverse stock split)

The accompanying notes are an integral part of these consolidated financial statements.

 

F - 4


Table of Contents

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

 

     Common Shares
$0.01 Per Share
    Paid-in
Capital

(Deficit)
    Accumulated
Other
Comprehensive

Income
    Retained
Earnings
    Treasury Shares     Total  
     Shares *     Amount           Shares *     Amount    

Balance, January 1, 2007 (Debtor-in-Possession)

   5,267,132      $ 474      $ (15,052   $ 3,978      $ 24,546      —        $ —        $ 13,946   

Cumulative effect of a change in accounting principle

   —          —          —          —          (1,336   —          —          (1,336

Stock-based compensation

   —          —          843        —          —        —          —          843   

Forfeiture of restricted stock awards

   (5,580     —          —          —          —        —          —          —     

Other comprehensive loss:

                

Net loss

   —          —          —          —          (14,941         (14,941

Foreign currency translation

   —          —          —          1,283        —        —          —          1,283   
                      

Comprehensive loss

                   (13,658
                                                            

Balance, December 31, 2007 (Debtor-in-Possession)

   5,261,552        474        (14,209     5,261        8,269      —          —          (205

Cancellation of common stock

   (5,261,552     (474     —          —          —        —          —          (474

Issuance of common stock (exchange shares and rights offering)

   14,856,023        1,338        67,854        —          —        —          —          69,192   

Issuance of warrants

   —          —          4,639        —          —        —          —          4,639   

Stock-based compensation

   98,038        8        1,408        —          —        —          —          1,416   

Other comprehensive income:

                

Net income

   —          —          —          —          34,838      —          —          34,838   

Fair value of interest rate swap

   —          —          —          (810     —        —          —          (810

Foreign currency translation

   —          —          —          (3,323     —        —          —          (3,323
                      

Comprehensive income

                   30,705   
                                                            

Balance, December 31, 2008

   14,954,061        1,346        59,692        1,128        43,107      —          —          105,273   

Restricted stock awards

   60,866        5        107        —          —        —          —          112   

Stock-based compensation

   182,448        17        1,662        —          —        —          —          1,679   

Warrants exercised

   65,691        6        515        —          —        —          —          521   

Warrants withheld

   —          —          (517     —          —        (41,913     (4     (521

Forfeiture of restricted shares

   —          —          —          —          —        (427     —          —     

Other comprehensive income:

                

Net income

   —          —          —          —          27,887      —          —          27,887   

Fair value of interest rate swap

   —          —          —          625        —        —          —          625   

Foreign currency translation

   —          —          —          902        —        —          —          902   
                      

Comprehensive income

                   29,414   
                                                            

Balance, December 31, 2009

   15,263,066      $ 1,374      $ 61,459      $ 2,655      $ 70,994      (42,340   $ (4   $ 136,478   
                                                            

*(all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split)

The accompanying notes are an integral part of these consolidated financial statements.

 

F - 5


Table of Contents

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     For the Years Ended December 31,  
     2009     2008     2007  
                 (Debtor-in-
Possession)
 

Operating activities:

      

Net income (loss)

   $ 27,887      $ 34,838      $ (14,941

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Deferred income tax provision

     3,803        1,054        3,727   

Depreciation and amortization

     5,396        5,323        7,173   

Gain on disposal of equipment

     (26     —          (315

Gain on disposal of discontinued operations

     (2,736     —          (11,198

Stock-based compensation

     1,791        1,416        843   

Write off of debt financing costs

     —          —          1,897   

Changes in operating assets and liabilities:

      

Receivables

     (6,314     (17,437     11,445   

Inventories

     304        800        5,003   

Cost and estimated earnings in excess of billings

     24,404        876        (27,685

Other current assets

     (4,149     1,083        533   

Other assets

     (569     (72     33   

Accounts payable

     16,576        (9,461     24,882   

Accrued and other liabilities

     5,144        (3,699     (3,518

Billings in excess of cost and estimated earnings

     (2,371     8,864        9,876   

Deferred revenue

     (5,689     (21,226     (5,179

Liabilities subject to compromise

     (63     (121,831     (1,406
                        

Net cash provided by (used in) operating activities

     63,388        (119,472     1,170   

Investing activities:

      

Net transfers of restricted cash

     995        (9     (3,004

Proceeds from sale of equipment

     50        9        984   

Purchase of property, plant, and equipment

     (2,793     (3,599     (1,566

Proceeds from sale of business, net of cash sold

     2,747        —          15,495   

Other investing activities

     —          202        (202
                        

Net cash provided by (used in) investing activities

     999        (3,397     11,707   

Financing activities:

      

Payments of long-term debt

     (44,675     (25,000     —     

Proceeds from issuance of debt

     25,000        90,000        —     

Proceeds from issuance of common stock

     —          72,500        —     

Payments of debt financing costs

     (65     (6,623     (1,925
                        

Net cash (used in) provided by financing activities

     (19,740     130,877        (1,925

Effect of exchange rate changes on cash

     940        (2,051     413   
                        

Net change in cash and cash equivalents

     45,587        5,957        11,365   

Cash and cash equivalents, beginning of year

     57,633        51,676        40,311   
                        

Cash and cash equivalents, end of year

   $ 103,220      $ 57,633      $ 51,676   
                        

The accompanying notes are an integral part of these consolidated financial statements.

 

F - 6


Table of Contents

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BUSINESS AND ORGANIZATION

Global Power Equipment Group Inc. and Subsidiaries (the “Company”) designs, engineers and manufactures heat recovery and auxiliary power equipment and provides routine and specialty maintenance services to customers in the utility and industrial sectors. The Company’s corporate headquarters are located in Tulsa, Oklahoma, with facilities in Plymouth, Minnesota; Tulsa, Oklahoma; Auburn, Massachusetts; Atlanta, Georgia; Monterrey, Mexico; Shanghai, China; and Heerlen, The Netherlands.

On September 28, 2006, Global Power Equipment Group Inc. and all of its U.S. subsidiaries filed voluntary Chapter 11 petitions under the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (“Bankruptcy Court”). The Company successfully exited Chapter 11 on January 22, 2008 pursuant to an approved Plan of Reorganization (“Plan of Reorganization” or “Plan”).

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Global Power Equipment Group Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition: The Company is organized in two major segments: the Products Division and the Services Division. Within these segments, the Company has three primary revenue streams, Heat Recovery Equipment (comprised of the Specialty Boiler and Heat Recovery Steam Generator (“HRSG”) product lines), Auxiliary Power Equipment and Industrial Services.

Revenues and cost of revenues for the Heat Recovery Equipment product line, and fixed price contracts in the Industrial Services business, are recognized on the percentage-of-completion method based on the percentage of actual hours incurred to date in relation to total estimated hours for each contract. This method is used because management considers expended labor hours to be the best available measure of progress on these contracts. The percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract since management has the ability to produce reasonably dependable estimates of contract billings and contract costs. The Company uses the level of profit margin that is most likely to occur on a contract. If the most likely profit margin cannot be precisely determined, the lowest probable level of profit in the range of estimates is used until the results can be estimated more precisely. The Company’s estimate of the total hours to be incurred at any particular time has a significant impact on the revenue recognized for the respective period. We expense pre-contract costs as incurred. Costs related to change orders are recognized when they are incurred. Change orders are included in total estimated contract revenues when they can be reliably estimated and it is probable that the adjustment will be approved by the customer or realized.

The percentage-of-completion method is only allowed under certain circumstances in which the revenue process is long-term in nature (often in excess of one year), the products sold are highly customized and a process is in place whereby revenues, costs and margins can be reasonably estimated. Changes in job performance, job conditions, estimated profitability, final contract settlements and resolution of claims may result in revisions to costs and income, and the effects of such revisions are recognized in the period that the revisions are determined. Estimated losses on uncompleted contracts are recognized in the period in which they first become apparent. Under percentage-of-completion accounting, management must also make key judgments in areas such as percent complete, estimates of project revenues, costs and margin, estimates of total and remaining project hours and liquidated damages assessments. Any deviations from estimates could have a significant positive or negative impact on the Company’s results of operations.

Revenues for the Auxiliary Power Equipment product line are recognized under the completed-contract method due to the short-term nature of the production period. Generally, these contracts specify separate phases of work which are frequently contracted separately. Under this method, no revenue can be recognized until the contract phase is substantially complete at which time revenue is recognized and costs previously deferred are charged to expense. Also, for revenue to be recognized, the customer takes risk of loss and title, and the installation is operating according to specifications or has been accepted by the customer. As with the Heat Recovery Equipment product line, changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to job costs and income amounts that are different than amounts originally estimated.

Revenues for the Industrial Services business that are not recognized on the percentage-of-completion method are primarily for routine service contracts. Under these arrangements, the Company recognizes revenue when services are performed and the customer assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Specifically, the revenues under these contracts are recognized as the services are performed based upon an agreed-upon price for the completed service or based upon the hours incurred and agreed upon hourly rates. On cost reimbursable contracts, revenue is recognized as costs are incurred and includes applicable fees earned through the date services are provided.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

In the fourth quarter of 2006, upon approval by the Bankruptcy Court, the Company initiated a wind down of Deltak’s (a subsidiary of the Company, based in Plymouth, Minnesota) large-scale HRSG product line and Deltak entered into completion agreements with certain HRSG customers to complete executory contracts for delivery of HRSG units. Certain of the HRSG contracts under completion agreements were in a positive cash position as of the Chapter 11 filing date since aggregate collections of billings exceeded aggregate project costs. The recognition of this excess is deferred until such time as the earnings process is considered completed through satisfaction of the performance milestones under the completion agreements. This amount is included in income from discontinued operations in the accompanying consolidated statements of operations, net of estimates of liquidated damage claims accrued for these contracts. Deferred amounts are reported in the accompanying consolidated balance sheets as deferred revenue. The excess of collections of billings over aggregate project costs for these contracts will be recognized as Deltak meets the performance milestones as specified for avoiding the liquidated damage claims. During the years ended December 31, 2009, 2008 and 2007, the Company recognized such excess as follows (in thousands):

 

    For the years ended December 31,
    2009      2008      2007

Deferred revenue recognized

  $ 5,920      $ 22,842      $ —  

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Actual results could vary materially from those estimates.

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and on deposit with initial maturities of three months or less. The Company maintains cash in depository accounts at various FDIC insured banks and financial institutions. Although the Company maintains cash balances in excess of the FDIC insured limits, management believes this risk is mitigated by using financial institutions that are rated investment grade according to credit rating agencies.

Accounts Receivable: Accounts receivable are reported net of allowance for doubtful accounts and discounts. The allowance is based on current market conditions, review of specific customer economics and other estimates based on the judgment of management. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not generally charge interest on outstanding amounts.

The Company has certain customers that represent more than 10 percent of consolidated accounts receivable. The balance for these customers as a percentage of the consolidated accounts receivable is as follows:

 

    December 31,

Customer

  2009      2008

Entergy Services Inc.

  35%      —  

Southern Nuclear Company

  12%      —  

General Electric Company

  —        21%

Florida Power and Light

  —        10%

Mitsubishi Heavy Industries

  —        10%

Inventories: Inventories consist primarily of raw materials and are stated at the lower of first-in, first-out cost or market, net of applicable reserves.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

Property, Plant and Equipment: Property, plant and equipment are stated at historical cost, less accumulated depreciation. For financial reporting purposes, depreciation is calculated using the straight-line method over the estimated useful lives.

The Company’s property, plant and equipment balances, by significant asset category, are as follows (in thousands):

 

     Estimated
Useful  Lives
   December 31,  
        2009     2008  

Land

      $ 2,129      $ 2,133   

Buildings and improvements

   5-39 years      11,566        10,916   

Machinery and equipment

   5-12 years      13,467        11,873   

Furniture and fixtures

   2-10 years      8,959        9,393   
                   
        36,121        34,315   

Less accumulated depreciation

        (23,176     (21,705
                   

Property, plant and equipment, net

      $ 12,945      $ 12,610   
                   

Depreciation and amortization expense was approximately $2.4 million, $2.0 million and $2.7 million for the years ended December 31, 2009, 2008 and 2007, respectively. Costs of significant additions, renewals and betterments are capitalized. When an asset is sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the gain or loss on disposition is reflected in the consolidated statements of operations. Depreciation expense related to capital equipment used in production is included in cost of revenues. Maintenance and repairs are charged to operations when incurred.

Goodwill: The Company has made acquisitions in the past that included the recognition of goodwill, which was determined based upon previous accounting principles. Pursuant to Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 350, Intangibles-Goodwill and Other , beginning January 1, 2009, the Company will record as goodwill the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired.

Goodwill is not amortized, but instead tested for impairment at the reporting unit level on an annual basis or if an event occurs or circumstances change in a way to indicate that there has been a potential decline in the fair value of the reporting unit. The Company has identified its reporting units in accordance with ASC 350, Intangibles – Goodwill and Other , and ASC 280, Segment Reporting , based on how we make operating decisions, assess performance, and allocate resources and on the availability of discrete financial information.

Goodwill is evaluated for impairment at least annually, or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC 805, Business Combinations . The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

Since December 31, 2006, the Company has determined fair value for each of its reporting units, Products and Services, using a combination of income and market approaches. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Internal forecasts are used to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for the business. Actual results may differ from those assumed in our forecast. The discount rate is derived by applying the capital asset pricing model (i.e., to estimate the cost of equity financing) and analyzing published rates for industries relevant to each reporting units. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting unit and in its internally developed forecasts. Valuations using the market approach reflect prices and other relevant observable information generated by market transactions involving comparable businesses.

Compared to the market approach, the income approach more closely aligns the reporting unit valuation to the Company’s specific business model, geographic markets and product and service offerings, as it is based on specific projections of the business. Required rates of return, along with uncertainty inherent in the forecasts of future cash flows, are reflected in the selection of the discount rate. Equally important, under this approach, reasonably likely scenarios and associated sensitivities can be developed for alternative future circumstances that may not be reflected in an observable market price. A market approach allows for comparison to actual market transactions and multiples. It can be somewhat more limited in its application because the population of potential comparables is often limited to publicly-traded companies where the characteristics of the comparative business and ours can be significantly different. Market data is usually not available for divisions within larger conglomerates or non-public subsidiaries that could otherwise qualify as comparable, and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction, etc.) may be different or irrelevant with respect to our business. It can also be difficult under the current market conditions to identify orderly transactions between market participants in similar businesses. The Company assesses the valuation methodology based upon the relevance and availability of data at the time of performing the valuation and weights the methodologies appropriately.

Changes in assumptions or estimates can materially affect the fair value measurement of a reporting unit, and therefore can affect the determination of whether an impairment exists. The following are key assumptions used in making projections:

 

   

Business projections . The Company makes assumptions about the demand for the Company’s products and services in the marketplace. These assumptions drive its planning assumptions for volume, mix, and pricing. In addition, assumptions about the Company’s cost levels (e.g., capacity utilization, cost performance, etc.) are made. These projections are derived using internal business plans that are updated at least annually.

 

   

Long-term growth rate. A growth rate is used to calculate the terminal value of the reporting unit, and is added to the present value of the debt-free interim cash flows. The growth rate is the expected rate at which a reporting unit’s earnings stream is projected to grow beyond the planning period.

 

   

Discount rate . When measuring possible impairment, future cash flows are discounted at a rate that is consistent with a weighted-average cost of capital that the Company anticipates a potential market participant would use. Weighted-average cost of capital is an estimate of the overall risk-adjusted after-tax rate of return required by equity and debt holders of a business enterprise, which is developed with the assistance of external financial advisors.

At December 31, 2008, the methodologies used in determining the fair value of each reporting unit remained unchanged from those used as at December 31, 2007, however many of the underlying assumptions required updating given the changing economic environment near the end of 2008 from those prevailing near the end of 2007. In general, at December 31, 2008, we anticipated that demand for our products and services would decline throughout 2008 and into 2009 given the general economic conditions at the time. However, we expected that conditions would improve in 2010 and 2011 for both reporting units resulting in an increase in revenues in 2012 and later. This resulted in an overall decrease in the fair value of each reporting unit as compared to the values calculated as at December 31, 2007. However, the fair value of each reporting unit remained substantially in excess of its carrying value.

Deferred Financing Costs: Deferred financing costs are amortized over the terms of the related debt facilities using the effective yield method. Total interest expense associated with the amortization of these costs was approximately $1.2 million in 2009, $1.7 million in 2008 and $3.3 million in 2007.

Long-Lived Assets: In accordance with ASC 360-10-35, Subsequent Measurement - Impairment or Disposal of Long-Lived Assets. The Company groups long-lived assets by legal entity for purposes of recognition and measurement of an impairment loss as this is the lowest level for which cash flows are independent. Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairments were identified in 2009, 2008 and 2007.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

Major Customers: The Company has certain customers that represent more than 10 percent of consolidated revenues. The revenue for these customers as a percentage of the consolidated revenues is as follows:

 

    For the Years Ended December 31,
    2009      2008      2007

General Electric Company

  13%      20%      22%

Southern Nuclear Company

  12%      10%      11%

Entergy Services Inc.

  11%      —        —  

Tennessee Valley Authority

  11%      —        —  

Customers for the Products Division include OEMs, engineering and construction firms, operators of power generation facilities and firms engaged across several process related industries. Customers for the Services Division are varied, but do include some major utility companies within the United States. The Company’s major customers vary over time due to the relative size and duration of the Company’s projects.

Cost of Revenues: Cost of revenues for both Products and Services primarily include charges for materials, direct labor and related benefits, freight (inbound and outbound), direct supplies and tools, warehousing costs and utilities related to production facilities, purchasing and receiving costs, inspection costs, internal transfer costs, and, where appropriate, an allocation of overhead.

Warranty Costs: Estimated costs related to product warranty are accrued as the related revenue is recognized and included in cost of revenues. Estimated costs are based upon past warranty claims and sales history. Warranty terms vary by contract but generally provide for a term of three years or less. The Company manages its exposure to warranty claims by having its field service and quality assurance personnel regularly monitor projects and maintain ongoing and regular communications with the customers.

Shipping and Handling Costs: We account for shipping and handling costs in accordance with ASC 605-45, Principal Agent Considerations . Amounts billed to customers in sale transactions related to shipping and handling costs are recorded as revenue. Shipping and handling costs incurred by us are included in cost of revenues in the Consolidated Statements of Operations.

Advertising Costs: We account for advertising costs in accordance with ASC 705-35, Advertising Costs . Generally, advertising costs are immaterial and are expensed as incurred in Selling and General Administrative Expense.

Selling and Administrative expense: Selling and administrative expenses are primarily comprised of indirect labor and related benefits, legal and professional fees, indirect utilities, office rent, bad debt expense, and indirect travel and related expenses.

Insurance: Certain subsidiaries of the Company are self-insured for health and workers’ compensation up to certain policy limits. Amounts charged to expense amounted to approximately $5.7 million, $5.2 million and $4.7 million in 2009, 2008 and 2007, respectively, and include insurance premiums related to the excess claim coverage and claims incurred. The reserves at December 31, 2009 and 2008 consist of estimated amounts unpaid for reported and unreported claims incurred. The Company has provided $5.0 million in letters of credit at December 31, 2009, as security for possible workers’ compensation claims.

Reorganization Items: The Company successfully exited Chapter 11 on January 22, 2008. The accompanying consolidated financial statements have been presented in conformity with the provisions of ASC 852, Reorganizations . Accordingly, all pre-petition liabilities of the debtor that are subject to compromise are segregated in the accompanying consolidated balance sheets as liabilities subject to compromise. These liabilities are recorded at amounts or claims allowed by the Bankruptcy Court. ASC 852 also requires that reorganization items (direct and incremental costs, such as professional fees incurred in Chapter 11 cases) be segregated as a separate line item in the consolidated statements of operations.

As part of the Plan of Reorganization, holders of allowed unsecured claims against Deltak are entitled to receive a pro rata share of $34.0 million in cash and various other recoveries defined in the Plan. Pursuant to the Plan, the Company transferred $34.0 million in cash to settle the Deltak liabilities. This payment exceeded the recorded amount of these claims resulting in a $14.1 million charge to operations in 2008. This amount has been included in the reorganization items as a change in estimate of liabilities subject to compromise for the year ended December 31, 2008. The Company’s reorganization items are as follows (in thousands):

 

     For the Years Ended December 31,
     2009     2008    2007

Professional fees

   $ 1,267      $ 9,448    $ 31,366

Change in estimate of liabilities subject to compromise

     (237     14,126      1,736
                     

Total

   $ 1,030      $ 23,574    $ 33,102
                     

Fresh Start Reporting: Upon emergence from bankruptcy protection, the Company determined that Fresh Start Reporting was not required under the provisions of ASC 852, Reorganizations , because the shareholders of the Company upon emergence were the same as the shareholders of the Company immediately before confirmation of the order pursuant to which the Company emerged from bankruptcy protection. At that time, the Company reviewed the balances of all assets (including goodwill and intangibles) and determined that the fair value of goodwill likely decreased due to the bankruptcy, but remained substantially above its carrying value. Therefore, the balance of goodwill was recoverable. This determination was confirmed during the annual testing for goodwill impairment when the fair value was calculated to be substantially above the carrying value.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

Income from Discontinued Operations : The Company experienced earned income in 2009 and 2008 and experienced a loss in 2007 from discontinued operations due to the winding down of the large scale HRSG operations (see Note 2 – revenue recognition) and operations in Italy and Brazil. The following table summarizes the income and loss from discontinued operations (in thousands):

 

     For the Years Ended December 31,  
     2009    2008     2007  

Income (loss) from discontinued operations

   $ 7,369    $ 23,701      $ (5,170

Related tax expense

     —        (33     —     
                       

Income (loss) from discontinued operations

   $ 7,369    $ 23,668      $ (5,170
                       

On October 17, 2007, the Company sold its shares of Global Power Asia, Ltd. (“GPA”) for $20 million. After all applicable transaction costs were paid, the Company recognized a gain of approximately $11.2 million on the sale. At the closing of the transaction, $5.5 million of the proceeds were placed into escrow. To the extent that the Company recovers amounts from escrow, additional gain on the sale will be recognized. On September 30, 2009, a settlement agreement was executed outlining the release of the remaining escrow funds, an amount of $2.7 million. The Company received such funds on November 10, 2009. As a result, the Company recognized an additional gain on the sale of discontinued operations during the year ended December 31, 2009:

 

     For the Years Ended December 31,
     2009     2008    2007

Gain on disposal of discontinued operations

   $ 2,747      $ —      $ 11,198

Related tax expense

     (11     —        —  
                     

Gain on disposal of discontinued operations, net of tax

   $ 2,736      $ —      $ 11,198
                     

Income Taxes: The current provision for income taxes is based on current federal and state statutory rates which are adjusted based on changes in tax laws and significant fluctuations in taxable income.

Income taxes are accounted for under the asset and liability method. Under such method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Additionally, deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance must be established when management believes the realization of the benefits of deferred tax assets is not deemed to be more likely than not.

In accordance with ASC 740, Income Taxes , the Company recognizes the effect of income tax position only if the positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which those change in judgment occurs. The Company recognizes both interest and penalties related to uncertain tax position as part of the income tax provision.

Derivative Financial Instruments: ASC 815, Derivatives and Hedging , requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. For derivatives designated as hedges, changes in the fair value are either offset against the change in fair value, for the risk being hedged, of the assets and liabilities through earnings, or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

The Company uses financial instruments in the management of its foreign currency exchange exposures. These financial instruments are considered derivatives under ASC 815, but do not meet hedge accounting requirements. Therefore, the Company recognizes changes in fair values of the forward agreements through selling and administrative expenses. The following table summarizes the forward contracts at December 31, 2009 which mature during 2010; there were no forward contracts at December 31, 2008 (in thousands):

 

Functional Currency

  

Currency Hedged

(bought or sold

forward)

   Hedged Foreign
Currency Exposure
(In equivalent U.S.
Dollars)
   Notional Amount of
Forward Buy
Contracts (in
equivalent U.S.
Dollars)
   Notional Amount of
Forward Sell
Contracts (in
equivalent U.S.
Dollars)

Euro

   U. S. Dollars    $ 3,258    $ 3,258    $ —  

U.S. Dollars

   Mexican Pesos      1,542      1,542      —  

U.S. Dollars

   Euro      8,175      —        8,175

U.S. Dollars

   South Korean Won      3,188      —        3,188
                       
   Total    $ 16,163    $ 4,800    $ 11,363
                       

The following table summarizes the forward contracts at December 31, 2007:

 

Functional Currency

  

Currency Hedged

(bought or sold

forward)

   Hedged Foreign
Currency Exposure
(In equivalent U.S.
Dollars)
   Notional Amount of
Forward Buy
Contracts (in
equivalent U.S.
Dollars)
   Notional Amount of
Forward Sell
Contracts (in
equivalent U.S.
Dollars)

Euro

   U. S. Dollars    $ 4,471    $ 4,471    $ —  
                       
  

Total

   $ 4,471    $ 4,471    $ —  
                       

The notional amount provides one measure of the transaction volume outstanding as of the balance sheet date. Amounts ultimately realized upon final settlement of these financial instruments, along with the gains and losses on the underlying exposures within our forward contracts, will depend on actual market exchange rates during the remaining life of the instruments.

In March 2008, the Company entered into an interest rate swap agreement to convert $60 million of the Credit Facility variable interest payments to a fixed rate of 2.97% which terminated in March 2010. The interest rate swap agreement constitutes a cash flow hedge and satisfies the criteria for hedge accounting prescribed by ASC 815. The Company determined that the effectiveness of the hedge would be assessed periodically by comparing the terms of the swap and the loan to assure they continue to coincide and to evaluate the counterparty’s ability to honor its obligations under the swap agreements. On October 1, 2009, the Company exercised its option to change the basis for the variable interest rate used on the Credit Facility on $21.3 million to the prime rate plus a margin. The remaining $45.3 million remains based upon LIBOR plus a margin. This caused a portion of the swap to become ineffective.

The following tables show the impact of derivatives on the Company’s consolidated balance sheets (in thousands):

 

As of   

December 31, 2009

  

December 31, 2008

    

Balance Sheet
Location

   Fair Value   

Balance Sheet
Location

   Fair Value

Foreign exchange contracts

  

Other current liabilities

   $ 570       $ —  

Interest rate contracts

  

Other current liabilities

     408    Other current liabilities      1,349

Loss on interest rate contract derivative (effective portion), net of tax

   Other comprehensive income      185    Other comprehensive income      810

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

The following tables show the impact of derivatives not designated as hedging instruments on the Company’s consolidated statements of operations (in thousands):

 

Derivatives Not

Designated as

Hedging Instruments

under ASC 815-10

  

Location of Gain

(Loss) Recognized

on Derivatives

   Amount of Loss Recognized on Derivatives for the
Years Ended December 31,
      2009     2008    2007

Foreign exchange contracts

  

Selling and administrative expenses

   $ (570   $ —      $ 182
                        

Total

      $ (570   $ —      $ 182
                        

The following tables show the impact of derivatives designated as hedging instruments on the Company’s consolidated statements of operations (in thousands):

 

Derivatives

Designated as

Hedging Instruments

under ASC 815-10

  

Location of Gain

(Loss) Recognized

on Derivatives

   Amount of Loss Recognized on Derivatives for the
Years Ended December 31,
      2009     2008    2007

Interest rate contracts

  

Selling and administrative expenses

   $ (99   $ —      $ —  
                        

Total

      $ (99   $ —      $ —  
                        

Fair Value of Financial Instruments: In September 2006, the FASB issued ASC 820, Fair Value Measurements and Disclosures . ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company adopted certain of the provisions of ASC 820 on January 1, 2008. Although the adoption of ASC 820 did not materially impact its financial condition, results of operations, or cash flow, the Company is now required to provide additional disclosures as part of its financial statements. ASC 820 establishes a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in the active markets for identical assets and liabilities and the lowest priority to unobservable inputs.

The following table shows assets and liabilities measured at fair value as of December 31, 2009 on the Company’s consolidated balance sheet, and the input categories associated with those assets and liabilities (in thousands):

 

     Total Fair Value
Assets (Liabilities)
at 12/31/09
    Fair Value Measurements at Reporting Date Using

Description

     Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
   Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable
Inputs

(Level 3)

Foreign exchange contracts

   $ (570   $ —      $ (570   $ —  

Interest rate contracts

     (408     —        (408     —  
                             

Total

   $ (978   $ —      $ (978   $ —  
                             

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

The following table shows assets and liabilities measured at fair value as of December 31, 2008 on the Company’s consolidated balance sheet, and the input categories associated with those assets and liabilities (in thousands):

 

     Total Fair Value
Assets (Liabilities)
at 12/31/08
    Fair Value Measurements at Reporting Date Using

Description

     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable
Inputs

(Level 3)

Interest rate contracts

   $ (1,349   $ —      $ (1,349   $ —  
                             

Total

   $ (1,349   $ —      $ (1,349   $ —  
                             

The fair value of the foreign exchange contracts is calculated using the foreign exchange rate at the end of the period and the notional amounts as determined in the forward contract. The Company uses the calculated fair values to adjust the asset or liability as appropriate.

The fair value of interest rate swaps is calculated using proprietary models utilizing observable inputs as well as future assumptions related to interest rates and other applicable variables. These calculations are performed by the financial institutions which are counterparties to the applicable swap agreements and reported to the Company on a monthly basis. The Company uses these reported fair values to adjust the asset or liability as appropriate.

The Company’s financial instruments consist primarily of cash and cash equivalents, receivables, payables, and debt instruments. The carrying values of these financial instruments approximate their respective fair values as they are either short-term in nature or carry interest rates which are periodically adjusted to market rates.

ASC 820 requires that companies provide a reconciliation of the beginning and ending balances for Level 3 assets and liabilities measured at fair value. Since the Company has no Level 3 assets or liabilities, no reconciliation is necessary.

Foreign Currency: Assets and liabilities of the Company’s foreign operations are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates prevailing during the period. Translation adjustments are recorded as a separate component of stockholders’ equity and other comprehensive income on the accompanying consolidated financial statements. Gains and losses from foreign currency transactions are included in operations.

Adoption of New Accounting Standards:

In September 2006, the FASB issued ASC 820, Fair Value Measurements and Disclosures, which is effective for fiscal years beginning after November 15, 2007. The Company adopted the provisions as required on January 1, 2008, except for nonfinancial assets and nonfinancial liabilities that are subject to delayed adoption until fiscal years and interim periods beginning after November 15, 2008. The Company adopted the remaining provisions as required on January 1, 2009. The adoption of these provisions did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company and these provisions will be applied prospectively for the fair value measurement of non-financial assets.

In December 2007, the FASB issued new requirements for accounting for business combinations and noncontrolling interests. The requirements are in included in ASC 805, Business Combinations and ASC 810, Consolidation which are both effective for fiscal years beginning after December 15, 2008. ASC 805 requires the acquirer to recognize assets and liabilities and any noncontrolling interest in the acquiree at the acquisition date at fair value and requires the acquirer in a step-acquisition to recognize the identifiable assets and liabilities at the full amounts of their fair value. ASC 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and the deconsolidation of a subsidiary and changes the layout of the consolidated income statement and classifies noncontrolling interests as equity in the consolidated balance sheet. The Company adopted the provisions of ASC 805 and 810 as required on January 1, 2009. The adoption of these provisions did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

In December 2007, the FASB issued guidance now codified as ASC 805, Business Combinations . ASC 805 replaces prior guidance on business combinations and establishes principles and requirements for how the acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Under prior guidance, changes in valuation allowances, as a result of income from acquisitions, for certain deferred tax assets would serve to reduce goodwill, whereas under ASC 805, any changes in the valuation allowance related to income from acquisitions currently or in prior periods will serve to reduce income taxes in the period in which the allowance is reversed. Under ASC 805 transaction related expenses, which were previously capitalized as direct costs of the acquisition, will be expensed as incurred. The Company will apply the provisions of ASC 805 prospectively to business combinations consummated after January 1, 2009. The impact that ASC 805 may have on our consolidated financial condition, results of operations or cash flows will depend upon the nature, terms and size of the acquisition and changes to the valuation allowances.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

In March 2008, the FASB issued ASC 815, Derivatives and Hedging, which is effective for fiscal years beginning after December 15, 2008. ASC 815 requires expanded disclosures related to an entity’s derivative instruments and hedging activities. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Since ASC 815 requires only additional disclosures concerning derivatives and hedging activities (see Note 2 for disclosures and related adoption of ASC 815), the adoption effective January 1, 2009 did not affect the consolidated financial position, results of operations or cash flows of the Company.

In April 2008, the FASB issued ASC 350-30, General Intangibles Other than Goodwill which provides guidance on assigning useful lives to intangible assets and requires expanded disclosures related to an entity’s intangible assets. The Company adopted the provisions of ASC 350-30 effective January 1, 2009. The adoption of these provisions did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

Effective January 1, 2009, the Company adopted the provisions FASB ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . The adoption of this provision did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

In April 2009, the FASB issued ASC 825-10-65, Interim Disclosures about Fair Value of Financial Instruments , which requires disclosures about fair value of financial instruments whenever summarized financial information for interim reporting periods is presented. Entities shall disclose the methods and significant assumptions used to estimate the fair value of financial instruments and shall describe changes in methods and significant assumptions, if any, during the period. The Company adopted the provisions of ASC 825-10-65 effective April 1, 2009. The adoption of these provisions did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

In July 2009, the FASB issued ASC 105, The FASB Accounting Standards Codification TM , as the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in ASC 105. All other accounting literature not included in the Codification is nonauthoritative. The Company adopted the provisions of ASC 105 effective July 1, 2009. The adoption of this provision did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

In May 2009, the FASB issued ASC 855, Subsequent Events which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. ASC 855 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted the provisions of ASC 855 effective April 1, 2009. The adoption of this provision did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company. The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2009, for items that should potentially be recognized in these consolidated financial statements. The evaluation was conducted through March 23, 2010, the date our consolidated financial statements were first available to be issued, on April 30, 2010 with the issuance of our Form 10, and again on June 11, 2010, with the issuance of our amended Form 10.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

NOTE 3 – EARNINGS PER SHARE

Basic and diluted earnings per common share are calculated as follows (all share and per share numbers reflect our June 30, 2010, 1-for-9 reverse stock split) (in thousands, except for share and per share data):

 

     For the Years Ended December 31,  
     2009    2008    2007  

Basic Earnings (loss) Per Common Share:

        

Income (loss) from continuing operations

   $ 17,782    $ 11,170    $ (20,969

Income from discontinued operations

     10,105      23,668      6,028   
                      

Net income (loss) available to common shareholders

   $ 27,887    $ 34,838    $ (14,941
                      

Weighted Average Common Shares Outstanding

     15,124,289      14,365,413      5,262,233   
                      

Income (loss) from continuing operations

   $ 1.18    $ 0.78    $ (3.98

Income from discontinued operations

     0.66      1.65      1.14   
                      

Basic earnings (loss) per common share

   $ 1.84    $ 2.43    $ (2.84
                      

Diluted Earnings (loss) Per Common Share:

        

Income (loss) from continuing operations

   $ 17,782    $ 11,170    $ (20,969

Income from discontinued operations

     10,105      23,668      6,028   
                      

Net income (loss) available to common shareholders

   $ 27,887    $ 34,838    $ (14,941
                      

Weighted Average Common Shares Outstanding

     15,124,289      14,365,413      5,262,233   

Dilutive effect of unvested RSUs to purchase common stock

     283,882      204      —     

Dilutive effect of warrants

     158,071      227,020      —     
                      

Weighted Average Shares Outstanding Assuming Dilution

     15,566,242      14,592,637     
5,262,233
  
                      

Income (loss) from continuing operations

   $ 1.14    $ 0.77    $ (3.98

Income from discontinued operations

     0.65      1.62      1.14   
                      

Diluted earnings (loss) per common share

   $ 1.79    $ 2.39    $ (2.84
                      

Restricted Stock Awards . All common shares granted under the 2008 Director’s Equity Incentive Plan included in the Weighted Average Common Shares Outstanding upon vesting. If the award is forfeited before the vesting period has expired, the forfeited shares are included as treasury shares.

Restricted Stock Units . All common shares underlying restricted stock units granted under the 2008 Management Incentive Plan are issued as the units vest. Therefore, only the vested units /issued shares are included in the Weighted Average Common Shares Outstanding for each period. Unvested restricted stock units are contingently issuable and included, under the treasury method, in the calculation for dilutive effect of unvested RSUs to purchase common shares.

Diluted earnings per share include the potentially dilutive effect of outstanding warrants and restricted stock units which are convertible to common stock. For the year ended December 31, 2009 and 2008, no outstanding stock equivalents were anti-dilutive and excluded from the computations of diluted earnings per share. There were 236,572 shares of anti-dilutive stock options excluded from this calculation for the year ended December 31, 2007.

For the year ended December 31, 2007, the Company must also include the impact of the conversion of the convertible notes (issued in November 2004) in its earnings per share calculation, unless the effect would be anti-dilutive. As of December 31, 2007, the $69.0 million of convertible notes were convertible into 722,589 common shares. The Company did not present the dilutive effect of the convertible shares for the year ended December 31, 2007 as the effect would have been anti-dilutive. The convertible notes were paid in full upon emergence from bankruptcy in January 2008.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS

There were no changes in the carrying amount of goodwill during 2009 or 2008. The balances for goodwill as of December 31, 2009 and 2008 are as follows (in thousands):

 

     Products
Division
   Services
Division
   Total

Goodwill

   $ 44,488    $ 35,912    $ 80,400

During 2009, 2008 and 2007, we performed our annual impairment review of goodwill and concluded that the estimated fair value of each reporting unit substantially exceeded the related carrying value and therefore no impairment was recorded. See Note 2

The balances for other intangible assets as of December 31, 2009 are as follows (in thousands):

 

     As of December 31, 2009
     Weighted Average
Amortization Years
   Gross Carrying
Amount
   Accumulated
Amortization
   Net Asset

Intangible Assets

           

Backlog

   1    $ 2,100    $ 2,100    $ —  

Customer Relations

   6      8,800      6,551      2,249

Trade Name

   Infinite      12,500      —        12,500
                       

Total Intangible Assets

      $ 23,400    $ 8,651    $ 14,749
                       

The balances for other intangible assets as of December 31, 2008 are as follows (in thousands):

 

     As of December 31, 2008
     Weighted Average
Amortization Years
   Gross Carrying
Amount
   Accumulated
Amortization
   Net Asset

Intangible Assets

           

Backlog

   1    $ 2,100    $ 2,100    $ —  

Customer Relations

   6      8,800      4,791      4,009

Trade Name

   Infinite      12,500      —        12,500
                       

Total Intangible Assets

      $ 23,400    $ 6,891    $ 16,509
                       

Amortization expense for 2009, 2008 and 2007 was approximately $1.8 million, $1.8 million and $1.8 million, respectively. Estimated amortization expense for the next two years is $1.8 million in 2010 and $0.5 million in 2011.

NOTE 5 – INCOME TAXES

The following summarizes the income tax expense (in thousands):

 

    For the Years Ended December 31,  
    2009     2008     2007  

Current:

     

Federal

  $ 39      $ (5,096   $ (81

State

    —          (582     57   

Foreign

    1,452        2,577        1,420   
                       

Total current

    1,491        (3,101     1,396   
                       

Deferred:

     

Federal

    3,527        6,217        3,343   

State

    403        710        382   

Foreign

    (128     (642     —     
                       

Total deferred

    3,802        6,285        3,725   
                       

Income tax expense

  $ 5,293      $ 3,184      $ 5,121   
                       

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

Income tax expense is allocated between continuing operations and discontinued operations as follows (in thousands):

 

     For the Years Ended December 31,
     2009    2008    2007

Continuing operations

   $ 5,282    $ 3,151    $ 5,121

Discontinued operations

     11      33      —  
                    

Income tax expense

   $ 5,293    $ 3,184    $ 5,121
                    

Income (loss) before income taxes was as follows (in thousands):

 

     For the Years Ended December 31,  
     2009    2008    2007  

Domestic

   $ 14,483    $ 7,057    $ (19,371

Foreign

     8,581      7,264      3,523   
                      

Income (loss) from continuing operations

     23,064      14,321      (15,848

Income from discontinued operations

     10,116      23,701      6,028   
                      

Net income (loss)

   $ 33,180    $ 38,022    $ (9,820
                      

The components of deferred income taxes consist of the following (in thousands):

 

     December 31,
2009
    December 31,
2008
 

Assets:

    

Cost in excess of identifiable net assets of business acquired

   $ 32,917      $ 36,585   

Reserves and other accruals

     7,143        9,688   

Restructuring charges

     19,041        18,454   

Deferred revenue

     818        3,122   

Tax credit carryforwards

     7,971        4,902   

Accrued compensation and benefits

     6,987        7,629   

State net operating loss carryforwards

     2,745        3,431   

Federal net operating loss carryforwards

     15,566        20,706   

Foreign net operating loss carryforwards

     —          160   

Other

     1,064        354   
                
     94,252        105,031   

Liabilities

    

Indefinite life intangibles

     (15,354     (10,808

Property and equipment

     (1,281     (2,301
                

Net deferred tax assets

     77,617        91,922   

Valuation allowance for net deferred tax assets

     (92,033     (102,535
                

Net deferred tax liability after valuation allowance

   $ (14,416   $ (10,613
                

At December 31, 2009 and 2008, the Company has recorded a valuation allowance against deferred income tax assets of approximately $92.0 million and $102.5 million, respectively, representing the amount of its deferred income tax assets in excess of the Company’s deferred income tax liabilities arising from balances other than indefinite life intangibles. The net change in valuation allowance for the year ended December 31, 2009 was a decrease in the amount of approximately $10.5 million, and the net change in valuation allowance for the year ended December 31, 2008 was a decrease in the amount of approximately $5.7 million. The valuation allowance was recorded because management was unable to conclude, in light of the cumulative tax loss realized by the Company for the three year period ended before December 31, 2009, that realization of the net deferred tax asset was more likely than not.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

Net deferred tax assets are allocated between current and long-term as follows (in thousands):

 

     As of December 31,  
     2009     2008  

Current deferred tax asset (included in Other current assets)

   $ 352      $ 487   

Non-current deferred tax liability

     (14,768     (11,100
                

Net deferred tax assets after valuation allowance

   $ (14,416   $ (10,613
                

The amount of the income tax provision for the years ended December 31, 2009, 2008 and 2007 differs from the statutory federal income tax rate of 35% as follows:

 

     For the Years Ended December 31,  
     2009     2008     2007  
     Amount     Percent     Amount     Percent     Amount     Percent  

Tax expense (benefit) computed at the maximum U.S. statutory rate

   $ 11,613      35.0   $ 13,308      35.0   $ (5,546   35.0

Difference resulting from

            

State income taxes, net of federal income tax benefits

     403      1.2     1,521      4.0     (634   4.0

Foreign tax rate differences

     (435   -1.3     (1,408   -3.7     (639   4.0

Non-deductible expenses

     1,644      5.0     594      1.6     2,232      -14.1

Multi-year true-ups

     1,093      3.3     (6,146   -16.2     (4,793   30.2

Effective rate differences

     1,132      3.4     —        —          —        —     

Incremental state taxes based on capital

     —        —          —        —          220      -1.4

Change in valuation allowance

     (10,502   -31.7     (5,721   -15.0     14,449      -91.2

Other, net

     345      1.0     1,036      2.7     (168   1.2
                                          

Total

   $ 5,293      15.9   $ 3,184      8.4   $ 5,121      -32.3
                                          

The Company has approximately $50.9 million of federal net operating loss carryforwards expiring in 2025 through 2027. The Company has state income tax loss carryforwards of approximately $44.6 million expiring in 2009 through 2029. The Company has approximately $7.5 million in foreign tax credit carryforwards expiring in 2015 through 2019.

The Company provides income taxes on the undistributed earnings of its foreign subsidiaries except to the extent that such earnings are indefinitely reinvested outside the United States. As of December 31, 2009, all of the undistributed earnings of the foreign subsidiaries were considered to be reinvested indefinitely. Consequently, the Company has not provided for the federal and foreign withholding taxes on the foreign subsidiaries’ undistributed earnings.

Effective January 1, 2007, the Company adopted ASC 740, Income Taxes, as it relates to uncertain tax positions , resulting in a cumulative effect of a change in accounting principle of $1.3 million. Currently, the Company is not under examination for income tax purposes by any taxing jurisdiction. A presentation of open tax years by jurisdiction is as follows:

 

Tax Jurisdiction

 

Examination in Progress

 

Open Tax Years for Examination

United States   None   2005 to Present
Mexico   None   2004 to Present
China   None   2004 to Present
The Netherlands   None   2007 to Present

The Company has elected to classify interest and penalties related to uncertain income tax positions in income tax expense. At December 31, 2009 and 2008, the Company has accrued approximately $1.7 million and $1.2 million, respectively, for potential payment of interest and penalties.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

Following is a reconciliation of the total amounts of unrecognized tax benefits for the year ended December 31, 2009 (in thousands):

 

Unrecognized
Tax Benefits at
January 1, 2009

   Change in
Unrecognized
Tax Benefits
Taken During a
Prior Period
   Change in
Unrecognized
Tax Benefits
During the
Current Period
   Decreases in
Unrecognized
Tax Benefits
From
Settlements
With Taxing
Authorities
    Reductions to
Unrecognized
Tax Benefits
From Lapse of
Statues of
Limitations
   Unrecognized
Tax Benefits at
December 31,
2009
$ 5,225    $ —      $ 1,077    $ (456   $ —      $ 5,846

Unrecognized Tax Benefits disclosed at January 1, 2009 differs from Unrecognized Tax Benefits at December 31, 2008 by an increase of $1.7 million. This increase results from the Company’s decision to also disclose the $1.7 million in unrecognized tax benefits related to timing differences, which have no current income tax or effective tax rate impact. This is being done to better comport with how the disclosure of unrecognized tax benefits has evolved since the passage of ASC 740. This change in disclosure has no impact on the amounts recognized in the accompanying consolidated balance sheets. As of December 31, 2009 and 2008, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate are approximately $1.9 million and $1.7 million, respectively.

Following is a reconciliation of the total amounts of unrecognized tax benefits for the year ended December 31, 2008 (in thousands):

 

Unrecognized
Tax Benefits
at January 1,
2008

   Change in
Unrecognized
Tax Benefits
Taken During a
Prior Period
   Change in
Unrecognized
Tax Benefits
During the
Current Period
   Decreases in
Unrecognized
Tax Benefits
From
Settlements
With Taxing
Authorities
   Reductions to
Unrecognized
Tax Benefits
From Lapse of
Statues of
Limitations
   Unrecognized
Tax Benefits at
December 31,
2008
$ 2,776    $ —      $ 714    $ —      $ —      $ 3,490

At December 31, 2008 and 2007, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate are approximately $1.7 million and $1.5 million, respectively.

NOTE 6 – UNCOMPLETED CONTRACTS

Both the Products and Services Divisions enter into contracts that allow for periodic billings over the contract term. At any point in time, each project under construction could have either costs and estimated earnings in excess of billings or billings in excess of costs and estimated earnings. Within the Products Division, the Auxiliary Power Equipment business typically bills customers only at the completion of each phase of a contract and no earnings are recognized until each phase is complete.

Costs, earnings and billings related to uncompleted contracts consist of the following (in thousands):

 

    As of December 31,  
    2009        2008  

Costs incurred on uncompleted contracts

  $ 435,172         $ 477,311   

Earnings recognized on uncompleted contracts

    (128,822        90,703   
                  

Total

    306,350           568,014   

Less - billings to date

    (309,189        (548,820
                  

Net

  $ (2,839      $ 19,194   
                  

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

The net amounts are included in the accompanying consolidated balance sheets under the following headings (in thousands):

 

     December 31,
2009
    December 31,
2008
 

Costs and estimated earnings in excess of billings

   $ 31,518      $ 55,922   

Billings in excess of costs and estimated earnings

     (34,357     (36,728
                

Net

   $ (2,839   $ 19,194   
                

NOTE 7 – DEBT

Credit Facility : The Company has a $150 million Credit Facility (“Credit Facility”) consisting of a $60 million revolving letter of credit facility, including a $25 million cash advance sub-facility, and a $90 million term loan facility. The Credit Facility is due and payable on January 22, 2014 and has mandatory amortization payments on the term loan facility of approximately $1.3 million per quarter and a sweep of 25 – 75% of excess cash flow, as defined in the Credit Facility. Future principle payments on the Credit Facility are expected to be $40.7 million in 2010, $5 million in 2011 through 2013 and $9.6 million in 2014.

On July 14, 2009, the Company drew down the full amount of the $25 million on the cash advance sub-facility of the Credit Facility in order to secure access to the available funds. On September 30, 2009, The CIT Group / Business Credit, Inc. fully sold and assigned their interest in and all rights and obligations under the Credit Agreement to another party. This affects the Company in that all Letters of Credit will henceforth be issued through the new lender as well as any future revolver draw downs will be the proportionate obligation of the new lender. The amount of the cash advance sub-facility, and related interest, was paid in full on September 30, 2009.

At December 31, 2009 and 2008, the Credit Facility consisted of the following (in thousands):

 

     As of December 31,
     2009    2008

Term loan

   $ 65,325    $ 85,000

Less:

     

Current maturities of long-term debt

     

Quarterly installments

     5,000      5,000

Excess cash flow sweep

     35,692      14,675
             

Long-term debt, net of current maturities

   $ 24,633    $ 65,325
             

The variable interest rate on the Credit Facility was 7.75% as of December 31, 2009. The interest rate on letters of credit issued under the revolving letter of credit was 3.07% at December 31, 2009. The Company also pays an unused line fee of 0.50%. At December 31, 2009, the excess cash flow payment for 2010 is expected to be $35.7 million and is included in current maturities of long-term debt on the consolidated balance sheets.

The Credit Facility includes customary affirmative and negative covenants, such as limitations on the creation of new indebtedness and on certain liens, restrictions on certain transactions and payments and requires maintenance of a maximum consolidated leverage ratio, minimum consolidated fixed charge ratio and minimum liquidity. A default under the Credit Facility may be triggered by events such as a failure to comply with financial covenants or other covenants under the Credit Facility, a failure to make payments when due under the Credit Facility, a change of control of the Company or certain insolvency proceedings. A default under the Credit Facility would permit the participating banks to restrict the Company’s ability to further access the Credit Facility for loans, require the immediate repayment of any outstanding loans with interest and require the cash collateralization of outstanding letter of credit obligations. The Credit Facility is secured by a first priority lien on substantially all assets of the Company.

On December 31, 2009, the Company amended the Credit Facility (Amendment No. 3) to accommodate operational and administrative enhancements including:

 

   

Allow for commercial joint venture and LLC agreements under certain conditions.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

   

Ability to issue up to $5 million of letters of credit in support of purchase orders placed on foreign subsidiaries.

 

   

Ability to fund up to $5 million in working capital support of foreign entity operations.

At December 31, 2009, the Company had $25.0 million of unused capacity on the cash advance sub-facility.

NOTE 8 – LIABILITIES SUBJECT TO COMPROMISE

Liabilities subject to compromise include unsecured and under secured liabilities, including secured liabilities as to which there is uncertainty as to whether the value of the collateral securing such liabilities is less than, equals or exceeds such liabilities, incurred prior to the petition date. The amounts of the various categories of liabilities that are subject to compromise are set forth below. These amounts represent the Company’s estimates of known or potential pre-petition date claims that are likely to be resolved in connection with the Chapter 11 filings. Such claims remain subject to further adjustments. Adjustments result from negotiations, actions of the Bankruptcy Court, rejection of executory contracts, the determination as to the value of any collateral securing claims, proofs of claim or other events.

The amounts of liabilities subject to compromise at December 31, 2009 consisted of the following (in thousands):

 

    Products
Division
   Services Division    Corporate    Total

Accounts payable

  $ 92    $ 30    $ —      $ 122

Other accruals

    109      —        310      419
                          

Total

  $ 201    $ 30    $ 310    $ 541
                          

The amounts of liabilities subject to compromise at December 31, 2008 consisted of the following (in thousands):

 

    Products
Division
   Services Division    Corporate    Total

Accounts payable

  $ 335    $ 30    $ —      $ 365

Other accruals

    109      —        130      239
                          

Total

  $ 444    $ 30    $ 130    $ 604
                          

NOTE 9 – STOCKHOLDERS’ EQUITY

Restricted Stock Awards: Pursuant to the 2008 Director’s Equity Incentive Plan, the Company is permitted to award restricted stock which are shares of common stock that are issued subject to specified restrictions on transfer, forfeiture and/or such other restrictions on incidents of ownership determined by the Compensation Committee. On January 22, 2009, the Company issued 26,144 shares of restricted stock under the 2008 Director’s Equity Incentive Plan at a grant date fair value of $5.76 per share which approximate the quoted market price of the common stock on that date. (All share numbers reflect our June 30, 2010, 1-for-9 reverse stock split). Vesting of this restricted stock is based on certain service conditions over a four year period. In connection with the grant, the Company recorded expense of $0.07 million for the year ended December 31, 2009 and will recognize an aggregate of $0.08 million of expense over the next three years.

On February 9, 2009, the Company issued 34,722 shares of restricted stock under the 2008 Director’s Equity Incentive Plan at a grant date fair value of $4.95 per share. Vesting of this restricted stock is based on certain service conditions over a four year period. In connection with the grant, the Company recorded expense of $0.04 million for the year ended December 31, 2009 and will recognize an aggregate of $0.13 million of expense over the next four years.

Stock-based Compensation: On June 23, 2008, the Company granted 581,546 Restricted Stock Units (each such unit, a “RSU”) under the 2008 Management Incentive Plan pursuant to RSU Award Agreements executed by each beneficiary of the grant (the “RSU Award Agreement”). On March 31, 2009, the Company issued 141,316 shares of Restricted Stock to the recipients of RSU awards according to the vesting requirements of the RSU Award Agreements. Additionally, on October 15, 2009, the Company issued 26,466 shares of Restricted Stock to the recipients of RSU awards according to specific separation agreements. In connection with this grant, the Company recognized $0.9 million in expense for the year ended December 31, 2009 related to these RSUs.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

On February 9, 2009, the Company granted 540,008 RSUs with a grant date fair value of $4.95 per unit under the 2008 Management Incentive Plan. Grants of RSUs under the 2008 Management Incentive Plan are valued in terms of the fair value of the Company’s common stock at date of grant, however, common stock is not issued at the time of the grant. Vesting of RSUs is based on certain performance and service conditions over a four year period. The Company recognizes compensation cost for awards with performance conditions if and when the Company concludes that it is probable that the performance condition will be achieved, net of an estimate of pre-vesting forfeitures. The Company recognizes compensation cost for awards with service condition throughout the vesting term, net of an estimate of pre-vesting forfeitures. On October 15, 2009, the Company issued 14,666 shares of Restricted Stock to the recipients of RSU awards according to specific separation agreements. Restricted shares are issued to plan participants as vesting requirements are satisfied. In connection with this grant, the Company recognized $0.5 million of expense for the year ended December 31, 2009 related to these RSUs.

On September 14, 2009, the Company granted 83,333 RSUs with a grant date fair value of $10.80 per unit under the 2008 Management Incentive Plan. Grants of RSUs under the 2008 Management Incentive Plan are valued in terms of the fair value of the Company’s common stock at date of grant, however common stock is not issued at the time of the grant. Vesting of RSUs is based on certain performance and service conditions over a four year period. The Company recognizes compensation cost for awards with performance conditions if and when the Company concludes that it is probable that the performance condition will be achieved, net of an estimate of pre-vesting forfeitures. Restricted shares are issued to plan participants as vesting requirements are satisfied. In connection with this grant, the Company recognized $0.1 million of expense for the year ended December 31, 2009 related to these RSUs.

Management Co-Investment Plan: On January 22, 2008, members of management were offered the opportunity to purchase shares of the new common stock (up to an aggregate amount of $1.5 million) at the share price of $7.65 per share. With each purchase of two shares of new common stock, an additional share of restricted stock (each an “Incentive Share”) was issued. The Company recognized $0.2 million in expense related to the Incentive Shares during the year ended December 31, 2009 with the remaining compensation expense of $0.2 million to be recognized over the remaining vesting period. At December 31, 2009, 427 shares of common stock issued under the Management Co-Investment Plan were forfeited by members of management who terminated their employment with the Company prior to meeting the vesting requirements. These shares are held as treasury shares.

Warrants: On January 22, 2008, the Company issued warrants to purchase 1,807,222 shares of stock with an exercise price of $7.9254. The warrants vested immediately upon issuance and expire on January 22, 2013. During the year ended December 31, 2009, warrants were exercised to purchase 65,691 shares of common stock. The stock was sold in a cashless transaction whereby the Company withheld 41,913 shares of common stock, treasury shares, as payment for the exercised purchase warrants.

Fair Market Value of Interest Rate Swap: On March 28, 2008, the Company entered into a swap agreement to convert $60 million of the Credit Facility variable interest payments to fixed rates. The amount of accumulated comprehensive income associated with interest rate swaps was loss of $0.2 million at December 31, 2009 and $0.8 million at December 31, 2008. See Note 2 for a discussion of the interest rate swaps.

Foreign Currency Translation: Foreign assets and liabilities are translated using the exchange rate in effect at the balance sheet date, and results of operations are translated using an average rate for the period. Translation adjustments are accumulated and reported as a component of accumulated other comprehensive income. The amount of accumulated comprehensive income related to foreign currency translation was $2.8 million at December 31, 2009 and $1.9 million at December 31, 2008. See Note 2 for a discussion of the foreign currency translation.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Employment Agreements: The Company entered into employment agreements with terms of two to three years with certain members of management with automatic one-year renewal periods at expiration dates. The agreements provide for, among other things, compensation, benefits and severance payments.

Litigation: The Company is involved in legal actions which arise in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, in the opinion of management, the resolution of any currently pending actions will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

The Company is involved in a dispute with a Deltak customer involving the sale of HRSG units stemming from a purchase order dated in January 2006. In March 2007, the customer filed a proof of claim against the Company asserting claims for costs to complete the project totaling approximately $55 million. In addition, the customer filed an objection to the Company’s Plan. In December 2007, the Bankruptcy Court (i) sustained the Company’s objection with respect to the customer’s claim and disallowed its guaranty claim against Global Power, (ii) entered an order overruling the customer’s objection to the Plan and (iii) estimated its claim for the Plan voting purposes at $7 million. On December 27, 2007, the customer filed a notice of appeal. Subsequently, the customer has dropped its appeal on the overruled objection to the Company’s plan. On December 16, 2008, the U.S. District Court for the District of Delaware affirmed the Bankruptcy Court’s order on all issues. On January 12, 2009, the customer filed an appeal of this ruling to the 3 rd Circuit Court of Appeals, and that process is now ongoing. If the Company is successful, the customer’s claim will be treated as a general unsecured claim, which under the terms of the Plan, is entitled only to share in the $34 million fund reserve. See Note 2.

Warranty : Estimated costs related to product warranty are accrued as revenue is recognized and included in cost of revenues. Estimated costs are based upon past warranty claims and sales history. Warranty terms vary by contract but generally provide for a term of three years or less. The Company manages its exposure to warranty claims by having its field service and quality assurance personnel regularly monitor projects and maintain ongoing and regular communications with the customer.

A reconciliation of the changes to the Company’s warranty reserve is as follows (in thousands):

 

     For the Years Ended December 31,  
     2009     2008  

Balance at the beginning of the period

   $ 11,948      $ 5,948   

Adjustments

     (1,393     —     

Provision during the period

     1,912        6,550   

Settlements made (in cash or in kind) during the period

     (1,486     (550
                

Balance at the end of the period

   $ 10,981      $ 11,948   
                

Leases: The Company leases machinery, transportation equipment and office, warehouse and manufacturing facilities, which are noncancellable and expire at various dates. Total rental expense for all operating leases for 2009, 2008 and 2007 was approximately $1.6 million, $1.9 million and $1.9 million, respectively.

Future minimum annual lease payments under these noncancellable operating leases at December 31, 2009 are as follows (in thousands):

 

    December 31,

2010

  $ 1,365

2011

    779

2012

    466

2013

    442

2014

    355

Thereafter

    —  
     

Total

  $ 3,407
     

None of the leases include contingent rental provisions.

Employee Benefit Plans: The Company maintains a 401(k) plan covering substantially all of the Company’s employees in the United States. Expense for the Company 401(k) plan for 2009, 2008 and 2007 was approximately $1.3 million, $1.1 million and $0.9 million, respectively.

Contingencies: At December 31, 2009 and 2008, the Company had a contingent liability for issued and outstanding stand-by letters of credit, generally issued to secure performance on customer contracts. The balance of stand-by letters of credit totaled approximately $22.2 million for the domestic entities and $13.3 million (US dollars) for foreign entities at December 31, 2009 and $19.0 million for the domestic entities and $11.6 million (US dollars) for foreign entities at December 31, 2008. Currently, there are no amounts drawn upon these letters of credit.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

In addition, at December 31, 2009 and 2008, the Company had outstanding surety bonds on projects of approximately $8.5 million and $17.8 million, respectively.

In light of the recent credit market crisis, the Company evaluated its banking relationships with regard to cash and available credit. The Company maintains cash in depository accounts at various FDIC insured banks and financial institutions. Although the Company maintains cash balances in excess of the FDIC insured limits, management believes this risk is mitigated by using financial institutions that are rated investment grade according to credit rating agencies. To the extent that the credit crisis affects the counterparties in the Credit Facility, the Company may have difficulty accessing all the available credit under this facility.

NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow disclosures are as follows (in thousands):

 

     For the Years Ended December 31,  
     2009    2008    2007  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

        

Cash paid during the period for:

        

Interest

   $ 8,848    $ 11,632    $ 5,872   

Income taxes

     976      1,812      (425

SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:

        

Issuance of Common Shares for advisor success fees pursuant to the Plan of Reorganization

   $ —      $ 856    $ —     

NOTE 12 – SEGMENT INFORMATION

The “Management Approach” called for by ASC 280, Segment Reporting, has been used by Company management to present the segment information which follows. The Company considered the way its management team makes operating decisions and assesses performance and considered which components of its enterprise have discrete financial information available. Management makes decisions using a products and services group focus and its analysis resulted in two operating segments, Products Division and Services Division. The Company evaluates performance based on net income or loss not including certain items as noted below. Intersegment revenues and transactions were not significant. Interest expense is allocated based on the amount of capital employed for each division. Corporate assets consist primarily of cash and deferred tax assets.

The following tables present information about segment income (in thousands):

 

    Products Division
Years Ended December 31,
     Services Division
Years Ended December 31,
 
    2009      2008      2007      2009      2008      2007  

Revenues

  $ 193,150      $ 311,603      $ 208,085      $ 347,460      $ 245,161      $ 195,333   

Interest expense

    4,713        6,744        5,657        4,954        4,923        4,400   

Depreciation and amortization

    1,936        1,711        2,243        2,215        2,081        195   

Income tax provision

    3,560        2,568        2,959        1,722        583        2,162   

Segment income

    9,088        32,976        13,184        9,724        1,768        (1,051

Total Assets

  $ 129,497      $ 165,739      $ 140,700      $ 125,015      $ 94,469      $ 82,494   

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—Continued

 

The following table presents information, which reconciles segment information to consolidated totals (in thousands):

 

     Years ended December 31,  
     2009     2008     2007  

Net income:

      

Total segment income

   $ 18,812      $ 34,744      $ 12,133   

Income from discontinued operations

     10,105        23,668        6,028   

Reorganization expense

     (1,030     (23,574     (33,102
                        

Consolidated net income (loss)

   $ 27,887      $ 34,838      $ (14,941
                        

The following table presents information, which reconciles segment information to consolidated totals (in thousands):

 

    As of December 31,
    2009      2008

Assets:

      

Total segment assets

  $ 254,512      $ 260,208

Non allocated corporate assets

    74,708        40,831
              

Total consolidated assets

  $ 329,220      $ 301,039
              

The following presents revenues by geographical region based on the Company’s operating locations. Products are often shipped to other geographical areas but revenues are listed in the region in which the revenue is recognized (in thousands):

 

    Years ended December 31,
    2009   2008   2007
    Revenue
Recognized In
  Product Shipped
To
  Revenue
Recognized In
  Product Shipped
To
  Revenue
Recognized In
  Product Shipped
To

United States

  $ 486,598   $ 413,780   $ 458,075   $ 350,462   $ 342,001   $ 263,726

Canada

    —       11     —       22,050     —       34,698

Europe

    38,471     31,345     80,792     20,704     40,355     8,263

Mexico

    10,518     364     16,350     116     19,832     11

Asia

    5,023     26,113     1,547     17,999     1,230     10,970

Middle East

    —       63,681     —       112,374     —       70,387

Other

    —       5,316     —       33,059     —       15,363
                                   

Total

  $ 540,610   $ 540,610   $ 556,764   $ 556,764   $ 403,418   $ 403,418
                                   

NOTE 13 – SUBSEQUENT EVENTS

On January 7, 2010, pursuant to Amendment No. 3 of the Credit Facility, the Company prepaid $20 million of the term note balance upon execution of the amendment without a pre-payment penalty charge. The pre-payment was comprised of $5 million payment of the 2010 quarterly amortization payments and $15 million applied against the 2009 excess cash flow payment. The prepaid amount is included under current liabilities on the consolidated balance sheet.

On March 24, 2010, the Company issued 3,472 shares of Restricted Stock to each member of the Board of Directors under the 2008 Director’s Equity Incentive Plan.

On March 31, 2010, the Company paid the $20.7 million balance due on the excess cash flow payment calculated as of December 31, 2009 (unaudited).

On April 2, 2010, the Company issued 184,207 shares of Restricted Stock to participants of the 2008 Management Incentive Plan according to the vesting requirements of the RSU Award (unaudited).

On April 22, 2010, the Company held its Annual Meeting of Stockholders in New York for the purpose of (a) electing directors and (b) approving a reverse stock split as described in the Company's proxy statement; both measures were approved (unaudited).

On April 30, 2010, the Company filed Registration Statement on Form 10 with the Securities and Exchange Commission (unaudited).

On June 11, 2010, the Company filed Amended Registration Statement on Form 10, with the Securities and Exchange Commission (unaudited).

On June 30, 2010, the Company filed an amendment to its Certificate of Incorporation to implement a 1-for-9 reverse stock split of all outstanding shares of its common stock. The Company effected the reverse stock split in order to satisfy the minimum price per share requirements for listing its stock on the NASDAQ Global Market (unaudited).

 

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Schedule II

VALUATION AND QUALIFYING ACCOUNTS

YEAR ENDED DECEMBER 31, 2009, 2008 AND 2007

 

         Additions           
(in thousands)   Balance at
Beginning
of Period
   Charged to
Costs and
Expenses
    Charged to
Other
Accounts
   Deductions     Balance at
End of
Period
2009            

Allowance for doubtful accounts

  $ 3,122    $ 115      $ —      $ (1,649   $ 1,588
                                   

Accrued warranty reserves

  $ 11,948    $ 1,912      $ —      $ (2,879   $ 10,981
                                   

Valuation allowance for deferred tax assets

  $ 102,535    $ (10,502   $ —      $ —        $ 92,033
                                   
2008            

Allowance for doubtful accounts

  $ 8,001    $ 8,283      $ —      $ (13,162   $ 3,122
                                   

Accrued warranty reserves

  $ 5,948    $ 6,550      $ —      $ (550   $ 11,948
                                   

Valuation allowance for deferred tax assets

  $ 108,257    $ (5,722   $ —      $ —        $ 102,535
                                   
2007            

Allowance for doubtful accounts

  $ 3,141    $ 5,024      $ —      $ (164   $ 8,001
                                   

Accrued warranty reserves

  $ 4,974    $ 3,066      $ —      $ (2,092   $ 5,948
                                   

Valuation allowance for deferred tax assets

  $ 93,807    $ 14,450      $ —      $ —        $ 108,257
                                   

The “deductions” column of allowance for doubtful accounts represents write-offs of fully reserved accounts receivable net of recoveries.

The “deductions” column for accrued warranties represents settlements made during the period.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

     March 31,
2010
    December 31,
2009
 
     (unaudited)        

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 62,627      $ 103,220   

Restricted cash

     1,018        2,018   

Accounts receivable, net of allowance of $1,291 and $1,588

     54,153        62,267   

Inventories

     5,036        4,659   

Costs and estimated earnings in excess of billings

     51,057        31,518   

Other current assets

     6,480        11,330   
                

Total current assets

     180,371        215,012   

Property, plant and equipment, net

     12,957        12,945   

Goodwill

     80,400        80,400   

Intangible assets, net

     14,309        14,749   

Other assets

     5,668        6,114   
                

Total assets

   $ 293,705      $ 329,220   
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Current maturities of long-term debt

   $ 1,250      $ 40,692   

Accounts payable

     26,321        28,913   

Accrued liabilities

     20,503        19,498   

Billings in excess of costs and estimated earnings

     30,998        34,357   

Accrued warranties

     10,382        10,981   

Deferred revenue

     2,118        3,006   

Other current liabilities

     12,650        11,363   
                

Total current liabilities

     104,222        148,810   

Deferred tax liability

     14,768        14,768   

Other long-term liabilities

     3,996        3,990   

Long-term debt, net of current maturities

     23,383        24,633   

Liabilities subject to compromise

     460        541   
                

Total liabilities

     146,829        192,742   

Commitments and contingencies (Note 5)

    

Stockholders’ equity:

    

Common stock,* $0.01 par value,

    

170,000,000 shares authorized and

    

15,282,842 and 15,263,066 shares issued, respectively and

    

15,238,367 and 15,220,727 shares outstanding, respectively

     1,375        1,374   

Paid-in capital

     61,911        61,459   

Accumulated comprehensive income

     1,435        2,655   

Retained earnings

     82,159        70,994   

Treasury stock, at cost (44,476 and 42,340 common shares, respectively)

     (4     (4
                

Total stockholders’ equity

     146,876        136,478   
                

Total liabilities and stockholders’ equity

   $ 293,705      $ 329,220   
                

*(all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split)

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

 

     Three Months Ended March 31,  
     2010    2009  
     (Unaudited)  

Products revenue

   $ 35,054    $ 57,425   

Services revenue

     122,096      68,549   
               

Total revenues

     157,150      125,974   

Cost of products revenue

     26,324      39,966   

Cost of services revenue

     105,569      59,778   
               

Cost of revenues

     131,893      99,744   
               

Gross profit

     25,257      26,230   

Selling and administrative expenses

     10,859      10,524   
               

Operating income

     14,398      15,706   

Interest expense

     2,157      2,669   
               

Income from continuing operations before reorganization items and income taxes

     12,241      13,037   

Reorganization expense (income)

     506      (132
               

Income from continuing operations before income taxes

     11,735      13,169   

Income tax expense

     1,629      1,153   
               

Income from continuing operations

     10,106      12,016   

Discontinued operations:

     

Income from discontinued operations, net of tax

     1,059      618   
               

Net income

   $ 11,165    $ 12,634   
               

Basic earnings per weighted average common share:*

     

Income from continuing operations

   $ 0.66    $ 0.80   

Income from discontinued operations

     0.07      0.04   
               

Income per common share - basic

   $ 0.73    $ 0.84   
               

Weighted average number of shares of common stock outstanding - basic

     15,230,109      14,993,103   
               

Dilutive earnings per weighted average common share:

     

Income from continuing operations

   $ 0.63    $ 0.79   

Income from discontinued operations

     0.07      0.04   
               

Income per common share - diluted

   $ 0.70    $ 0.83   
               

Weighted average number of shares of common stock outstanding - diluted

     16,043,335      15,254,190   
               

*(all share and per share numbers reflect our June 30, 2010, 1-for-9 reverse stock split)

The accompanying notes are an integral part of these condensed consolidated financial statements

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Three Months Ended March 31,  
     2010     2009  
     (Unaudited)  

Operating activities:

    

Net income

   $ 11,165      $ 12,634   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     1,628        1,324   

(Gain) loss on disposal of equipment

     (2     7   

Stock based compensation

     452        443   

Changes in operating assets and liabilities:

    

Receivables

     10,366        5,852   

Inventories

     (377     (1,070

Cost and estimated earnings in excess of billings

     (19,539     5,552   

Other current assets

     2,710        (297

Other assets

     162        10   

Accounts payable

     (2,592     (1,603

Accrued and other liabilities

     2,372        4,307   

Accrued warranties

     (599     1,128   

Billings in excess of cost and estimated earnings

     (3,359     (8,501

Deferred revenue

     (888     (11

Liabilities subject to compromise

     (81     (20
                

Net cash provided by operating activities

     1,418        19,755   

Investing activities:

    

Net transfers of restricted cash

     1,000        (2

Proceeds from sale of equipment

     4        1   

Purchase of property, plant, and equipment

     (511     (700
                

Net cash provided by (used in) investing activities

     493        (701

Financing activities:

    

Payment of long-term debt

     (40,692     (1,250

Payments of debt financing costs

     (304     (65
                

Net cash used in financing activities

     (40,996     (1,315

Effect of exchange rate changes on cash

     (1,508     (1,286
                

Net change in cash and cash equivalents

     (40,593     16,453   

Cash and cash equivalents, beginning of period

     103,220        57,633   
                

Cash and cash equivalents, end of period

   $ 62,627      $ 74,086   
                

The accompanying notes are an integral part of these condensed consolidated financial statements

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BUSINESS AND ORGANIZATION

Global Power Equipment Group Inc. and Subsidiaries (the “Company”) designs, engineers and manufactures heat recovery and auxiliary power equipment and provides routine and specialty maintenance services to customers in the utility and industrial sectors. The Company’s corporate headquarters are located in Tulsa, Oklahoma, with facilities in Plymouth, Minnesota; Tulsa, Oklahoma; Auburn, Massachusetts; Atlanta, Georgia; Monterrey, Mexico; Shanghai, China; and Heerlen, The Netherlands.

The unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America. The information furnished in the condensed consolidated financial statements, in the opinion of management, includes normal recurring adjustments and reflects all adjustments which are necessary for a fair statement of such financial statements. The Company believes that the disclosures presented are adequate to represent materially correct interim financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2009. The results of operations for the three months ended March 31, 2010 and 2009 are not necessarily indicative of the actual results that may occur for the entire fiscal year.

On September 28, 2006, Global Power Equipment Group Inc. and all of its U.S. subsidiaries filed voluntary Chapter 11 petitions under the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (“Bankruptcy Court”). The Company successfully exited Chapter 11 on January 22, 2008 pursuant to an approved Plan of Reorganization (“Plan of Reorganization” or “Plan”).

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying condensed consolidated financial statements include the accounts of Global Power Equipment Group Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition: The Company is organized in two major segments: the Products Division and the Services Division. Within these segments, the Company has three primary revenue streams, Heat Recovery Equipment (comprised of the Specialty Boiler and Heat Recovery Steam Generator (“HRSG”) product lines), Auxiliary Power Equipment and Industrial Services.

Revenues and cost of revenues for the Heat Recovery Equipment product line, and fixed price contracts in the Industrial Services business, are recognized on the percentage-of-completion method based on the percentage of actual hours incurred to date in relation to total estimated hours for each contract. This method is used because management considers expended labor hours to be the best available measure of progress on these contracts. We expense pre-contract costs as incurred. We expense pre-contract costs as incurred. Costs related to change orders are recognized when they are incurred. Change orders are included in total estimated contract revenues when they can be reliably estimated and it is probable that the adjustment will be approved by the customer or realized.

The percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract since management has the ability to produce reasonably dependable estimates of contract billings and contract costs. The Company uses the level of profit margin that is most likely to occur on a contract. If the most likely profit margin cannot be precisely determined, the lowest probable level of profit in the range of estimates is used until the results can be estimated more precisely. The Company’s estimate of the total hours to be incurred at any particular time has a significant impact on the revenue recognized for the respective period. The percentage-of-completion method is only allowed under certain circumstances in which the revenue process is long-term in nature (often in excess of one year), the products sold are highly customized and a process is in place whereby revenues, costs and margins can be reasonably estimated. Changes in job performance, job conditions, estimated profitability, final contract settlements and resolution of claims may result in revisions to costs and income, and the effects of such revisions are recognized in the period that the revisions are determined. Estimated losses on uncompleted contracts are recognized in the period in which they first become apparent. Under percentage-of-completion accounting, management must also make key judgments in areas such as percent complete, estimates of project revenues, costs and margin, estimates of total and remaining project hours and liquidated damages assessments. Any deviations from estimates could have a significant positive or negative impact on the Company’s results of operations.

Revenues for the Auxiliary Power Equipment product line are recognized under the completed-contract method due to the short-term nature of the production period. Generally, these contracts specify separate phases of work which are frequently contracted separately. Under this method, no revenue can be recognized until the contract phase is substantially complete, at which time revenue is recognized and costs previously deferred are charged to expense. Also, for revenue to be recognized, the customer takes risk of loss and title, and the installation is operating according to specifications or has been accepted by the customer. As with the Heat Recovery Equipment product line, changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to job costs and income amounts that are different than amounts originally estimated.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Revenues for the Industrial Services business that are not recognized on the percentage-of-completion method are primarily for routine service contracts. Under these arrangements, the Company recognizes revenue when services are performed and the customer assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Specifically, the revenues under these contracts are recognized as the services are performed based upon an agreed-upon price for the completed service or based upon the hours incurred and agreed upon hourly rates. On cost reimbursable contracts, revenue is recognized as costs are incurred and includes applicable fees earned through the date services are provided.

In the fourth quarter of 2006, upon approval by the Bankruptcy Court, the Company initiated a wind down of Deltak’s (a subsidiary of the Company, based in Plymouth, Minnesota) large-scale HRSG product line and Deltak entered into completion agreements with certain HRSG customers to complete executory contracts for delivery of HRSG units. Certain of the HRSG contracts under completion agreements were in a positive cash position as of the Chapter 11 filing date since aggregate collections of billings exceeded aggregate project costs. The recognition of this excess was deferred until such time as the earnings process is considered completed through satisfaction of the performance milestones under the completion agreements. This amount is included in income from discontinued operations in the accompanying condensed consolidated statements of operations, net of estimates of liquidated damage claims accrued for these contracts. Deferred amounts are reported in the accompanying consolidated balance sheets as deferred revenue. The excess of collections of billings over aggregate project costs for these contracts will be recognized as Deltak meets the performance milestones as specified for avoiding the liquidated damage claims. During the three months ended March 31, 2010 and 2009, the Company recognized such excess as follows (in thousands):

 

     For the Three Months Ended
March 31,
     2010    2009

Deferred revenue recognized

   $ 899    $ 45

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Actual results could vary materially from those estimates.

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and on deposit with initial maturities of three months or less. The Company maintains cash in depository accounts at various FDIC insured banks and financial institutions. Although the Company maintains cash balances in excess of the FDIC insured limits, management believes this risk is mitigated by using financial institutions that are rated investment grade according to credit rating agencies.

Accounts Receivable: Accounts receivable are reported net of allowance for doubtful accounts and discounts. The allowance is based on current market conditions, review of specific customer economics and other estimates based on the judgment of management. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not generally charge interest on outstanding amounts.

The Company has certain customers that represent more than 10 percent of consolidated accounts receivable. The balance for these customers as a percentage of the consolidated accounts receivable is as follows:

 

Customer

   March 31,
2010
    December 31,
2009
 

Entergy Services Inc.

   20   35

Southern Nuclear Company

   11   12

General Electric Company

   11   —     

Inventories: Inventories consist primarily of raw materials and are stated at the lower of first-in, first-out cost or market, net of applicable reserves.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Goodwill: The Company has made acquisitions in the past that included the recognition of goodwill, which was determined based upon previous accounting principles. Pursuant to Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 350, Intangibles-Goodwill and Other , beginning January 1, 2009, the Company records as goodwill the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. We evaluate goodwill for impairment at least annually, or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability. During the three months ended March 31, 2010, no triggering events occurred that would require interim impairment testing.

Major Customers: The Company has certain customers that represent more than 10 percent of consolidated revenues. The revenue for these customers as a percentage of the consolidated revenues is as follows:

 

     Three Months Ended March 31,  
     2010     2009  

Entergy Services Inc.

   30   —     

Southern Nuclear Company

   29   16

General Electric Company

   —        17

All others

   41   67
            

Total

   100   100
            

Customers for the Products Division include OEMs, engineering and construction firms, operators of power generation facilities and firms engaged across several process related industries. Customers for the Services Division are varied, but do include some major utility companies within the United States. The Company’s major customers vary over time due to the relative size and duration of the Company’s projects.

Cost of Revenues: Cost of revenues for both Products and Services primarily include charges for materials, direct labor and related benefits, freight (inbound and outbound), direct supplies and tools, warehousing costs and utilities related to production facilities, purchasing and receiving costs, inspection costs, internal transfer costs, and, where appropriate, an allocation of overhead.

Warranty Costs: Estimated costs related to product warranty are accrued as the related revenue is recognized and included in cost of revenues. Estimated costs are based upon past warranty claims and sales history. Warranty terms vary by contract but generally provide for a term of three years or less. The Company manages its exposure to warranty claims by having its field service and quality assurance personnel regularly monitor projects and maintain ongoing and regular communications with the customers.

Shipping and Handling Costs: We account for shipping and handling costs in accordance with ASC 605-45, Principal Agent Considerations. Amounts billed to customers in sale transactions related to shipping and handling costs are recorded as revenue. Shipping and handling costs incurred by us are included in cost of sales in the Consolidated Statements of Operations.

Advertising Costs: We account for advertising costs in accordance with ASC 705-35, Advertising Costs. Generally, advertising costs are immaterial and are expensed as incurred in Selling and General Administrative Expense.

Selling and Administrative expense: Selling and administrative expenses are primarily comprised of indirect labor and related benefits, legal and professional fees, indirect utilities, office rent, bad debt expense, and indirect travel and related expenses.

Reorganization Items: The Company successfully exited Chapter 11 on January 22, 2008. The accompanying condensed consolidated financial statements have been presented in conformity with the provisions of ASC 852, Reorganizations . Accordingly, all pre-petition liabilities of the Debtor that are subject to compromise are segregated in the accompanying condensed consolidated balance sheets as liabilities subject to compromise. These liabilities are recorded at amounts or claims allowed by the Bankruptcy Court. ASC 852 also requires that reorganization items (direct and incremental costs, such as professional fees incurred in Chapter 11 cases) be segregated as a separate line item in the statements of operations.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

The Company’s reorganization items are as follows (in thousands):

 

     Three Months Ended March 31,  
     2010    2009  

Professional fees

   $ 286    $ 246   

Change in estimate of liabilities subject to compromise

     220      (378
               

Total

   $ 506    $ (132
               

Income from Discontinued Operations : During the three months ended March 31, 2010 and 2009, the Company earned income from discontinued operations due to the winding down of the large scale HRSG operations (see note 2 – revenue recognition). The following table summarizes the income from discontinued operations (in thousands):

 

     Three Months Ended March 31,  
     2010     2009  

Income from discontinued operations

   $ 1,086      $ 673   

Related tax expense

     (27     (55
                

Income from discontinued operations

   $ 1,059      $ 618   
                

Income Taxes: The current provision for income taxes is based on current federal, foreign and state statutory rates which are adjusted based on changes in tax laws and significant fluctuations in taxable income. The overall effective income tax rate for the three months ended March 31, 2010 and 2009, is as follows:

 

     Three Months Ended March 31,  
     2010     2009  

Effective income tax rate

   13.9   8.8

The effective income tax rate differs from the statutory federal income tax rate of 35% primarily because of state and foreign income taxes, deferred taxes on indefinite life intangibles, changes in the valuation allowance and utilization of net operating loss carry forwards.

Effective January 1, 2007, the Company adopted provisions of ASC 740-10, Income Taxes . As of December 31, 2009, the Company provided for a liability of $3.8 million for unrecognized tax benefits related to various federal, foreign and state income tax matters which is included in Other long-term liabilities. If recognized, the entire amount of the liability would affect the effective tax rate. There was no change to this balance during the three months ended March 31, 2010.

Derivative Financial Instruments: ASC 815, Derivatives and Hedging , requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. For derivatives designated as hedges, changes in the fair value are either offset against the change in fair value, for the risk being hedged, of the assets and liabilities through earnings, or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings.

The Company uses financial instruments in the management of its foreign currency exchange exposures. These financial instruments are considered derivatives under ASC 815, but do not meet hedge accounting requirements. Therefore, the Company recognizes changes in fair values of the forward agreements through selling and administrative expenses.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

The following table summarizes the forward contracts at March 31, 2010, all of which mature during 2010 (in thousands):

 

Functional Currency

  

Currency Hedged

(bought or sold

forward)

   Hedged Foreign
Currency  Exposure
(In equivalent U.S.
Dollars)
   Notional Amount  of
Forward Buy
Contracts  (in
equivalent U.S.
Dollars)
   Notional Amount of
Forward Sell
Contracts (in
equivalent U.S.
Dollars)

Euro

   U. S. Dollars    $ 3,258    $ 3,258    $ —  

U.S. Dollars

   Mexican Pesos      1,247      1,247      —  

U.S. Dollars

   Euro      7,372      —        7,372

U.S. Dollars

   South Korean Won      3,404      —        3,404
                       
   Total    $ 15,281    $ 4,505    $ 10,776
                       

The following table summarizes the forward contracts at December 31, 2009:

 

Functional Currency

  

Currency Hedged

(bought or sold

forward)

   Hedged Foreign
Currency  Exposure
(In equivalent U.S.
Dollars)
   Notional Amount of
Forward Buy
Contracts (in
equivalent U.S.
Dollars)
   Notional Amount of
Forward Sell
Contracts (in
equivalent U.S.
Dollars)

Euro

   U. S. Dollars    $ 3,258    $ 3,258    $ —  

U.S. Dollars

   Mexican Pesos      1,542      1,542      —  

U.S. Dollars

   Euro      8,175      —        8,175

U.S. Dollars

   South Korean Won      3,188      —        3,188
                       
  

Total

   $ 16,163    $ 4,800    $ 11,363
                       

The notional amount provides one measure of the transaction volume outstanding as of the balance sheet date. Amounts ultimately realized upon final settlement of these financial instruments, along with the gains and losses on the underlying exposures within our forward contracts, will depend on actual market exchange rates during the remaining life of the instruments.

In March 2008, the Company entered into an interest rate swap agreement to convert $60 million of the Credit Facility variable interest payments to a fixed rate of 2.97% which terminated in March 2010. The interest rate swap agreement constituted a cash flow hedge and satisfied the criteria for hedge accounting prescribed by ASC 815.

The following tables show the impact of derivatives on the Company’s condensed consolidated balance sheets (in thousands):

As of

 

     March 31, 2010    December 31, 2009
     Balance Sheet
Location
   Fair Value    Balance Sheet
Location
   Fair Value

Foreign exchange contracts

   Other current
liabilities
   $ 235    Other current

liabilities

   $ 570

Interest rate contracts

   —        —      Other current

liabilities

     408

Loss on interest rate contract derivative (effective portion), net of tax

   —        —      Other

comprehensive

income

     185

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

The following tables show the impact of derivatives not designated as hedging instruments on the Company’s statements of operations (in thousands):

 

Derivatives Not Designated as Hedging
Instruments under ASC 815-10

  

Location of Gain

(Loss) Recognized on

Derivatives

   Amount of Gain Recognized
on Derivatives for the Three  Months
Ended March 31,
      2010    2009
Foreign exchange contracts    Selling and administrative expenses    $ 335    $ 92
                
Total       $ 335    $ 92
                

Fair Value of Financial Instruments: In September 2006, the FASB issued ASC 820, Fair Value Measurements and Disclosures . ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company adopted certain of the provisions of ASC 820 on January 1, 2008. Although the adoption of ASC 820 did not materially impact its financial condition, results of operations, or cash flow, the Company is required to provide additional disclosures as part of its financial statements. ASC 820 establishes a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in the active markets for identical assets and liabilities and the lowest priority to unobservable inputs.

The following table shows assets and liabilities measured at fair value as of March 31, 2010, on the Company’s condensed consolidated balance sheet, and the input categories associated with those assets and liabilities (in thousands):

 

           Fair Value Measurements at Reporting Date Using

Description

   Total Fair Value
Assets  (Liabilities)
at

March 31, 2010
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant Other
Observable  Inputs

(Level 2)
    Significant
Unobservable
Inputs

(Level 3)

Foreign exchange contracts

   $ (235   $ —      $ (235   $ —  
                             

Total

   $ (235   $ —      $ (235   $ —  
                             

The following table shows assets and liabilities measured at fair value as of December 31, 2009, on the Company’s consolidated balance sheet, and the input categories associated with those assets and liabilities (in thousands):

 

           Fair Value Measurements at Reporting Date Using

Description

   Total Fair Value
Assets  (Liabilities)
at

December 31, 2009
    Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
   Significant Other
Observable  Inputs

(Level 2)
    Significant
Unobservable

Inputs
(Level 3)

Foreign exchange contracts

   $ (570   $ —      $ (570   $ —  

Interest rate contracts

     (408     —        (408     —  
                             

Total

   $ (978   $ —      $ (978   $ —  
                             

The fair value of the foreign exchange contracts is calculated using the foreign exchange rate at the end of the period and the notional amounts as determined in the forward contract. The Company uses the calculated fair values to adjust the asset or liability as appropriate.

The fair value of interest rate swaps is calculated using proprietary models utilizing observable inputs as well as future assumptions related to interest rates and other applicable variables. These calculations are performed by the financial institutions which are counterparties to the applicable swap agreements and reported to the Company on a monthly basis. The Company uses these reported fair values to adjust the asset or liability as appropriate.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

The Company’s financial instruments consist primarily of cash and cash equivalents, receivables, payables, and debt instruments. The carrying values of these financial instruments approximate their respective fair values as they are either short-term in nature or carry interest rates which are periodically adjusted to market rates.

ASC 820 requires that companies provide a reconciliation of the beginning and ending balances for Level 3 assets and liabilities measured at fair value. Since the Company has no Level 3 assets or liabilities, no reconciliation is necessary.

Adoption of New Accounting Standards: In December 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-17, “Consolidations (ASC Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU 2009-17”), which is effective for annual periods beginning after November 15, 2009. ASU 2009-17 requires Company management to consider a variable entity’s purpose and design and the Company’s ability to direct the activities of the variable interest entity that most significantly impact such entity’s economic performance when determining whether such entity should be consolidated. The Company adopted the provisions of ASU 2009-17 as required on January 1, 2010. The provisions had no impact on the Company’s consolidated financial position or results of operations upon adoption.

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements” which amends ASC Subtopic 820, “Fair Value Measurements and Disclosures” (“ASU 2010-06”) to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. ASU 2010-06 also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The Company adopted the provisions of ASU 2010-06 as required on January 1, 2010. See Note 2 for required disclosure.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

NOTE 3 – EARNINGS PER SHARE

Basic and diluted earnings per common share are calculated as follows (all share and per share numbers reflect our June 30, 2010, 1-for-9 reverse stock split) (in thousands, except for share and per share data):

 

     Three Months Ended March 31,
     2010    2009

Basic Earnings Per Common Share:

     

Income from continuing operations

   $ 10,106    $ 12,016

Income from discontinued operations

     1,059      618
             

Net income available to common shareholders

   $ 11,165    $ 12,634
             

Weighted Average Shares Outstanding

     15,230,109      14,993,103
             

Income from continuing operations

   $ 0.66    $ 0.80

Income from discontinued operations

     0.07      0.04
             

Basic earnings per common share

   $ 0.73    $ 0.84
             

Diluted Earnings Per Common Share:

     

Income from continuing operations

   $ 10,106    $ 12,016

Income from discontinued operations

     1,059      618
             

Net income available to common shareholders

   $ 11,165    $ 12,634
             

Weighted Average Shares Outstanding

     15,230,109      14,993,103

Dilutive effect of unvested Restricted Stock Units to purchase common stock

     300,946      261,086

Dilutive effect of warrants

     512,280      —  
             

Weighted Average Shares Outstanding Assuming Dilution

     16,043,335      15,254,190
             

Income from continuing operations

   $ 0.63    $ 0.79

Income from discontinued operations

     0.07      0.04
             

Diluted earnings per common share

   $ 0.70    $ 0.83
             

Restricted Stock Awards. All common shares granted under the 2008 Director’s Equity Incentive Plan are included in the Weighted Average Common Shares Outstanding upon vesting. If the award is forfeited before the vesting period has expired, the forfeited shares are included as treasury shares.

Restricted Stock Units . All common shares underlying restricted stock units granted under the 2008 Management Incentive Plan are issued as the units vest. Therefore, only the vested units/issued shares are included in the Weighted Average Common Shares Outstanding for each period. Unvested restricted stock units are contingently issuable and included, under the treasury method, in the calculation for dilutive effect of unvested RSUs to purchase common shares.

Diluted earnings per share include the potentially dilutive effect of outstanding Warrants which are convertible to common stock. At March 31, 2009, there were 1,807,223 shares of stock Warrants excluded from this calculation because the exercise price was greater than the average market price of the common shares.

 

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

NOTE 4 – DEBT

Credit Facility : The Company has a $150 million Credit Facility (“Credit Facility”) consisting of a $60 million revolving letter of credit facility, including a $25 million cash advance sub-facility, and a $90 million term loan facility. The Credit Facility is due and payable on January 22, 2014 and has mandatory amortization payments on the term loan facility of approximately $1.3 million per quarter and a sweep of 50 – 75% of excess cash flow, as defined in the Credit Facility. In January, 2010, the Company paid all of the mandatory amortization payments due for 2010 as part of the third amendment to the Credit Facility.

At March 31, 2010 and December 31, 2009, the Credit Facility consisted of the following (in thousands):

 

     March 31,
2010
   December 31,
2009

Credit Facility

   $ 24,633    $ 65,325

Less:

     

Current maturities of long-term debt

     

Quarterly installments

     1,250      5,000

Excess cash flow sweep (due April 2010)

     —        35,692
             

Long-term debt, net of current maturities

   $ 23,383    $ 24,633
             

The interest rate on the Credit Facility was 7.8% as of March 31, 2010. Letters of credit issued under the revolving letter of credit facility bear interest at 3.82% at March 31, 2010. The Company also pays an unused line fee of 0.50%.

The Credit Facility includes customary affirmative and negative covenants, such as limitations on the creation of new indebtedness and on certain liens, restrictions on certain transactions and payments and requires maintenance of a minimum consolidated leverage ratio, consolidated fixed charge ratio and liquidity. A default under the Credit Facility may be triggered by events such as a failure to comply with financial covenants or other covenants under the Credit Facility, a failure to make payments when due under the Credit Facility, a change of control of the Company or certain insolvency proceedings. A default under the Credit Facility would permit the participating banks to restrict the Company’s ability to further access the Credit Facility for loans, require the immediate repayment of any outstanding loans with interest and require the cash collateralization of outstanding letter of credit obligations. The Credit Facility is secured by a first priority lien on substantially all assets of the Company.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

Employment Agreements : The Company entered into employment agreements with terms of two to three years with certain members of management with automatic one-year renewal periods at expiration dates. The agreements provide for, among other things, compensation, benefits and severance payments.

Litigation : The Company is involved in legal actions which arise in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, in the opinion of management, the resolution of any currently pending actions will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

The Company is involved in a dispute with a Deltak customer involving the sale of HRSG units stemming from a purchase order dated in January 2006. In March 2007, the customer filed a proof of claim against the Company asserting claims for costs to complete the project totaling approximately $55 million. In addition, the customer filed an objection to the Company’s Plan. In December 2007, the Bankruptcy Court (i) sustained the Company’s objection with respect to the customer’s claim and disallowed its guaranty claim against Global Power, (ii) entered an order overruling the customer’s objection to the Plan and (iii) estimated its claim for the Plan voting purposes at $7 million. On December 27, 2007, the customer filed a notice of appeal. Subsequently, the customer has dropped its appeal on the overruled objection to the Company’s plan. On December 16, 2008, the U.S. District Court for the District of Delaware affirmed the Bankruptcy Court’s order on all issues. On January 12, 2009, the customer filed an appeal of this ruling to the 3rd Circuit Court of Appeals, and that process is now ongoing. If the Company is successful, the customer’s claim will be treated as a general unsecured claim, which under the terms of the Plan, is entitled only to share in the $34 million fund reserve.

 

F - 39


Table of Contents

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

We have been named as a defendant in less than ten asbestos personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos from a variety of sources, and in each case to date, we have been one of multiple named defendants. Neither the Company, nor its predecessors, ever mined, manufactured, produced or distributed asbestos fiber, the material that allegedly caused the injury underlying the lawsuits. To date, we have been successful in having claims against us in these asbestos cases dismissed without liability. However, various factors, including, without limitation, potential insolvencies of insurance companies or other defendants, could cause a different outcome in the future. As such, there can be no assurance that the ultimate resolution of any such future asbestos lawsuits will not have a material adverse effect on our financial position, results of operations or liquidity.

Contingencies: At March 31, 2010, the Company had a contingent liability for issued and outstanding stand-by letters of credit, generally issued to secure performance on customer contracts. The balance of stand-by letters of credit totaled approximately $21.9 million for the domestic entities and $12.2 million (US dollars) for foreign entities at March 31, 2010. Currently, there are no amounts drawn upon these letters of credit. In addition, at March 31, 2010, the Company had outstanding surety bonds on projects of approximately $8.5 million.

In light of the recent credit market crisis, the Company evaluated its banking relationships with regard to cash and available credit. The Company and its subsidiaries maintain cash in depository accounts at various FDIC insured banks and financial institutions. Although the Company and its subsidiaries maintain cash balances in excess of the FDIC insured limits, management believes this risk is mitigated by using financial institutions that are rated investment grade according to credit rating agencies. To the extent that the credit crisis affects the counterparties in the revolver facility, the Company may have difficulty accessing all the available credit under this facility.

NOTE 6 – STOCKHOLDERS’ EQUITY

 

     Common Shares
$0.01 Per Share
   Paid-in
Capital
(Deficit)
   Accumulated
Other
Comprehensive
Income
    Retained
Earnings
   Treasury Shares     Total  
                 

(in thousands, except share amounts)

   Shares    Amount            Shares     Amount    

Balance, December 31, 2009

   15,263,066    $ 1,374    $ 61,459    $ 2,655      $ 70,994    (42,340   $ (4     136,478   

Stock-based compensation

   19,776      1      452      —          —      —          —          453   

Forfeiture of restricted shares

   —        —        —        —          —      (2,136     —          —     

Other comprehensive income:

                    

Net income

   —        —        —        —          11,165    —          —          11,165   

Fair value of interest rate swap

   —        —        —        185        —      —          —          185   

Foreign currency translation

   —        —        —        (1,405     —      —          —          (1,405
                          

Comprehensive income

                       9,945   
                                                        

Balance, March 31, 2010

   15,282,842    $ 1,375    $ 61,911    $ 1,435      $ 82,159    (44,476   $ (4   $ 146,876   
                                                        

Restricted Stock Awards: Pursuant to the 2008 Director’s Equity Incentive Plan, the Company is permitted to award restricted stock which are shares of common stock that are issued subject to specified restrictions on transfer, forfeiture and/or such other restrictions on incidents of ownership determined by the Compensation Committee. On January 22, 2009, the Company issued 26,144 shares of restricted stock under the 2008 Director’s Equity Incentive Plan at a grant date fair value of $5.76 per share which approximated the quoted market price of the common stock on that date (all share numbers reflect our June 30, 2010, 1-for-9 reverse stock split). Vesting of this restricted stock is based on certain service conditions over a four year period. In connection with the grant, the Company recorded expense of $0.01 million for the three months ended March 31, 2010, and will recognize an aggregate of $0.07 million of expense over the next two years.

On February 9, 2009, the Company issued 34,722 shares of restricted stock under the 2008 Director’s Equity Incentive Plan at a grant date fair value of $4.95 per share which approximated the quoted market price of the common stock on that date. Vesting of this restricted stock is based on certain service conditions over a four year period. In connection with the grant, the Company recorded expense of $0.01 million for the three months ended March 31, 2010, and will recognize an aggregate of $0.12 million of expense over the next three years.

 

F - 40


Table of Contents

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

On February 9, 2010, the Company granted 17,361 shares of restricted stock under the 2008 Director’s Equity Incentive Plan at a grant date fair value of $15.75 per share. Vesting of this restricted stock is based on certain service conditions over a four year period. In connection with the grant, the Company recorded expense of $0.01 million for the three months ended March 31, 2010 and will recognize an aggregate of $0.26 million of expense over the next four years.

Stock-based Compensation: On June 23, 2008, the Company granted 581,546 Restricted Stock Units (each such unit, a “RSU”) under the 2008 Management Incentive Plan pursuant to RSU Award Agreements executed by each beneficiary of the grant (the “RSU Award Agreement”). In connection with this grant, the Company recognized $0.1 million in expense for the three months ended March 31, 2010 related to these RSUs. In addition, on March 2, 2010, the Company issued 7,935 shares of Restricted Stock to the recipients of RSU awards according to specific separation agreements.

On February 9, 2009, the Company granted 540,008 RSUs with a grant date fair value of $4.95 per unit under the 2008 Management Incentive Plan. In addition, on September 14, 2009, the Company granted 83,333 RSUs with a grant date fair value of $10.80 per unit under the 2008 Management Incentive Plan. Grants of RSUs under the 2008 Management Incentive Plan are valued in terms of the fair value of the Company’s common stock at date of grant, however, common stock is not issued at the time of the grant. Vesting of RSUs is based on certain performance and service conditions over a four year period. The Company recognizes compensation cost for awards with performance conditions if and when the Company concludes that it is probable that the performance condition will be achieved, net of an estimate of pre-vesting forfeitures. The Company recognizes compensation cost for awards with service condition throughout the vesting term, net of an estimate of pre-vesting forfeitures. Restricted shares are issued to plan participants as vesting requirements are satisfied. In connection with this grant, the Company recognized $0.2 million of expense for the three months ended March 31, 2010, related to these RSUs. Additionally, on March 2, 2010, the Company issued 11,842 shares of Restricted Stock to the recipients of RSU awards according to specific separation agreements.

Management Co-Investment Plan: On January 22, 2008, members of management were offered the opportunity to purchase shares of the new common stock (up to an aggregate amount of $1.5 million) at the share price of $7.65 per share. With each purchase of two shares of new common stock, an additional share of restricted stock (each an “Incentive Share”) was issued. The Company recognized $0.03 million in expense related to the Incentive Shares during the three months ended March 31, 2010 with the remaining compensation expense of $0.14 million to be recognized over the remaining vesting period. At March 31, 2010, 2,136 shares of common stock issued under the Management Co-Investment Plan were forfeited by members of management who terminated their employment with the Company prior to meeting the vesting requirements. These shares are held as treasury shares.

Fair Market Value of Interest Rate Swap: On March 28, 2008, the Company entered into a swap agreement to convert $60 million of the Credit Facility variable interest payments to fixed rates. On March 31, 2010, the swap agreement expired resulting in additional accumulated comprehensive income of $0.2 million. See Note 2 for a discussion of the interest rate swaps.

Foreign Currency Translation: Foreign assets and liabilities are translated using the exchange rate in effect at the balance sheet date, and results of operations are translated using an average rate for the period. Translation adjustments are accumulated and reported as a component of accumulated other comprehensive income. The amount of accumulated comprehensive loss related to foreign currency translation was $1.4 million at March 31, 2010

NOTE 7 – SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow disclosures are as follows (in thousands):

 

     Three Months Ended March 31,
     2010    2009

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

     

Cash paid during the period for:

     

Interest

   $ 1,257    $ 2,438

Income taxes

     132      183

 

F - 41


Table of Contents

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

NOTE 8 – SEGMENT INFORMATION

The “Management Approach” called for by ASC 280, Segment Reporting , has been used by Company management to present the segment information which follows. The Company considered the way its management team makes operating decisions and assesses performance and considered which components of its enterprise have discrete financial information available. Management makes decisions using a products and services group focus and its analysis resulted in two operating segments, Products Division and Services Division. The Company evaluates performance based on net income or loss not including certain items as noted below. Intersegment revenues and transactions were not significant. Interest expense is allocated based on the amount of capital employed for each division. Corporate assets consist primarily of cash and deferred tax assets.

The following table presents information about segment income (in thousands):

 

     Products Division
Three Months Ended
March 31,
   Services Division
Three Months Ended
March 31,
     2010    2009    2010    2009

Revenues

   $ 35,054    $ 57,425    $ 122,096    $ 68,549

Interest expense

     1,103      1,511      1,054      1,158

Depreciation and amortization

     504      411      536      539

Income tax provision

     391      781      1,238      372

Segment income

     1,731      8,599      8,881      3,285

Total Assets

   $ 132,087    $ 149,356    $ 122,324    $ 101,100

The following table presents information, which reconciles segment information to consolidated totals (in thousands):

 

     March 31,
2010
   December 31,
2009

Assets:

     

Total segment assets

   $ 254,411    $ 254,512

Non allocated corporate assets

     39,294      74,708
             

Total consolidated assets

   $ 293,705    $ 329,220
             

 

F - 42


Table of Contents

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

The following table presents information, which reconciles segment information to consolidated totals (in thousands):

 

     Three Months Ended March 31,
     2010     2009

Net income:

    

Total segment income

   $ 10,612      $ 11,884

Income from discontinued operations

     1,059        618

Reorganization (expense) income

     (506     132
              

Consolidated net income

   $ 11,165      $ 12,634
              

The following presents revenues by geographical region based on the Company’s operating locations. Products are often shipped to other geographical areas but revenues are listed in the region in which the revenue is recognized (in thousands):

 

     Three Months Ended March 31,
     2010    2009
     Revenue
Recognized In
   Product
Shipped To
   Revenue
Recognized In
   Product
Shipped  To

United States

   $ 144,669    $ 129,786    $ 116,515    $ 89,135

Canada

     —        2,096      —        1,383

Europe

     9,228      3,502      6,089      4,737

Mexico

     1,592      —        3,187      —  

Asia

     1,661      6,062      183      4,578

Middle East

     —        10,323      —        23,332

Other

     —        5,381      —        2,809
                           

Total

   $ 157,150    $ 157,150    $ 125,974    $ 125,974
                           

NOTE 9 – SUBSEQUENT EVENTS

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2010, for items that should potentially be recognized in these financial statements. The evaluation was conducted through July 13, 2010, the date these financial statements were issued.

On April 2, 2010, the Company issued 184,207 shares of Restricted Stock to participants of the 2008 Managements Incentive Plan according to the vesting requirements of the RSU Award (unaudited).

On April 22, 2010, the Company held its Annual Meeting of Stockholders in New York for the purpose of (a) electing directors and (b) approving a reverse stock split as described in the Company’s proxy statement; both measures were approved (unaudited).

On April 30, 2010, the Company filed Registration Statement on Form 10 with the Securities and Exchange Commission (unaudited).

On June 11, 2010, the Company filed Amended Registration Statement on Form 10 with the Securities and Exchange Commission (unaudited).

On June 30, 2010, the Company filed an amendment to its Certificate of Incorporation to implement a 1-for-9 reverse stock split of all outstanding shares of its common stock. The Company effected the reverse stock split in order to satisfy the minimum price per share requirements for listing its stock on the NASDAQ Global Market (unaudited).

 

F - 43

Exhibit 3.2

CERTIFICATE OF AMENDMENT

TO

THE SECOND AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

GLOBAL POWER EQUIPMENT GROUP INC.

Global Power Equipment Group Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the Delaware General Corporation Law, hereby certifies as follows:

1. At a meeting of the Board of Directors of the Corporation resolutions were duly adopted setting forth this proposed Certificate of Amendment to the Corporation’s Second Amended and Restated Certificate of Incorporation, declaring said amendment to be advisable and calling a meeting of the stockholders of the Corporation for consideration thereof.

2. Pursuant to Section 242 of the Delaware General Corporation Law and the resolution of the Board of Directors of the Corporation, this Certificate of Amendment hereby amends the provisions of the Corporation’s Second Amended and Restated Certificate of Incorporation by adding a new paragraph between the first and the second paragraphs of Article FOUR of the Corporation’s Second Amended and Restated Certificate of Incorporation reading in its entirety as follows:

“Effective as of the close of business, Eastern Time, on the date of filing of this Certificate of Amendment with the Secretary of State of the State of Delaware (the “Effective Time”), each nine outstanding shares of the Corporation’s Common Stock, par value $0.01 per share, shall automatically and without any action on the part of the respective holders thereof be exchanged and combined into one (1) share of Common Stock, par value $0.01 per share. At the Effective Time, there shall be no change in the number of authorized shares that the Corporation shall have the authority to issue. No fractional shares shall be issued in connection with the combination. In lieu thereof, any person who holds a fraction of one (1) share of Common Stock after the combination shall be entitled to receive cash for such person’s fractional share based upon the closing sales price of the Corporation’s Common Stock, as reported on the Pink Sheets, on the last trading day prior to the Effective Time.”

3. Pursuant to the resolution of the Board of Directors of the Corporation, an annual meeting of the stockholders of the Corporation was duly called and held upon notice in accordance with Section 222 of the Delaware General Corporation Law at which meeting the necessary number of shares as required by statute were voted in favor of this Certificate of Amendment.

4. This Certificate of Amendment to the Corporation’s Second Amended and Restated Certificate of Incorporation was duly adopted by the stockholders of the Corporation in accordance with the provisions of Section 242 of the Delaware General Corporation Law.

[Signature Page Follows]


IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by the undersigned, its authorized officer, on this 30th day of June, 2010.

 

GLOBAL POWER EQUIPMENT GROUP INC.
By:  

/s/ Tracy D. Pagliara

Name:   Tracy D. Pagliara
Title:  

General Counsel, Secretary and

Vice President of Business Development

Exhibit 10.1

*** TEXT OMITTED

AND FILED SEPARATELY

CONFIDENTIAL TREATMENT

REQUESTED

CREDIT AGREEMENT

by and among

GLOBAL POWER EQUIPMENT GROUP INC.,

as the Borrower

and

the other Credit Parties hereto from time to time,

as Guarantors

and

the LENDERS party hereto from time to time

and

MORGAN STANLEY SENIOR FUNDING, INC.,

as Lead Arranger, Bookrunner and Administrative Agent

and

MORGAN STANLEY & CO. INCORPORATED,

as Collateral Agent

and

THE CIT GROUP/BUSINESS CREDIT INC.,

as Syndication Agent and Revolving Agent

and

GENERAL ELECTRIC CAPITAL CORPORATION,

as Documentation Agent

Dated as of January 22, 2008


TABLE OF CONTENTS

 

       Page
ARTICLE I
THE FACILITY

Section 1.01.

   Revolving Loans    2

Section 1.02.

   Term Loans    4

Section 1.03.

   Use of Proceeds    6

Section 1.04.

   Promise to Pay    6

Section 1.05.

   Notes    6

Section 1.06.

   Letters of Credit    7

Section 1.07.

   Intentionally Omitted    11

Section 1.08.

   Intentionally Omitted    11

Section 1.09.

   Allocation of Proceeds of Collateral and Payments    11

Section 1.10.

   Limitations on LIBOR Loans    14
ARTICLE II
PAYMENTS AND OTHER COMPENSATION

Section 2.01.

   Voluntary Prepayments/Reductions of Commitments    14

Section 2.02.

   Mandatory Prepayments    15

Section 2.03.

   Prepayment Fees    16

Section 2.04.

   Payments    17

Section 2.05.

   Taxes    18
ARTICLE III
INTEREST

Section 3.01.

   Interest on the Loans and Other Obligations    20

Section 3.02.

   Conversion or Continuation    21

Section 3.03.

   Break Funding Payments    22

Section 3.04.

   Increased Costs; Illegality    22

Section 3.05.

   Replacement of Lenders    24

Section 3.06.

   Fees    24
ARTICLE IV
CONDITIONS TO LOANS

Section 4.01.

   Conditions Precedent to the Initial Loans    25

Section 4.02.

   Conditions Precedent to Revolving Loans and Issuances, Renewals or Extensions of Letters of Credit    30

Section 4.03.

   Post Closing Ratings Condition    31

 

i


ARTICLE V
REPRESENTATIONS AND WARRANTIES

Section 5.01.

   Representations and Warranties    31
ARTICLE VI
REPORTING COVENANTS

Section 6.01.

   Financial Statements    41

Section 6.02.

   Other Financial Information    43

Section 6.03.

   Defaults, Events of Default    44

Section 6.04.

   Lawsuits    44

Section 6.05.

   Insurance    44

Section 6.06.

   Environmental Notices    45

Section 6.07.

   Labor Matters    45

Section 6.08.

   Other Information    45
ARTICLE VII
AFFIRMATIVE COVENANTS

Section 7.01.

   Compliance with Laws    46

Section 7.02.

   Payment of Taxes and Claims    46

Section 7.03.

   Preservation of Corporate Existence    47

Section 7.04.

   Inspection of Property; Books and Records; Discussions    47

Section 7.05.

   Maintenance of Properties    47

Section 7.06.

   Further Assurances    48

Section 7.07.

   Additional Security; Additional Guarantees; Further Assurances    48

Section 7.08.

   Powers; Conduct of Business    50

Section 7.09.

   Use of Proceeds    50

Section 7.10.

   Environmental    50

Section 7.11.

   Fiscal Year    50

Section 7.12.

   Maintenance of Insurance    50

Section 7.13.

   Change in Collateral; Collateral Records    51

Section 7.14.

   Formation of Subsidiaries    51

Section 7.15.

   Cash Management    51
ARTICLE VIII
NEGATIVE COVENANTS

Section 8.01.

   Liens    52

 

ii


Section 8.02.

   Investments    54

Section 8.03.

   Indebtedness    55

Section 8.04.

   Fundamental Changes and Acquisitions    56

Section 8.05.

   Dispositions    57

Section 8.06.

   Restricted Payments    57

Section 8.07.

   Amendment of Governing Documents    57

Section 8.08.

   Change in Nature of Business    58

Section 8.09.

   Transactions with Affiliates    58

Section 8.10.

   Limitations on Restricted Actions    58

Section 8.11.

   Sale-Leasebacks; Off-Balance Sheet Obligation    58

Section 8.12.

   Impairment of Security Interests    58

Section 8.13.

   Ownership of Subsidiaries and Other Restrictions Relating to the Subsidiaries    59

Section 8.14.

   Limitations on Dividends and Distributions and Other Payment Restrictions Affecting Subsidiaries    59

Section 8.15.

   Limitation on Issuance of Capital Stock    59

Section 8.16.

   Federal Reserve Regulations    60

Section 8.17.

   Investment Company Act of 1940    60

Section 8.18.

   Change Name    60
ARTICLE IX
FINANCIAL COVENANTS

Section 9.01.

   Total Leverage Ratio    60

Section 9.02.

   Fixed Charge Coverage Ratio    61

Section 9.03.

   Minimum Liquidity    62
ARTICLE X
EVENTS OF DEFAULT, RIGHTS AND REMEDIES

Section 10.01.

   Events of Default    63

Section 10.02.

   Remedies    67

Section 10.03.

   Waivers by the Credit Parties    67
ARTICLE XI
GUARANTY OF OBLIGATIONS OF BORROWER

Section 11.01.

   Guaranty    68

Section 11.02.

   Nature of Liability    68

Section 11.03.

   Independent Obligation    69

Section 11.04.

   Demand by the Administrative Agent, the Revolving Agent or the Secured Parties    69

Section 11.05.

   Enforcement of Guaranty    70

 

iii


Section 11.06.

   Waiver    70

Section 11.07.

   Benefit of Guaranty    70

Section 11.08.

   Modification of Guaranteed Obligations, Etc.    71

Section 11.09.

   Reinstatement    71

Section 11.10.

   Waiver of Subrogation, Etc.    72

Section 11.11.

   Election of Remedies    73

Section 11.12.

   Limitation on Amount Guaranteed; Contribution by Guarantors    73

Section 11.13.

   Additional Waivers    73
ARTICLE XII
THE AGENTS

Section 12.01.

   Appointment of Agents    74

Section 12.02.

   Agents’ Reliance, Etc.    75

Section 12.03.

   Agents in Individual Capacities    75

Section 12.04.

   Lender Credit Decision    76

Section 12.05.

   Costs and Expenses; Indemnification    76

Section 12.06.

   Successor Agents    77

Section 12.07.

   Collateral Matters    79

Section 12.08.

   Collateral Restrictions on Actions by the Agents and the Participating Lenders; Sharing Payments    80

Section 12.09.

   Several Obligations; No Liability    80
ARTICLE XIII
MISCELLANEOUS

Section 13.01.

   Notices, Etc.    81

Section 13.02.

   Amendments, Etc.    83

Section 13.03.

   Non-Consenting Lenders; Defaulting Lenders    85

Section 13.04.

   No Waiver; Remedies, Etc.    86

Section 13.05.

   Expenses; Taxes; Attorneys’ Fees    86

Section 13.06.

   Right of Set-Off    87

Section 13.07.

   Severability    87

Section 13.08.

   Complete Agreement; Sale of Interest    87

Section 13.09.

   Binding Effect; Assignment; Register    87

Section 13.10.

   Counterparts    90

Section 13.11.

   GOVERNING LAW    90

Section 13.12.

   CONSENT TO JURISDICTION, SERVICE OF PROCESS AND VENUE    90

Section 13.13.

   WAIVER OF JURY TRIAL, ETC.    91

Section 13.14.

   Consent    91

Section 13.15.

   Interpretation    91

Section 13.16.

   Reinstatement; Certain Payments    91

Section 13.17.

   Indemnification    92

 

iv


Section 13.18.

   Interest    93

Section 13.19.

   Records    94

Section 13.20.

   Confidentiality    94

Section 13.21.

   Lender Advertising    95

Section 13.22.

   Common Enterprise    95

Section 13.23.

   USA PATRIOT ACT    95

Section 13.24.

   Survival of Representations, Warranties Covenants and Obligations    95
ARTICLE XIV
DEFINITIONS; CERTAIN TERMS

Section 14.01.

   Definitions    96

Section 14.02.

   Terms Generally    125

Section 14.03.

   Accounting and Other Terms    125

Section 14.04.

   Time References    125

 

v


CREDIT AGREEMENT

This Credit Agreement, dated as of January 22, 2008 (as it may be amended, restated, modified, supplemented or extended from time to time, including all schedules hereto, or otherwise modified, this “ Agreement ”), by and among GLOBAL POWER EQUIPMENT GROUP INC., a corporation formed under the laws of Delaware (the “ Company ” or the “ Borrower ”), certain Subsidiaries of the Company party hereto from time to time, as Guarantors, the Lenders party hereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., a corporation formed under the laws of Delaware, as lead arranger and bookrunner (in such capacity, the “ Lead Arranger ”) and as administrative agent for the Lenders (in such capacity, together with its successors and assigns, if any, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, a corporation formed under the laws of Delaware, as collateral agent for the Secured Parties (in such capacity, together with its successors and assigns, if any, the “ Collateral Agent ”), THE CIT GROUP/BUSINESS CREDIT, INC. a corporation formed under the laws of Delaware, as syndication agent (in such capacity, the “ Syndication Agent ”) and as revolving agent for the Revolving Lenders (in such capacity, together with its successors and assigns, if any, the “ Revolving Agent ”) and GENERAL ELECTRIC CAPITAL CORPORATION, a corporation formed under the laws of Delaware, as documentation agent.

RECITALS

WHEREAS, on September 28, 2006 (the “ Commencement Date ”) the Borrower and certain of its Subsidiaries filed with the United States Bankruptcy Court for the District of Delaware (the “ Bankruptcy Court ”), voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, Case No. 06-11045 (BLS) (the “ Chapter 11 Cases ”);

WHEREAS, on December 7, 2006, the Borrower entered into a post-petition loan and security agreement (the “ Post-Petition Loan Agreement ”) with the parties thereto;

WHEREAS, on December 21, 2007, the Bankruptcy Court entered an order (the “ Confirmation Order ”) confirming the First Amended Joint Chapter 11 Plan of Reorganization for Global Power Equipment Group Inc. and its Affiliated Debtors (the “ Plan of Reorganization ”);

WHEREAS, pursuant to the Confirmation Order, the Borrower and such Subsidiaries will exit from the Chapter 11 Cases and all claims and liabilities against the Borrower and such Subsidiaries that arose prior to the date of the Confirmation Order will be satisfied, discharged and released in full, except as set forth therein or in the Plan of Reorganization;

WHEREAS, in accordance with the Confirmation Order, the Borrower has requested that the Lenders make available to it the Commitments, on the terms and conditions set forth herein, to, among other things, pay in full all obligations under the Post-Petition Loan Agreement, fund payments required under the Plan of Reorganization and fund working capital requirements and other general corporate purposes of the Borrower and its Subsidiaries;

WHEREAS, the Administrative Agent and the Lenders are willing to make the Loans to the Borrower upon the terms and conditions set forth herein.


NOW THEREFORE, in consideration of the premises and the covenants and agreements contained herein and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I

THE FACILITY

Section 1.01. Revolving Loans .

(a) Revolving Loan Commitments . Subject to the terms and conditions of this Agreement, each Revolving Lender hereby severally agrees to make loans (each a “ Revolving Loan ”), to the Borrower from time to time on any Business Day during the Availability Period in an aggregate principal amount not to exceed at any time such Revolving Lender’s Pro Rata Share of the lesser of (i) ten million Dollars ($10,000,000) or (ii) the Available Commitments; provided that such aggregate principal amount does not result in such Revolving Lender’s Pro Rata Share of the Aggregate Revolving Exposure exceeding such Revolving Lender’s Revolving Commitment as of such date or the Aggregate Revolving Exposure of all Revolving Lenders exceeding the Total Revolving Commitment of all Revolving Lenders; provided further that no Revolving Loans shall be made on the Closing Date. Within the foregoing limits, upon the terms of this Agreement and the other Loan Documents and subject to the conditions set forth in Section 4.02 , from time to time prior to the Maturity Date, the Borrower may borrow, prepay and reborrow Revolving Loans.

(b) Notice of Borrowing Revolving Loans . If the Borrower desires to borrow a Revolving Loan under Section 1.01(a) , the Borrower shall deliver to the Revolving Agent a Notice of Borrowing substantially in the form attached as Exhibit A , signed by the Borrower, not later than 11:00 a.m., New York City time, (i) in the case of a request for an Alternate Base Rate Loan, on the Business Day prior to the proposed Funding Date or (ii) in the case of a request for LIBOR Rate Loans, at least three (3) Business Days prior to the proposed Funding Date. Such Notice of Borrowing shall specify (A) the aggregate principal amount of Revolving Loans to be made on the Funding Date; (B) whether such Revolving Loans shall be comprised of LIBOR Rate Loans or Alternate Base Rate Loans; (C) the proposed Funding Date, which must be a Business Day; and (D) if applicable, the LIBOR Period for such Revolving Loans. The Revolving Loans to be made on any Funding Date shall be in a minimum amount of $250,000 and shall be in an integral multiple of $50,000 in excess thereof. In lieu of delivering such a Notice of Borrowing, the Borrower may give the Revolving Agent telephonic notice of any proposed borrowing by the time required under this Section 1.01(b) if the Borrower confirms such notice by delivery of the Notice of Borrowing to the Revolving Agent promptly, but in no event later than 2:00 p.m., New York City time, on the same day. Each Notice of Borrowing (or telephonic notice in lieu thereof) given pursuant to this Section 1.01(b) shall be irrevocable and binding on the Borrower.

 

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(c) Making the Revolving Loans .

(i) The Revolving Agent shall promptly notify each Revolving Lender of the amount of each borrowing of Revolving Loans. Each Revolving Lender shall deposit into an account specified by the Revolving Agent an amount equal to its Pro Rata Share of the amount of such borrowing in immediately available funds, not later than 10:00 a.m., New York City time, on the Funding Date applicable thereto. Subject to the satisfaction of the conditions precedent set forth in Article IV , the Revolving Agent shall make the proceeds of such amounts received by it available to the Borrower on such Funding Date.

(ii) Except as otherwise provided in this Section 1.01(c)(ii) , all Revolving Loans under this Agreement shall be made by the Revolving Lenders simultaneously and proportionately to their Pro Rata Shares. The failure of any Revolving Lender to deposit the amount described in clause (i) above with the Revolving Agent on the applicable Funding Date shall not relieve any other Revolving Lender of its obligations hereunder to make its Revolving Loan on such Funding Date. No Revolving Lender shall be responsible for any failure by any other Revolving Lender to perform its obligation to make a Revolving Loan hereunder nor shall the Revolving Commitment of any Revolving Lender be increased or decreased as a result of any such failure.

(d) Funding of Revolving Loans . Unless the Revolving Agent shall have received notice from a Revolving Lender, prior to the requested Funding Date for any Revolving Loan, that such Lender will not make available to the Revolving Agent such Revolving Lender’s Pro Rata Share of such Revolving Loan, the Revolving Agent may, but shall not be required to, assume that such Revolving Lender has made such share available on such date in accordance with Section 1.01(c) and may in its sole discretion, but shall not be required to, in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Revolving Lender either does not make its share of the applicable Revolving Loan available to the Revolving Agent or delays in doing so past 4:00 p.m., New York City time, on the Funding Date (such Lender (until it makes such share available) hereinafter referred to as a “ Revolving Defaulting Lender ”), then the Revolving Agent promptly shall notify the Administrative Agent and the Borrower of such default. If the Revolving Agent has, in its sole discretion, made available to the Borrower an amount corresponding to such Revolving Defaulting Lender’s Pro Rata Share of the Revolving Loan, then each of the Revolving Defaulting Lender and the Borrower agrees to pay to the Revolving Agent forthwith on demand such corresponding amount with interest thereon, on each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Revolving Agent, at:

(i) in the case of the Revolving Defaulting Lender, the Federal Funds Rate; or

(ii) in the case of the Borrower, the interest rate applicable to Alternate Base Rate Loans.

If, with respect to the immediately preceding sentence, the Borrower pays such amount (including interest thereon) to the Revolving Agent, then the Revolving Defaulting Lender shall indemnify and hold harmless the Borrower from and against such amount, and if such Revolving Defaulting Lender pays such amount to the Revolving Agent, then such amount shall constitute such Revolving Defaulting Lender’s Revolving Loan.

 

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(e) Repayment of Revolving Loans; Termination of Revolving Commitments . The Borrower shall pay the principal amount of the Revolving Loans in full on the Maturity Date and the Revolving Commitments shall terminate on the Maturity Date.

Section 1.02. Term Loans .

(a) Loan Commitment . Subject to the terms and conditions set forth herein, each Term Lender hereby severally agrees to make a term loan (each, a “ Term Loan ”) in the principal amount set forth opposite each such Term Lender’s name on Schedule A hereto to the Borrower on the Closing Date, in accordance with this Section 1.02 . The aggregate principal amount of the Term Loans to be advanced shall not exceed ninety million Dollars ($90,000,000). Amounts repaid or prepaid under this Section 1.02 may not be reborrowed.

(b) Notice of Borrowing . If the Borrower desires to borrow under Section 1.02(a) , the Borrower shall deliver to the Administrative Agent a Notice of Borrowing signed by the Borrower in substantially the form attached as Exhibit A (i) not later than 2:00 p.m., New York City time, at least three (3) Business Days in advance of the Closing Date, in the case of LIBOR Rate Loans and (ii) not later than 11:00 a.m., New York City time, at least one (1) Business Day prior to the Closing Date, in the case of Alternate Base Rate Loans. Such Notice of Borrowing shall specify: (A) the amount of the proposed Term Loans; (B) the proposed Closing Date, which must be a Business Day; and (C) in the case of LIBOR Rate Loans, the LIBOR Period applicable to such Term Loan. The Notice of Borrowing given pursuant to this Section 1.02(b) shall be irrevocable and binding on the Borrower.

(c) Making the Term Loans .

(i) The Administrative Agent promptly shall notify each Term Lender of the amount of Term Loans requested by the Borrower. Each Term Lender shall deposit into an account specified by the Administrative Agent an amount equal to its Pro Rata Share of the Term Loan Commitments, in immediately available funds, not later than 1:00 p.m., New York City time, on the Closing Date. Subject to the satisfaction of the conditions precedent set forth in Article IV , the Administrative Agent shall make the proceeds of the Term Loans received by it available to the Borrower on the Closing Date.

(ii) Except as otherwise provided in this Section 1.02(c) , all Term Loans under this Agreement shall be made by the Term Lenders simultaneously and proportionately to their Pro Rata Shares. The failure of any Term Lender to deposit the amount described in clause (i) above with the Administrative Agent on the Closing Date shall not relieve any other Term Lender of its obligations hereunder to make its Term Loan on the Closing Date. No Term Lender shall be responsible for any failure by any other Term Lender to perform its obligation to make a Term Loan hereunder nor shall the Term Loan Commitment of any Term Lender be increased or decreased as a result of any such failure.

 

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(d) Funding of Term Loans . Unless the Administrative Agent shall have received notice from a Term Lender, prior to the Closing Date, that such Term Lender will not make available to the Administrative Agent such Term Lender’s Pro Rata Share of such Term Loans, the Administrative Agent may, but shall not be required to, assume that such Term Lender has made such Pro Rata Share available on such date in accordance with Section 1.02(c) and may in its sole discretion, but shall not be required to, in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Term Lender either does not make its Pro Rata Share of the Term Loans available to the Administrative Agent or delays in doing so past 3:00 p.m., New York City time, on the Closing Date (such Term Lender (until it makes such Pro Rata Share available) hereinafter referred to as a “ Term Defaulting Lender ”), then the Administrative Agent shall immediately notify the Borrower of such default. If the Administrative Agent has, in its sole discretion, made available to the Borrower an amount corresponding to such Term Defaulting Lender’s Pro Rata Share of the Term Loans, then each of the Term Defaulting Lender and the Borrower agrees to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, on each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at:

(i) in the case of the Term Defaulting Lender, the Federal Funds Rate; or

(ii) in the case of the Borrower, the interest rate applicable to Alternate Base Rate Loans.

If, with respect to the immediately preceding sentence, the Borrower pays such amount and interest thereon to the Administrative Agent, then the Term Defaulting Lender shall indemnify and hold harmless the Borrower from and against such amount and interest thereon, and if such Term Defaulting Lender pays such amount to the Administrative Agent, then such amount shall constitute such Term Defaulting Lender’s Pro Rata Share of the Term Loans.

(e) Repayment of Term Loans . The Borrower shall pay the aggregate principal amount of the Term Loans on the dates and in the amounts set forth below:

 

Date

   Loan
Scheduled  Repayment

March 31, 2008

   $ 1,250,000

June 30, 2008

   $ 1,250,000

September 30, 2008

   $ 1,250,000

December 31, 2008

   $ 1,250,000

March 31, 2009

   $ 1,250,000

June 30, 2009

   $ 1,250,000

September 30, 2009

   $ 1,250,000

December 31, 2009

   $ 1,250,000

March 31, 2010

   $ 1,250,000

June 30, 2010

   $ 1,250,000

September 30, 2010

   $ 1,250,000

December 31, 2010

   $ 1,250,000

March 31, 2011

   $ 1,250,000

June 30, 2011

   $ 1,250,000

September 30, 2011

   $ 1,250,000

December 31, 2011

   $ 1,250,000

March 31, 2012

   $ 1,250,000

June 30, 2012

   $ 1,250,000

September 30, 2012

   $ 1,250,000

December 31, 2012

   $ 1,250,000

March 31, 2013

   $ 1,250,000

June 30, 2013

   $ 1,250,000

September 30, 2013

   $ 1,250,000

December 31, 2013

   $ 1,250,000

Maturity Date

    
 
All amounts outstanding in
respect of the Term Loans.

 

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Section 1.03. Use of Proceeds . Proceeds of the Loans shall be utilized to(a) pay in full all amounts and obligations outstanding under the Post-Petition Loan Agreement, (b) pay or satisfy claims and other obligations in connection with the Borrower’s and certain of its Subsidiaries emergence from bankruptcy as required by the Plan of Reorganization, (c) fund working capital and ongoing corporate needs following the Borrower’s and such Subsidiaries emergence from bankruptcy, and (d) pay fees and expenses associated with the transactions contemplated by this Agreement.

Section 1.04. Promise to Pay . The Borrower agrees to pay (a) the principal amount of the Term Loans on the dates and in the amounts set forth in Section 1.02(e) , (b) all interest, fees and expenses (including without limitation Participating Lender Expenses) payable under this Agreement or otherwise under any other Loan Document on demand in accordance with the terms of this Agreement, the other Loan Documents and any applicable Note, (c) cash to secure and collateralize Letters of Credit as and when requested under this Agreement or any underlying documentation with respect to Letters of Credit and (d) the Loans and all other Obligations (other than Hedging Obligations and indemnification obligations and other contingent Obligations under the Loan Documents, in each case, that are not then due pursuant to their terms) on the Maturity Date.

Section 1.05. Notes .

(a) The Borrower’s obligation to pay the principal of, and interest on, the Loans made to the Borrower by each Lender shall be set forth (i) with respect to the Term Loans, on the Term Register maintained by the Administrative Agent and (ii) with respect to Revolving Loans, on the Revolving Register maintained by the Revolving Agent and, subject to the provisions of Section 1.05(b), (c) and (d) , shall be evidenced by, at the request of the Revolving Agent or the Administrative Agent, as the case may be, a promissory note substantially in the form of Exhibit B for Revolving Loans (each, a “ Revolving Note ”) and Exhibit C for Term Loans (each, a “ Term Note ”), with blanks appropriately completed in conformity herewith (each Revolving Note or Term Note, as the same may be amended, supplemented or otherwise modified from time to time, a “ Note ”).

 

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(b) The Revolving Note issued to each Revolving Lender shall (i) be executed by the Borrower, (ii) be payable to such Revolving Lender or its registered assigns and be dated the Closing Date (or in the case of any Revolving Note issued after the Closing Date, the date of issuance thereof), (iii) be in a stated principal amount equal to the Revolving Commitment of such Revolving Lender on the date of the issuance thereof and be payable in the principal amount of the Revolving Loan evidenced thereby from time to time, (iv) mature on the Maturity Date, (v) bear interest as provided herein and (vi) be entitled to the benefits of this Agreement and the other Loan Documents.

(c) The Term Note issued to each Term Lender shall (i) be executed by the Borrower, (ii) be payable to such Term Lender or its registered assigns and be dated the Closing Date (or, in the case of any Term Note issued after the Closing Date, the date of issuance thereof), (iii) be in a stated principal amount equal to the principal amount of the Term Loan of such Term Lender on the date of the issuance thereof and be payable in the principal amount of the Term Loan evidenced thereby from time to time, (iv) mature on the Maturity Date, (v) bear interest as provided for herein and (vi) be entitled to the benefits of this Agreement and the other Loan Documents.

(d) Notwithstanding anything to the contrary contained above or elsewhere in this Agreement, Notes shall only be delivered to those Lenders that at any time specifically request the delivery of such Notes. The failure of any Lender to request or obtain a Note evidencing its Loans to the Borrower shall not affect or in any manner impair the obligations of the Borrower to pay the Loans (and all related Obligations) and shall not in any way affect the security or Guarantees provided pursuant to the Loan Documents. At any time if any Lender shall request the delivery of a Note to evidence any of its Loans, the Borrower promptly shall execute and deliver to that Lender the requested Note in the appropriate amount or amounts to evidence such Loans.

Section 1.06. Letters of Credit .

(a) Issuance . (i) Upon the terms and subject to the conditions of this Agreement, the Revolving Lenders agree to incur, from time to time during the Availability Period, upon the request of the Borrower, and for the Borrower’s account, Letter of Credit Obligations by issuing Letters of Credit through the Revolving Agent or an affiliate, bank or other legally authorized Person selected or approved by the Revolving Agent (each, an “ L/C Issuer ”) for the Borrower’s account; provided that each Revolving Lender shall, subject to the terms and conditions hereinafter set forth, purchase (or be deemed to have purchased) risk participations in all such Letters of Credit, as more fully described in paragraph (b)(ii) below. Letters of Credit shall be made such that the aggregate amount of all such Letter of Credit Obligations, plus the aggregate amount of any outstanding Revolving Loans, shall not at any time exceed the Available Commitments. No such Letter of Credit shall have an expiry date that is (A) more than one year following the date of issuance thereof, unless otherwise consented to in writing by the Revolving Agent in its sole discretion (subject to renewal provisions as described in Section 1.06(a)(ii)) , or (B) later than the Maturity Date, unless otherwise consented to in writing by the Required Revolving Lenders (including with respect to customary evergreen provisions).

 

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(ii) If the Borrower so requests in any applicable Letter of Credit Application, the relevant L/C Issuer shall agree to issue a Letter of Credit that has automatic renewal provisions (each, an “ Auto-Renewal Letter of Credit ”); provided that any such Auto-Renewal Letter of Credit must permit the relevant L/C Issuer to prevent any such renewal at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the relevant L/C Issuer, the Borrower shall not be required to make a specific request to the relevant L/C Issuer for any such renewal. Once an Auto-Renewal Letter of Credit has been issued, the applicable Lenders shall be deemed to have authorized (but may not require) the relevant L/C Issuer to permit the renewal of such Letter of Credit at any time to an expiry date not later than the Maturity Date; provided that the relevant L/C Issuer shall not permit any such renewal if the relevant L/C Issuer has determined that it would have no obligation at such time to issue such Letter of Credit in its renewed form under the terms hereof.

(b) Advances Automatic; Participations . (i) In the event that any Revolving Lender shall make any payment on or pursuant to any Letter of Credit Obligation, such payment shall be deemed automatically to constitute a Revolving Loan to the Borrower (not taking into account the limitation on the maximum amount of cash borrowings set forth in Section 1.01(a) ) under this Agreement regardless of whether a Default or Event of Default has occurred or is continuing and notwithstanding the Borrower’s failure to satisfy the conditions precedent set forth in Article IV . Each Revolving Lender shall be obligated to pay its Pro Rata Share of each Letter of Credit Obligation in accordance with this Agreement. The failure of any Revolving Lender to make available its Pro Rata Share of any such Revolving Loan under or in respect of a Letter of Credit shall not relieve any other Revolving Lender of its obligation hereunder to make available its Pro Rata Share thereof, but no Revolving Lender shall be responsible for the failure of any other Revolving Lender to make available such other Revolving Lender’s Pro Rata Share of any such payment.

(ii) If it shall be illegal or unlawful for the Borrower to incur a Revolving Loan as contemplated above or if it shall be illegal or unlawful for any Revolving Lender to be deemed to have assumed a ratable share of the reimbursement obligations owed to an L/C Issuer, then (A) immediately and without further action whatsoever, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased from such L/C Issuer an undivided interest and participation equal to such Revolving Lender’s Pro Rata Share (based on the Revolving Commitments) of the Letter of Credit Obligations in respect of all Letters of Credit then outstanding and (B) thereafter, immediately upon issuance of any Letter of Credit, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased from such L/C Issuer an undivided interest and participation in such Revolving Lender’s Pro Rata Share (based on the Revolving Commitments) of the Letter of Credit Obligations with respect to such Letter of Credit on the date of such issuance. Each Revolving Lender shall fund its participation in all payments or disbursements made under the Letters of Credit in the same manner as provided in Section 1.01 with respect to Revolving Loans.

 

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(c) Letter of Credit Fees and Expenses . The Borrower agrees to pay to the Revolving Agent for the benefit of the Revolving Lenders, the fees set forth in Section 3.06(c) in connection with Letter of Credit Obligations. The Borrower agrees to pay to the Revolving Agent for the benefit of the L/C Issuer, (i) the fees set forth in Section 3.06(d) in connection with the issuance of Letters of Credit and, (ii) on demand, such reasonable fees (including all per annum fees), charges and expenses of the L/C Issuer customarily charged by the L/C Issuer in respect of the issuance, negotiation, acceptance, amendment, transfer and payment of Letters of Credit or otherwise payable pursuant to the application and related documentation under which any Letter of Credit is issued.

(d) Request for Incurrence of Letter of Credit Obligations . The Borrower shall give the Revolving Agent by 11:00 a.m., New York City time, at least two (2) Business Days’ prior written notice requesting the incurrence of any Letter of Credit Obligation. The notice shall be accompanied by the form of the Letter of Credit (which shall be acceptable to the L/C Issuer) and a completed application in the form set forth in Exhibit D (each a “Letter of Credit Application”). Notwithstanding anything contained herein to the contrary, Letter of Credit Applications by the Borrower, and approvals by the Revolving Agent and the L/C Issuer may be made and transmitted pursuant to electronic codes and security measures mutually agreed upon and established by and among the Borrower, the Revolving Agent and the L/C Issuer. In the case of any conflict between any Letter of Credit or application therefor, and this Agreement, this Agreement shall prevail.

(e) Obligation Absolute . The obligation of the Borrower to reimburse the Revolving Lenders and the L/C Issuers for payments made with respect to any Letter of Credit Obligation shall be absolute, unconditional and irrevocable, without necessity of presentment, demand, protest or other formalities. The L/C Issuer shall promptly notify the Borrower of any claims or draws under any Letter of Credit. The Borrower shall reimburse the L/C Issuer for any claims or draws on any Letter of Credit by no later than 3:00 p.m. New York City time on the date such draw is made. The obligations of each Revolving Lender to make payments to the Revolving Agent and the L/C Issuer with respect to Letters of Credit shall be unconditional and irrevocable. All obligations of the Borrower and the Revolving Lenders shall be paid strictly in accordance with the terms hereof irrespective of any fact or circumstance whatsoever, including the following:

(i) any lack of validity or enforceability of any Letter of Credit or this Agreement or the other Loan Documents or any other agreement;

(ii) the existence of any claim, setoff, defense or other right that the Borrower or any of its respective Affiliates or any Lender may at any time have against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such transferee may be acting), Revolving Agent, any Lender, any L/C Issuer, or any other Person, whether in connection with this Agreement, the Letter of Credit, the transactions contemplated herein or therein or any unrelated transaction (including any underlying transaction between the Borrower or any of its respective Affiliates and the beneficiary for which the Letter of Credit was procured);

(iii) any draft, demand, 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;

 

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(iv) payment by any L/C Issuer under any Letter of Credit or guaranty thereof against presentation of a demand, draft or certificate or other document that does not comply with the terms of such Letter of Credit or such guaranty;

(v) any other circumstance or event whatsoever, that is similar to any of the foregoing; or

(vi) the fact that a Default or an Event of Default has occurred and is continuing.

(f) Indemnification; Nature of Lenders’ Duties . (i) In addition to amounts payable as elsewhere provided in the Agreement, the Borrower hereby agrees to pay and to protect, indemnify, and save harmless the Revolving Agent and each Revolving Lender and L/C Issuer from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys’ fees and allocated costs of internal counsel) that the Revolving Agent or any Revolving Lender or any L/C Issuer may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or guaranty thereof, or (B) the failure of the Revolving Agent or any Revolving Lender seeking indemnification or of any L/C Issuer to honor a demand for payment under any Letter of Credit or guaranty thereof as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority, in each case other than to the extent solely as a result of the gross negligence or willful misconduct of the Revolving Agent or such Revolving Lender (as finally determined by a court of competent jurisdiction).

(ii) As between the Revolving Agent and any Revolving Lender and any L/C Issuer and the Borrower, the Borrower assumes all risks of the acts and omissions of, or misuse of any Letter of Credit by beneficiaries of any Letter of Credit. In furtherance and not in limitation of the foregoing, to the fullest extent permitted by law, neither the Revolving Agent nor any Revolving Lender nor any L/C Issuer shall be responsible for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document issued by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of any Letter of Credit to comply fully with conditions required in order to demand payment under such Letter of Credit; provided that in the case of any payment by a Revolving Lender or L/C Issuer under any Letter of Credit, such Revolving Lender or L/C Issuer shall be liable to the extent such payment was made solely as a result of its gross negligence or willful misconduct (as finally determined by a court of competent jurisdiction) in determining that the demand for payment under such Letter of Credit thereof substantially complies on its face with any applicable requirements for a demand for payment under such Letter of Credit; (D) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they may be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a payment under any Letter of Credit or of the proceeds thereof; (G) the credit of the proceeds of any drawing under any Letter of Credit; and (H) any consequences arising from causes beyond the control of the Revolving Agent or any Revolving Lender or L/C Issuer. None of the above shall affect, impair, or prevent the vesting of any of the Agents’ or any Lender’s or L/C Issuer’s rights or powers hereunder or under this Agreement.

 

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(g) Cash Collateral . In the event that any Letter of Credit Obligations, whether or not then due or payable, shall for any reason be outstanding on the Maturity Date, the Borrower will either (i) cause the underlying Letter of Credit to be returned and canceled and each corresponding Letter of Credit Obligation to be terminated, or (ii) pay to the Collateral Agent, for the benefit of the Secured Parties, in immediately available funds, an amount equal to 105% of the maximum amount then available to be drawn under all Letters of Credit not so returned and canceled to be held by the Collateral Agent, for the benefit of the Secured Parties, as cash collateral in an account of the Collateral Agent (the “ Cash Collateral Account ”).

Section 1.07. Intentionally Omitted .

Section 1.08. Intentionally Omitted .

Section 1.09. Allocation of Proceeds of Collateral and Payments .

(a) At any time after an Event of Default has occurred and is continuing and after the Commitments have terminated, whether at their stated maturity, by acceleration, automatically or otherwise in accordance with the terms hereof, the proceeds of the Collateral that are received by any Agent shall be paid over or delivered to the Collateral Agent for distribution as follows:

FIRST, on a pro rata basis, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of the Agents constituting Participating Lender Expenses, and to the payment of any fees then due to any Agent;

SECOND, on a pro rata basis, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of the Lenders constituting Participating Lender Expenses, and to the payment of any fees then due to any Lender;

THIRD, on a pro rata basis, to the payment of the Borrower’s Obligations to the Revolving Lenders and the L/C Issuer consisting of accrued fees and interest (other than Default Interest) then due with respect to Revolving Loans and Letters of Credit (including interest (other than Default Interest) that, but for the filing of a petition in bankruptcy with respect to the Borrower or any of its Subsidiaries, would have accrued on the Revolving Loans and Letters of Credit (including any refinancing of such Obligations), whether or not a claim is allowed against such Person for such interest in the related bankruptcy proceeding);

FOURTH, on a pro rata basis, to the payment of interest (other than Default Interest) and accrued fees and all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of each Hedging Agreement Provider then due in connection with obligations of the Credit Parties under Hedging Agreements not to exceed the Hedging Priority Amount;

 

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FIFTH, on a pro rata basis, (i) to the payment of the outstanding principal amount of the Revolving Loans then due to the Revolving Lenders and the principal amount of any unreimbursed drawings under Letters of Credit then due to the Revolving Lenders and (ii) to fund the Cash Collateral Account of all outstanding Letters of Credit then due in an amount equal to 105% of the face amount;

SIXTH, on a pro rata basis, to the payment of the Hedging Obligations up to the Hedging Priority Amount, less amounts paid in the Fourth priority of this Section 1.09(a) ;

SEVENTH, on a pro rata basis, to the payment of all of the Borrower’s Obligations to the Term Lenders with respect to the Term Loans, including the outstanding principal amount, accrued fees and interest (other than Default Interest) then due of the Term Loans;

EIGHTH, on a pro rata basis, to the payment of all of the Borrower’s Obligations to the Lenders consisting of Default Interest then due, first, with respect to the Revolving Loans, second, with respect to the Hedging Agreements (to the extent accrued on the portion of the Hedging Agreements constituting the Hedging Priority Amounts), and third, with respect to the Term Loan;

NINTH, to all other Obligations, if any, which shall have become due and payable under the Loan Documents or otherwise and not otherwise repaid;

TENTH, to the payment of Hedging Obligations, if any, that comprise the Excess Hedging Amount; and

ELEVENTH, to the payment of the surplus, if any, to the Borrower or whomever may be lawfully entitled to receive such surplus.

(b) All payments and proceeds in respect of the Obligations, other than those specified in Section 1.09(a) above, shall be applied, as specified by the Borrower or, at any other time or if not so specified, shall be paid over or delivered to the Administrative Agent for distribution as follows:

FIRST, on a pro rata basis, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of the Agents constituting Participating Lender Expenses, and to the payment of any fees then due to any Agent;

SECOND, on a pro rata basis, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of the Lenders constituting Participating Lender Expenses, and to the payment of any fees then due to any Lender;

THIRD, on a pro rata basis, to the payment of all of the Borrower’s Obligations to the Lenders and the L/C Issuer consisting of accrued fees and interest (other than Default Interest) then due with respect to the Loans (including interest (other than Default Interest) that, but for the filing of a petition in bankruptcy with respect to the Borrower or any of its Subsidiaries, would have accrued on the Loans (including any refinancing of such Obligations), whether or not a claim is allowed against such Person for such interest in the related bankruptcy proceeding);

 

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FOURTH, on a pro rata basis, to the payment of interest (other than Default Interest) and accrued fees and all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of each Hedging Agreement Provider then due in connection with obligations of the Credit Parties under Hedging Agreements not to exceed the Hedging Priority Amount;

FIFTH, on a pro rata basis, (i) to the payment of the outstanding principal amount of the Loans then due to the Lenders and the principal amount of any unreimbursed drawings under Letters of Credit then due to the Revolving Lenders and (ii) to fund the Cash Collateral Account of all outstanding Letters of Credit then due in an amount equal to 105% of the face amount;

SIXTH, on a pro rata basis, to the payment of (i) all of the Borrower’s Obligations to the Lenders consisting of Default Interest then due with respect to the Loans, and (ii) Hedging Obligations up to the Hedging Priority Amount, less amounts paid in the Fourth priority of this Section 1.09(b) ;

SEVENTH, to all other Obligations, if any, which shall have become due and payable under the Loan Documents or otherwise and not otherwise repaid;

EIGHTH, to the payment of Hedging Obligations, if any, that comprise the Excess Hedging Amount; and

NINTH, to the payment of the surplus, if any, to the Borrower or whoever may be lawfully entitled to receive such surplus.

(c) In carrying out the provisions of Sections 1.09(a) and (b) , (i) amounts received shall be applied equally and ratably in the numerical order provided until exhausted prior to the application to the next succeeding category; (ii)   amounts payable to the Lenders shall be applied to each Lender in accordance with its Pro Rata Share; (iii)   amounts payable to each of the Hedging Agreement Providers shall be applied on a pro rata basis; and (iv) to the extent that any amounts pursuant to clause FIFTH of Section 1.09(a) or clause FIFTH of Section 1.09(b) above are attributable to the cash collateralization of issued but undrawn amount of outstanding Letters of Credit, such amounts shall be paid to the Revolving Agent and applied (1) first, to all ongoing fees and expenses of the L/C Issuer and the Revolving Agent in connection with the outstanding Letters of Credit, (2) second, to reimburse the L/C Issuer from time to time for any drawings under such Letters of Credit, and (3) third, following the expiration of all Letters of Credit, to the Collateral Agent for all other obligations of the types described above in the manner provided in this Section 1.09 or otherwise reimbursed to the Borrower.

(d) No Defaulting Lender shall be entitled to any payments under this Section 1.09 during the time that the default of such Defaulting Lender is continuing.

 

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Section 1.10. Limitations on LIBOR Loans . No more than twelve (12) LIBOR Rate Loans may be in effect at any time. For purposes hereof, LIBOR Rate Loans with different LIBOR Periods shall be considered as separate LIBOR Rate Loans, even if they shall begin on the same date or have the same duration, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing LIBOR Periods to constitute a new LIBOR Rate Loan with a single LIBOR Period. The Borrower may only exercise the LIBOR option for LIBOR Rate Loans of at least one million Dollars ($1,000,000) and integral multiples of one million Dollars ($1,000,000) in excess thereof.

ARTICLE II

PAYMENTS AND OTHER COMPENSATION

Section 2.01. Voluntary Prepayments/Reductions of Commitments .

(a) Optional Prepayment of Term Loans . Subject to Section 1. 09, the Borrower shall have the right, upon at least three (3) Business Days’ prior written notice by the Borrower to each of the Administrative Agent and the Revolving Agent, to voluntarily prepay all or any portion (in a minimum amount of $5,000,000 or such lesser amount as may then remain outstanding or integral multiples of $1,000,000 in excess thereof) of the Term Loans on any Business Day upon payment of the applicable Prepayment Fee pursuant to Section 2.03 . Any voluntary prepayment of any Term Loan shall be accompanied by the payment of all accrued and unpaid interest with respect to the principal being prepaid through the date of prepayment and any applicable Prepayment Fee pursuant to Section 2.03 . Any voluntary partial prepayment of any Term Loans shall be applied to the scheduled repayment of Term Loans in the inverse order of maturity thereof until all Term Loans are repaid in full.

(b) Optional Prepayment of Revolving Loans . As set forth in Section 1.01(a) , at any time after the Closing Date, the Borrower may prepay, and thereafter reborrow, subject to the terms and conditions set forth herein (including Section 3.03 ), all or any portion of the Revolving Loans then outstanding.

(c) Optional Reduction of Revolving Commitments . The Borrower shall have the right, upon at least five (5) Business Days’ prior written notice by the Borrower to each of the Administrative Agent and the Revolving Agent to cancel the Total Revolving Commitment in full or to reduce the amount thereof; provided that the amount of the Total Revolving Commitment shall at no time be less than the sum of (i) the outstanding principal amount of all Revolving Loans plus (ii) the Letter of Credit Exposure. Partial reductions of the Total Revolving Commitment shall be in a minimum amount of $5,000,000 or such lesser amount as may then remain outstanding or integral multiples of $1,000,000 in excess thereof and shall reduce each Revolving Lender’s Revolving Commitment on a pro rata basis based upon such Revolving Lender’s Pro Rata Share. All cancellations or reductions shall be permanent. Any such notice of reduction shall be accompanied by the payment of the Unused Commitment Fee accrued through the date of such cancellation or reduction.

(d) Reduction of Term Loan Commitments . The Term Loan Commitments shall be automatically and permanently reduced to $0 on the Closing Date after giving effect to the incurrence of Term Loans on such date.

 

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Section 2.02. Mandatory Prepayments .

(a) Prepayments from Asset Dispositions . Within five (5) Business Days after the receipt by a Credit Party or any Subsidiary of a Credit Party of any Net Cash Proceeds from an Asset Sale or Net Casualty/Condemnation Proceeds, the Borrower shall cause 100% of such Net Cash Proceeds or Net Casualty/Condemnation Proceeds to be applied to prepay the Loans; provided however that if the Borrower notifies each of the Administrative Agent and the Revolving Agent in writing within such five (5) Business Day period that the applicable Credit Party or Subsidiary has applied or intends to apply such Net Cash Proceeds to acquire, maintain, develop, construct, improve, upgrade, replace, repair or invest in long term assets used or useful in the business of such Credit Party or such applicable Subsidiary or any other Credit Party, then the applicable Credit Party or Subsidiary, shall, so long as no Event of Default shall have occurred and be continuing, be permitted to use such proceeds as notified to the Administrative Agent and the Revolving Agent within two hundred seventy (270) days of the receipt thereof; provided further , that to the extent such proceeds have not been used or irrevocably committed to be used for such a purpose within two hundred seventy (270) days of the receipt thereof, such Net Cash Proceeds or Net Casualty/Condemnation Proceeds shall be applied to prepay the Loans in accordance with Section 1.09 . All prepayments under this Section 2.02(a) shall be accompanied by all accrued and unpaid interest on the Loans being prepaid and, in the case of any prepayment under this Section 2.02(a) resulting from the receipt of Net Cash Proceeds, the applicable Prepayment Fee (which, subject to Section 1.09 , shall be deducted from such Net Cash Proceeds prior to the application of such Net Cash Proceeds in prepayment of the Loans in accordance with the terms of the preceding sentence).

(b) Prepayments from Incurrence of Indebtedness . Immediately upon the receipt by any Credit Party or any Subsidiary of a Credit Party of cash proceeds from the issuance or incurrence of any Indebtedness (other than Permitted Indebtedness), the Borrower shall prepay the Loans in an amount equal to 100% of the proceeds from such issuance or incurrence, net of taxes, underwriting discounts and commissions and other reasonable, out-of-pocket costs and expenses associated therewith. All such prepayments shall be accompanied by all accrued and unpaid interest on the Loans being prepaid and the applicable Prepayment Fee (which, subject to Section 1.09 , shall be deducted from the cash proceeds prior to the application of such cash proceeds in prepayment of the Loans in accordance with the terms of the preceding sentence).

(c) Prepayments from Equity Issuances . Immediately upon the receipt by any Credit Party or any Subsidiary of a Credit Party of any Net Cash Proceeds from any Equity Issuance (other than Net Cash Proceeds from any Equity Issuance described in Section 4.01(t) ), the Borrower shall prepay the Loans in an amount equal to 50% of such Net Cash Proceeds. All such prepayments shall be accompanied by all accrued and unpaid interest on the Loans being prepaid and the applicable Prepayment Fee (which, subject to Section 1.09 , shall be deducted from such Net Cash Proceeds prior to the application of such Net Cash Proceeds in prepayment of the Loans in accordance with the terms of the preceding sentence).

 

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(d) Mandatory Repayments from Excess Cash Flow . In addition to any other mandatory repayments pursuant to this Section 2.02 , no later than the Sweep Date for each Fiscal Year, the Borrower shall make an offer to prepay (an “ Offer to Prepay ”) or, if a Default has occurred and is continuing, the Borrower shall prepay, the Term Loans in an amount equal to the Applicable Cash Flow Percentage of Excess Cash Flow for such Fiscal Year. Each Offer to Prepay shall be in writing and shall be delivered to the Administrative Agent and each of the Term Lenders and shall include or state the following terms of the Offer to Prepay: (A) a reference that the Offer to Prepay is made pursuant to this Section 2.02(d) , (B) a calculation of the Excess Cash Flow for such year and the amount of such offer, and (C) that each Term Lender that desires to accept such offer must notify the Administrative Agent (with a copy to the Borrower) in writing by executing an acceptance set forth in such Offer to Prepay within thirty (30) days of the date of such Offer to Prepay. An Offer to Prepay shall be deemed accepted by each accepting Term Lender unless such Term Lender provides written notice to the Administrative Agent of its rejection of the Offer to Prepay within the time period set forth in clause (C) above. Notwithstanding the foregoing, the Administrative Agent may accept Offers to Prepay on behalf of any or all Term Lenders only upon receipt from such Term Lender of its acceptance of such Offer to Prepay. Upon acceptance of an Offer to Prepay by a Term Lender or by the Administrative Agent on behalf of any or all Term Lenders (and in any event within three (3) days thereof) the Borrower shall prepay the Term Loans due to such Term Lender in the amount equal to such Term Lender’s Pro Rata Share of the amount set forth in the first sentence of this Section 2.02(d) .

(e) Application of Mandatory Prepayments . Subject to Section 1.09 , each mandatory prepayment made pursuant to this Agreement shall be applied first, to permanently reduce the Term Loans; second, to the Revolving Loans (other than Revolving Loans incurred pursuant to Section 1.06(b) as a result of payments under Letters of Credit), third to the Revolving Loans incurred pursuant to Section 1.06(b) as a result of payments under Letters of Credit; and fourth, to Letter of Credit Obligations. Any mandatory prepayment applied to Letter of Credit Obligations in respect of outstanding Letters of Credit that have not been drawn upon shall be effected by the reduction of the Available Commitments by the amount prepaid and, to the extent that after giving effect to such reductions, the Aggregate Revolving Exposure would exceed the Available Commitments, 105% of such excess amount shall be funded to the Cash Collateral Account by the Borrower.

Section 2.03. Prepayment Fees .

In connection with (a) any repayments of Term Loans made pursuant to Section 1.09 , (b) any prepayments of Term Loans made pursuant to Section 2.01(a) , 2.02(a) (other than prepayments in respect of Net Casualty/Condemnation Proceeds), 2.02(b) or 2.02(c) , the Borrower shall pay to the Administrative Agent a prepayment fee (the “ Prepayment Fee ”) for the benefit of the Term Lenders in an amount equal to the aggregate principal amount to be repaid multiplied by the percentage set forth below:

 

Prepayment Date

   Percentage  

On or prior to January 22, 2009

   3.0

After January 22, 2009 and on or prior to January 22, 2010

   2.0

After January 22, 2010 and on or prior to January 22, 2011

   1.0

After January 22, 2011

   0

 

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Section 2.04. Payments .

(a) General Provisions . All payments to be made by any Credit Party shall be made without set-off, counterclaim or other defense. All payments by any Credit Party on account of Revolving Loans shall be made to the Revolving Agent at the payment office identified by the Revolving Agent. All other payments by any Credit Party shall be made to the Administrative Agent at the payment office identified by the Administrative Agent. Except as otherwise expressly provided herein, each payment shall be made in immediately available funds, no later than 2:00 p.m., New York City time, on the date specified herein for the payment to be made. The Revolving Agent or the Administrative Agent, as the case may be, will promptly distribute to the relevant Participating Lender or Agent its Pro Rata Share or other applicable share as expressly provided herein, of each such payment in like funds as received. Any payment received by the Revolving Agent or the Administrative Agent later than 2:00 p.m., New York City time, on any Business Day shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(b) Sharing of Payments . Except as otherwise provided herein, if any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of any Obligation in excess of its ratable share of payments on account of similar obligations obtained by all the Lenders, such Lender shall (i) notify the Administrative Agent or the Revolving Agent of such fact and (ii) forthwith purchase from the other Lenders such participations in such similar obligations held by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided , however , that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each other Lender shall be rescinded and such other Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such other Lender’s ratable share (according to the proportion of (i) the amount of such Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender of any interest or other amount paid by the purchasing Lender in respect of the total amount so recovered). Each Credit Party jointly and severally agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.04(b) may, to the fullest extent permitted by law, exercise all of its rights (including the Lender’s right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of such Credit Party in the amount of such participation.

 

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(c) Payments on Non-Business Days . Whenever any payment to be made by the Borrower hereunder or under the Notes is stated to be due on a day which is not a Business Day, the payment shall instead be due on the next succeeding Business Day.

Section 2.05. Taxes .

(a) Payment of Taxes . Except as set forth below, any and all payments by a Credit Party hereunder, under the Notes or under any other Loan Document shall be made free and clear of and without deduction for any and all Indemnified Taxes. If a Credit Party shall be required by law to withhold or deduct any Indemnified Taxes from or in respect of any sum payable hereunder, under the Notes or under any other Loan Document to any Lender or Agent, (i) such sum payable shall be increased by an additional amount so that after making all such required withholdings or deductions (including such withholdings or deductions applicable to additional amounts payable under this Section 2.05(a)) , such Lender or Agent receives an amount equal to the sum it would have received had no such withholdings or deductions been made, (ii) such Credit Party shall make such withholdings or deductions, and (iii) such Credit Party shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with Applicable Law.

(b) Other Taxes . In addition, the Credit Parties jointly and severally agree to pay any 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 Agreement or any other Loan Document (hereinafter referred to as “ Other Taxes ”).

(c) Indemnification . The Credit Parties will indemnify each Participating Lender and each Agent against, and reimburse each, within twenty (20) days of a receipt of written demand therefor, for the full amount of all Indemnified Taxes and Other Taxes (including any Indemnified Taxes or Other Taxes imposed by any Governmental Authority on amounts payable to such Agent or Lender under this Section 2.05(c) ) incurred or paid by such Participating Lender or such Agent (as the case may be), or any Affiliate of such Participating Lender or Agent on or with respect to any payment by or on account of any obligation of the Credit Parties hereunder, and any penalties, interest, and reasonable out-of-pocket expenses paid to third parties arising therefrom or with respect thereto.

(d) Receipts . Within thirty (30) days after a request from the Administrative Agent or the Revolving Agent, each Credit Party will furnish to the Administrative Agent the original or a certified copy of a receipt, if available, or other reasonably available documentation reasonably satisfactory to the Administrative Agent evidencing payment of such Indemnified Taxes or Other Taxes (including in respect of payments of additional amounts) required to be paid by such Credit Party pursuant to this Section 2.05 . The Borrower will furnish to the Administrative Agent and the Revolving Agent upon the Administrative Agent’s or the Revolving Agent’s request, a certificate executed by an Authorized Officer stating that all Indemnified Taxes and Other Taxes have been paid when due.

 

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(e) Nonresident Certifications .

(i) Each Participating Lender that is not a United States Person (as defined in Section 7701(a)(30) of the Code) (a “ Non-U.S. Lender ”) shall deliver to the Administrative Agent on or prior to the Closing Date, or, in the case of a Non-U.S. Lender that becomes a Participating Lender pursuant to Section 3.05 hereof, on or prior to the date on which such Participating Lender becomes a Participating Lender pursuant to Section 3.05 , a true and accurate IRS Form W-8BEN, W-8IMY (with the necessary attachments), W-8EXP or W-8ECI, as appropriate to the Participating Lender’s circumstances, or any subsequent version thereof or successors thereto and such other documentation prescribed by Applicable Law executed in duplicate by a duly authorized officer of such Participating Lender along with a certificate executed by a duly authorized officer of such Participating Lender to the effect that such Participating Lender is eligible as of such date to receive payments hereunder and under any Notes free and clear or at a reduced rate of United States federal withholding tax.

(ii) Each Non-U.S. Lender further agrees to deliver to the Administrative Agent from time to time a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender before or promptly upon the occurrence of any event requiring a change in the most recent certificate or IRS form previously delivered by it to the Administrative Agent pursuant to this Section 2.05(e) (including upon the expiration, obsolescence or invalidity of such certificate or form, upon the designation of a new lending office and at such other times as may be necessary in the determination of the Administrative Agent or a Credit Party (in the reasonable exercise of its discretion)). Each certificate required to be delivered pursuant to this Section 2.05(e)(ii) shall certify as to one of the following:

(A) that such Participating Lender can receive payments hereunder and under any Notes free and clear or at a reduced rate of United States federal withholding tax (in which case the certificate shall be accompanied by two true and accurate originals of IRS Form W-8BEN, W-8IMY (with the necessary attachments), W-8EXP or W-8ECI, as applicable (or any successor form));

(B) that such Participating Lender is no longer capable of receiving payments hereunder or under the Notes free and clear or at a reduced rate of United States federal withholding tax by reason of a Change in Law (including the Code or any applicable tax treaty) after the later of the Closing Date, or in the case of a Participating Lender that becomes a Participating Lender pursuant to Section 3.05 , after the date on which the Participating Lender became a Participating Lender pursuant to Section 3.05 ; or

(C) that such Participating Lender is not capable of receiving payments hereunder free and clear or at a reduced rate of United States federal withholding tax other than by reason of a Change in Law (including the Code or applicable tax treaty) after the later of the Closing Date, or in the case of a Lender that becomes a Participating Lender pursuant to Section 3.05 , after the date on which the Participating Lender became a Participating Lender pursuant to Section 3.05 .

 

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(f) Resident Certifications . Each Participating Lender that is a United States Person (as defined in Section 7701(a)(30) of the Code) and is not an “exempt recipient” (as such term is defined in Section 1.6049-4(c)(1)(ii) of the United States Treasury Regulations) shall deliver to the Administrative Agent on or prior to the Closing Date, or, in the case of a Participating Lender that becomes a Participating Lender pursuant to Section 3.05 hereof, on or prior to the date on which such Participating Lender becomes a Participating Lender pursuant to Section 3.05 hereof, two original copies of IRS Form W-9 (or any successor forms), properly completed and duly executed by such Lender, and such other documentation reasonably requested by the Administrative Agent.

(g) Refunds . If a Lender or Agent becomes aware that it is entitled to claim a refund from a Governmental Authority in respect of Indemnified Taxes or Other Taxes as to which it has been indemnified by a Credit Party or with respect to which a Credit Party has paid additional amounts pursuant to Section 2.05(a) , it shall make reasonable efforts to timely file a claim to such Governmental Authority for such refund at such Credit Party’s expense. If a Lender or Agent actually receives a payment of a refund (including pursuant to a claim for refund made pursuant to the preceding sentence) in respect of any Indemnified Tax or Other Tax as to which it has been indemnified by a Credit Party or with respect to which a Credit Party has paid additional amounts pursuant to Section 2.05(a) , it shall within sixty (60) days from the date of the receipt of such refund pay over the amount of such refund to the Credit Party, net of all reasonable out-of-pocket expenses of such Lender or Agent and without interest; provided that the Credit Party, upon the request of such Lender or Agent, agrees to repay the amount paid over to the Credit Party (plus penalties, interest or other reasonable charges paid by such Lender or Agent) to such Lender or Agent in the event such Lender or Agent is required to repay such refund to such Governmental Authority.

(h) If a Credit Party determines that a reasonable basis exists for contesting a Tax, the relevant Participating Lender or Agent shall make reasonable efforts to cooperate with the Credit Party in challenging such Tax at the Credit Party’s expenses and if requested by the Credit Party in writing; provided , however , that no Participating Lender or Agent shall be required to take any action hereunder which, in the reasonable discretion of such Participating Lender or Agent, would cause such Participating Lender or Agent or its applicable lending office to suffer a material economic, legal or regulatory disadvantage.

ARTICLE III

INTEREST

Section 3.01. Interest on the Loans and Other Obligations .

(a) Interest on Loans . The Borrower agrees to pay interest on the unpaid principal amount of each Loan on each Interest Payment Date from the date of such Loan until such Loan is repaid in full at a rate equal to the Interest Rate for such Loan. The Borrower shall pay accrued interest on the Loans in cash on each Interest Payment Date. All computations of interest hereunder shall be made on the actual number of days elapsed over a year of, with respect to LIBOR Rate Loans, 360 days or, with respect to Alternate Base Rate Loans only, 365/366 days.

 

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(b) Default Interest . Upon the occurrence, and during the continuance, of an Event of Default, the Obligations then due and unpaid shall bear interest, payable on demand, at a per annum rate that is two (2) percentage points greater than the rate which would otherwise be applicable to such Obligations (or if no rate is applicable, whether in respect of interest, fees or other amounts, the Alternate Base Rate plus the Applicable Margin for Term Loans plus two (2) percentage points) (any such interest referred to herein as “ Default Interest ”).

Section 3.02. Conversion or Continuation . Unless a Default or Event of Default is continuing and the Required Lenders have expressly required otherwise, the Borrower shall have the option (i) to convert all or any part of the outstanding LIBOR Rate Loans to Alternate Base Rate Loans, (ii) to convert Alternate Base Rate Loans to LIBOR Rate Loans or (iii) to change or continue the LIBOR Period applicable to all or a portion of the LIBOR Rate Loans; provided , however , that (A) except as provided in Section 3.04 , LIBOR Rate Loans may be converted into Alternate Base Rate Loans only on the last day of the LIBOR Period applicable thereto unless the Borrower agrees to pay all amounts due pursuant to Section 3.03 , (B) Loans extended as, or converted into, LIBOR Rate Loans shall be subject to the terms of the definition of “ LIBOR Period ” and (C) any request for extension or conversion of a LIBOR Rate Loan that shall fail to specify a LIBOR Period shall be deemed to be a request for a LIBOR Period of one month. Each such extension or conversion shall be effected by the Borrower, giving written notice (or telephone notice promptly confirmed in writing) (a “ Notice of Conversion/Continuation ”) to the Revolving Agent prior to 11:00 a.m., New York City time, on the third Business Day prior to the date of the proposed extension or conversion, substantially in the form of Exhibit E hereto, specifying (a) the date of the proposed extension or conversion, (b) the Loans to be so extended or converted, (c) the types of Loans into which such Loans are to be converted, and, if appropriate, (d) the applicable LIBOR Periods with respect thereto. In the event the Borrower does not request extension or conversion of any LIBOR Rate Loan in accordance with this Section 3.02 , then such LIBOR Rate Loan shall be continued as a LIBOR Rate Loan (with a LIBOR Period of one month) at the end of each LIBOR Period applicable thereto, until the Borrower selects an alternate LIBOR Period or converts such Loans to Alternate Base Rate Loans. In the event any LIBOR Rate Loans are not permitted to be converted into another LIBOR Rate Loan hereunder, such LIBOR Rate Loans shall automatically be converted to Alternate Base Rate Loans at the end of the applicable LIBOR Period with respect thereto. The Administrative Agent and/or the Revolving Agent shall give each Lender notice as promptly as practicable of any such proposed extension or conversion affecting any Loan. Promptly after receipt of a Notice of Conversion/Continuation under this Section 3.02 , the Administrative Agent and/or the Revolving Agent shall notify each Lender by telecopy, or other similar form of transmission, of the proposed conversion/continuation. Any Notice of Conversion/Continuation for conversion to, or continuation of, a Loan shall be irrevocable, and the Borrower shall be bound to convert or continue in accordance therewith.

 

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Section 3.03. Break Funding Payments . In the event of the payment of any principal of any LIBOR Rate Loan other than on the last day of the LIBOR Period applicable thereto (including as a result of an Event of Default), or the failure to borrow or prepay any Loan on the date specified in any notice delivered pursuant hereto, then, in any such event, the Borrower shall compensate each applicable Lender for the loss, cost and expense (excluding in any event any Applicable Margin or other lost profit) attributable to such event, calculated by such Lender in accordance with its customary procedures. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 3.03 shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate upon receipt thereof.

Section 3.04. Increased Costs; Illegality .

(a) Increased Costs Generally . If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Participating Lender;

(ii) subject any Participating Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any LIBOR Rate Loan made by it, or change the basis of taxation of payments to such Participating Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 2.05 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Participating Lender); or

(iii) impose on any Participating Lender or the London interbank market any other condition, cost or expense affecting this Agreement or LIBOR Rate Loans made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Participating Lender of making or maintaining any LIBOR Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Participating Lender of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Participating Lender hereunder (whether of principal, interest or any other amount) then , upon request of such Participating Lender, the Borrower will pay to such Participating Lender, as the case may be, such additional amount or amounts as will compensate such Participating Lender, as the case may be, for such additional costs incurred or reduction suffered.

(b) Capital Requirements . If any Participating Lender determines that any Change in Law affecting such Participating Lender or any lending office of such Participating Lender or such Participating Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Participating Lender’s capital or on the capital of such Participating Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Participating Lender or the Loans made by, or participations in Letters of Credit held by, such Participating Lender, to a level below that which such Participating Lender or such Participating Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Participating Lender’s policies and the policies of such Participating Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Participating Lender, as the case may be, such additional amount or amounts as will compensate such Participating Lender or such Participating Lender’s holding company for any such reduction suffered.

 

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(c) Certificates for Reimbursement . A certificate of a Participating Lender setting forth the amount or amounts necessary to compensate such Participating Lender or its holding company, as the case may be, as specified in paragraph (a) or  (b)  of this Section 3.04 and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Participating Lender, as the case may be, the amount shown as due on any such certificate upon receipt thereof.

(d) Delay in Requests . Failure or delay on the part of any Participating Lender to demand compensation pursuant to this Section 3.04 shall not constitute a waiver of such Participating Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Participating Lender pursuant to this Section 3.04 for any increased costs incurred or reductions suffered more than nine (9) months prior to the date that such Participating Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Participating Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

(e) Illegality . Notwithstanding anything to the contrary contained herein, if any Change in Law shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to continue to fund or maintain any LIBOR Rate Loan, then, unless that Lender is able to make or to continue to fund or to maintain such LIBOR Rate Loan at another branch or office of that Lender without, in that Lender’s opinion, adversely affecting it or its LIBOR Rate Loans or the income obtained therefrom, on notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent or the Revolving Agent, the obligation of such Lender to make, to continue to fund or maintain LIBOR Rate Loans shall terminate and the Borrower shall forthwith prepay in full, without any premium or penalty, all outstanding LIBOR Rate Loans owing by the Borrower to such Lender, together with interest accrued thereon and any amounts due pursuant to Section 3.03 . Each Agent and Participating Lender, with respect to such Agent or Participating Lender, if reasonably requested in writing by the Borrower and at Borrower’s sole expense, agrees to use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for this Agreement, with the object of avoiding the consequence of the event giving rise to the operation of this Section 3.04, provided that, such designation can be and is made on such terms that such Agent or Participating Lender and its lending offices suffer no economic, legal or regulatory disadvantage.

 

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Section 3.05. Replacement of Lenders . If any Participating Lender requests compensation under Section 3.04 , or if the Borrower is required to pay any additional amount to any Participating Lender or any Governmental Authority for the account of any Participating Lender pursuant to Section 2.05 , then the Borrower, within thirty (30) days following such request and at its sole expense and effort, upon notice to such Participating Lender and the Administrative Agent and Revolving Agent, require such Participating Lender to assign and delegate (in accordance with the procedures of Section 13.09 ), without recourse, all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Participating Lender, if a Participating Lender accepts such assignment); provided that:

(a) such Participating Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in drawings under any Letter of Credit, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts payable under any of Sections 2.05 , 3.03 or 3.04 through the effective date of such assignment but not including any Prepayment Fee) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

(b) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 2.05 , such assignment will result in a reduction in such compensation or payments thereafter; and

(c) such assignment does not conflict with Applicable Law.

A Participating Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Participating Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

Section 3.06. Fees . The Borrower agrees to pay to:

(a) the Administrative Agent such fees as are set forth in the Fee Letter in accordance with the terms thereof;

(b) the Revolving Agent for the account of the Revolving Lenders in accordance with their respective Pro Rata Shares, a fee (the “ Unused Commitment Fee ”) in an amount equal to 0.50% per annum times the average daily Available Commitments for the period for which such fee is payable. The Unused Commitment Fee shall be non-refundable and paid quarterly in arrears and on the date of the termination or expiration of the Revolving Commitments;

(c) the Revolving Agent, for the account of the Revolving Lenders, a Letter of Credit fee in an amount equal to the Applicable Margin for Revolving Loans that are LIBOR Rate Loans times the undrawn amount of all outstanding Letters of Credit, payable monthly in arrears and on the date of the termination or expiration of the Revolving Commitments; and

(d) to the Revolving Agent for the benefit of the L/C Issuer, upon the issuance, renewal, extension or continuation of each Letter of Credit by the L/C Issuer, an additional fee (the “ Letter of Credit Issuance Fee ”), plus applicable bank issuance charges, in an amount equal to 0.25% times the face amount of the Letter of Credit issued, renewed, extended or continued.

 

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ARTICLE IV

CONDITIONS TO LOANS

Section 4.01. Conditions Precedent to the Initial Loans . The obligation of each Lender to make the Loans requested, and the Obligation of the L/C Issuer to issue Letters of Credit to be issued by it on the Closing Date shall be subject to the satisfaction, or waiver by each of the Agents, of each of the following conditions precedent:

(a) Authority . Each of the Administrative Agent and the Revolving Agent shall have received certified copies of all resolutions, certificates or other documents evidencing other necessary corporate action and necessary approvals of any Governmental Authority, if any, with respect to the authorization for the execution, delivery and performance of each Loan Document by a Credit Party and for the consummation of the transactions contemplated thereby. All certificates shall state that the resolutions or other information referred to in such certificates have not been amended, modified, revoked or rescinded as of the Closing Date.

(b) Loan Documents . Each of the Administrative Agent and the Revolving Agent shall have received, on the Closing Date, counterparts of each of the following documents duly executed and delivered by each party thereto, and in full force and effect and in form and substance reasonably satisfactory to the Lenders:

(i) this Agreement;

(ii) the Notes, if any;

(iii) the Security Documents;

(iv) such corporate resolutions, certificates and other documents as the Administrative Agent reasonably requests; and

(v) each other Loan Document to be delivered on the Closing Date, in each case duly executed and delivered by the parties thereto and dated no later than the Closing Date, except for those Loan Documents that are dated prior to the Closing Date and have been delivered prior to the Closing Date to the Agents by the Credit Parties.

(c) Capital Stock; Perfection of Liens . All of the Capital Stock of each of the Credit Party’s Subsidiaries shall be owned by such Credit Party or one or more of such Credit Party’s Subsidiaries as described on Schedule 5.01(f) , in each case free and clear of any Lien (other than Permitted Liens). The Collateral Agent, on behalf of the Secured Parties, shall have a perfected first priority Lien and security interest in the Collateral (other than Permitted Liens); all filings, recordations and searches necessary or desirable in connection with such Liens and security interests shall have been duly made or arranged for; and all filing and recording fees and Taxes shall have been duly paid.

(d) No Material Adverse Effect . There shall not have occurred any event, circumstance, change or condition since December 31, 2006, which could reasonably be expected to have a Material Adverse Effect.

 

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(e) Minimum Consolidated EBITDA . Consolidated EBITDA for the twelve-month period ended November 30, 2007 shall be at least $27,000,000.

(f) Litigation . There shall exist no action, suit, claim, investigation, arbitration, litigation or proceeding or any judgments, decrees, injunctions, rules or orders of any governmental or regulatory agency or authority pending or, to the knowledge of the Credit Parties, threatened against or affecting any Credit Party or its property or assets, except for any of the foregoing that (i) could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and (ii) does not purport to adversely affect the legality, validity or enforceability of any Loan Document or the consummation of the Loans evidenced hereby and by the other Loan Documents.

(g) Consents, Etc. Each Credit Party shall have received all material consents and authorizations, if any, required pursuant to any Material Contract with any other Person and shall have obtained all material Permits of, or approvals from, and effected all notices to and filings with, any Governmental Authority as may be necessary to allow such Credit Party lawfully (i) to execute, deliver and perform, in all material respects, its respective obligations under the Loan Documents to which it is, or shall be, a party and each other agreement or instrument to be executed and delivered by it pursuant thereto or in connection therewith, (ii) consummate the transactions contemplated hereunder and under the other Loan Documents and (iii) create and perfect the Liens on the Collateral to the extent, in the manner and for the purpose contemplated by the Loan Documents. Each such consent, authorization, Permit, approval, notice or filing shall be in full force and effect and any condition to the continued effectiveness or validity of any such consent, authorization, Permit, approval, notice or filing shall have been satisfied or shall otherwise be acceptable to the Required Term Lenders. Each Credit Party shall have received all shareholder, Governmental Authority and material third-party consents, licenses and approvals necessary in connection with the execution and delivery of the Loan Documents and the transactions contemplated by the Loan Documents, and any applicable waiting period shall have expired without any action being taken by any Governmental Authority that could restrain, prevent or impose any material adverse conditions on such Credit Party or such transactions or that could seek to restrain or threaten any of the foregoing, and no law or regulation shall be applicable which in the reasonable judgment of any Agent could have such effect.

(h) Margin Regulations . All Loans to be made by the Lenders to the Borrower shall be in full compliance with the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System of the United States, as in effect from time to time.

(i) Insurance . Each of the Agents shall be satisfied with the amounts, types and terms and conditions of all insurance maintained by the Borrower. The Collateral Agent shall have received evidence that all insurance policies required to be maintained pursuant to Section 7.12 , including any insurance policies with respect to the properties of each Credit Party forming part of the Collateral, are in full force and effect, including endorsements in form and substance reasonably acceptable to each of the Agents naming the Collateral Agent as an additional insured and loss payee, as applicable.

 

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(j) Opinions of Borrower’s Counsel . The Lenders shall have received (i) the opinion of White & Case LLP, special counsel to the Credit Parties, in substantially the form of Exhibit F-1 and (ii) the opinion of Warren H. Johnson (Georgia), special counsel to certain of the Credit Parties in the form of Exhibit F-2 .

(k) Any fees and expenses required to be paid on or before the Closing Date and invoiced prior to the Closing Date shall have been paid, including those fees and expenses set forth in the Commitment Letter and Fee Letter.

(l) Collateral . (i) The Collateral Agent shall have received a letter duly executed by each Credit Party authorizing the Collateral Agent to file appropriate financing statements in such offices as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interests on the Collateral to be created by the Loan Documents;

(ii) The Collateral Agent shall have received, on or before the Closing Date, (A) all of the certificated Securities then owned by each of the Company and its Subsidiaries that are to be pledged pursuant to the Security Agreement, together with executed and undated transfer powers in the case of such certificated Securities and (B) all other items required to be delivered pursuant to the Security Documents; and

(iii) The Collateral Agent shall have received certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11) or similar search reports certified by a party acceptable to the Collateral Agent, dated a date reasonably near (but prior to) the Closing Date, listing all effective UCC financing statements, tax liens and judgment liens which name any Credit Party as the debtor, and which are filed in the jurisdictions in which the Credit Parties are organized, together with copies of such financing statements, none of which (other than financing statements filed pursuant to the terms hereof in favor of the Administrative Agent, if such Form UCC-11 or search report, as the case may be, is current enough to list such financing statements) shall cover any of the Collateral, other than Liens existing on the date hereof and listed on Schedule 8.01 ;

(iv) The Collateral Agent, on behalf of the Secured Parties, shall be satisfied that, upon the making of Loans hereunder, it shall have a perfected first priority Lien and security interest in the Collateral, subject only to Permitted Liens and there shall be no other Liens on or against the assets or properties of the Credit Parties or their Subsidiaries (other than Permitted Liens); all filings, recordations and searches necessary or desirable in connection with such liens and security interests (including UCC, tax lien and litigation searches) shall have been duly made or arranged for, and the results of which shall have been reasonably satisfactory to the Lenders; and all filing and recording fees and taxes shall have been duly paid.

(m) Good Standing Certificates . Each of the Administrative Agent and the Revolving Agent shall have received, on the Closing Date, governmental certificates, dated the most recent practicable date prior to the Closing Date, showing that each Credit Party is organized and in good standing in the jurisdiction of its organization, and is qualified as a foreign corporation and in good standing in all other jurisdictions in which it is qualified to transact business except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect.

 

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(n) Organizational Documents . Each of the Administrative Agent and the Revolving Agent shall have received on the Closing Date, a copy of the certificate of incorporation or certificate of formation, as applicable, and all amendments thereto of each Credit Party, certified as of a recent date by the appropriate government official of the jurisdiction of its organization, and copies of each Credit Party’s by-laws or limited liability company agreement, as applicable, certified by the Secretary, Assistant Secretary or managing member, as applicable, of such Credit Party as true and correct as of the Closing Date.

(o) Financial Statements . Each of the Administrative Agent and the Revolving Agent shall have received the 2007 Financial Statements, and all financial statements and projections described in Section 5.01(h) in form and substance reasonably satisfactory to the Administrative Agent and the Revolving Agent.

(p) Certificates .

(i) Each of the Administrative Agent and the Revolving Agent shall have received, on the Closing Date, certificates of the Secretary, Assistant Secretary or managing member of each Credit Party, dated the Closing Date, as to the incumbency and signatures of its officers executing this Agreement and each other Loan Document to which such Credit Party is a party and any other certificate or other document to be delivered pursuant hereto or thereto, together with evidence of the incumbency of such Secretary, Assistant Secretary or managing member.

(ii) Each of the Administrative Agent and the Revolving Agent shall have received, on the Closing Date, the certificate of a Senior Officer of each Credit Party, dated the Closing Date, stating that all of the representations and warranties of such Credit Party contained herein or in any of the other Loan Documents are true and correct in all material respects on and as of the Closing Date as if made on such date (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date), that no breach of any covenant contained in Article VII , Article VIII or Article IX has occurred or would result from the execution, delivery of and performance under this Agreement and the transactions contemplated hereunder, and that all of the conditions set forth in this Section 4.01 have been satisfied on such date (or shall, to the extent permitted herein, be satisfied substantially simultaneously with the incurrence of Loans on the Closing Date).

(q) Representations and Warranties . Both before and after giving effect to the Loans to be made on the Closing Date, as the case may be, all of the representations and warranties of any Credit Party contained in Article V and in the other Loan Documents shall be true and correct in all material respects (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date).

 

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(r) No Defaults . No Event of Default or Default, and no default under any other Loan Document, shall have occurred and be continuing or would result from the execution and delivery of, or the performance under, the Loan Documents, or making the requested Loans or the application of the proceeds therefrom.

(s) Plan of Reorganization . The Plan of Reorganization shall have, or contemporaneous with the Closing Date and the effectiveness of this Agreement and the making of the initial Loans hereunder will, become effective, without waiver or modification of any condition to effectiveness that would individually or in the aggregate be adverse to the interests of the Lenders, except those reasonably consented to in writing by the Administrative Agent. The Confirmation Order shall not have been stayed, reversed, vacated or otherwise modified in any manner that is adverse to the interests of the Lenders.

(t) Closing Date Cash Proceeds . The Company shall have received net cash proceeds of at least $71,000,000 (seventy one million Dollars) from the rights offering, private placement and/or backstop purchase agreement as specified in the Plan of Reorganization and such proceeds shall be available and, together with the proceeds of the Loans and cash on hand, sufficient to effectuate payment of all obligations to be discharged under the Confirmation Order and Plan of Reorganization.

(u) Closing Date . The Closing Date shall occur by not later than January 31, 2008.

(v) Ratings . Initiation of the process of obtaining ratings of the Company and the Loans from Moody’s, it being understood that the issuance of any such rating and the rating itself are not conditions to the Closing Date.

(w) Background Checks . Each Agent shall have concluded background checks and other investigations it customarily employs to ensure compliance with the Patriot Act, Patriot Act-Related Requirements, anti-money laundering laws and other Applicable Laws and regulations with results satisfactory to each Agent.

(x) Cash Availability . On the Closing Date, Liquidity shall be equal to or greater than $27,000,000 (after giving effect to any Loans made and Letters of Credit issued on the Closing Date and to the payment of all amounts required to be paid under the Confirmation Order and Plan of Reorganization).

(y) Mortgaged Properties . The Administrative Agent shall have received:

(i) fully executed and notarized Mortgages, in proper form for recording in each applicable jurisdiction, encumbering each Mortgaged Property;

(ii) an opinion of counsel (which counsel shall be reasonably satisfactory to the Agents) in each state in which a Mortgaged Property is located with respect to the enforceability of the Mortgage to be recorded in such state and such other matters as any Agent may reasonably request, in each case in form and substance reasonably satisfactory to the Agents;

 

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(iii) binding and effective ALTA mortgagee title insurance policies or unconditional commitments therefor issued by one or more title companies reasonably satisfactory to the Agents (the “ Title Company ”) with respect to each Mortgaged Property (each, a “ Title Policy ”), with such reinsurance arrangements, if any, as are reasonably acceptable to the Agents, each in an amount equal to 125% of the fair market value of such Mortgaged Property, insuring the Collateral Agent, as agent for the Secured Parties, that the Credit Parties are vested with good and marketable fee simple title to such Mortgaged Property and that the Mortgage insured thereby creates a valid and enforceable first priority Lien on such Mortgaged Property in favor of the Collateral Agent, for the benefit of the Secured Parties; and

(iv) such other information, documentation, and certifications as may be reasonably required by any Agent as may be necessary or appropriate to effectuate the conditions set forth in this Section 4.01(y) .

(z) Cash Management .

(i) The Credit Parties shall have established and maintained cash management services of a type and on terms satisfactory to the Collateral Agent at one or more of the banks set forth on Schedule 5.01(t) (each a “ Cash Management Bank ”), and shall have requested in writing and otherwise taken such reasonable steps to ensure that all of their domestic Account Debtors forward payment of the amounts owed by them directly to a Deposit Account subject to a Control Agreement (other than with respect to the Excluded Account) at a Cash Management Bank.

(ii) Each Cash Management Bank shall have established and maintained Control Agreements with the Collateral Agent covering the Deposit Accounts of each Credit Party (other than the Excluded Account) in form and substance reasonably acceptable to each of the Agents. Each such Control Agreement shall have provided, among other things, that (A) the Cash Management Bank will comply with any instructions originated by the Collateral Agent directing the disposition of the funds in such Deposit Account without further consent by any Credit Party, (B) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Deposit Account, other than for payment of its service fees and other charges directly related to the administration of such Deposit Account and for returned checks or other items of payment, and (C) it will, following notice from the Collateral Agent, forward by daily sweep all amounts in the Deposit Accounts to the Collateral Agent’s account.

Section 4.02. Conditions Precedent to Revolving Loans and Issuances, Renewals or Extensions of Letters of Credit . The obligation of each Revolving Lender to make any Revolving Loan requested to be made by it on any Funding Date on or after the Closing Date and the obligation of the L/C Issuer to issue, renew or extend any Letter of Credit on any Business Day on or after the Closing Date are subject to the satisfaction or waiver of each of the following conditions precedent as of each such date and after giving effect to such transaction:

(a) Representations and Warranties . As of such date, both before and after giving effect to the Loans to be made on such date or the issuance, renewal, extension or continuation of any Letter of Credit on such date, as the case may be, all of the representations and warranties of any Credit Party contained in Article V and in the other Loan Documents shall be true and correct in all material respects (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date).

 

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(b) No Events of Default . As of such date, no Default or Event of Default shall have occurred and be continuing or would result therefrom.

(c) No Change in Condition . There shall not have occurred any event or condition since December 31, 2006, which could reasonably be expected to have a Material Adverse Effect.

(d) No Legal Impediment . No injunction, writ, restraining order, or other order of any nature (whether temporary, preliminary or permanent) restricting or prohibiting, directly or indirectly, the extending or continuing of such credit shall have been issued and remain in force by any Governmental Authority against the Borrower, any Agent or any Participating Lender, and such extension or continuation of credit shall not violate any requirement of Applicable Law; provided , however , that each Agent and Participating Lender, with respect to such Agent or Participating Lender, if reasonably requested in writing by the Borrower and at Borrower’s sole expense, agrees to use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for this Agreement, with the object of avoiding the consequence of the event giving rise to the operation of Section 3.04, provided further that, such designation can be and is made on such terms that such Agent or Participating Lender and its lending offices suffer no economic, legal or regulatory disadvantage.

(e) No Overadvance . After giving effect to any Revolving Loan or the issuance of any Letter of Credit, the Aggregate Revolving Exposure of all Revolving Lenders shall not exceed the Total Revolving Commitments of all Revolving Lenders at such time.

Each request by the Borrower for a Loan, each submission by the Borrower of a Notice of Borrowing or a request for a Letter of Credit, and each acceptance by the Borrower of the proceeds of each Loan made hereunder shall constitute a representation and warranty by the Borrower, as of the Funding Date in respect of such Loan, or as of the date on which any Letter of Credit is issued, renewed, extended or continued, as the case may be, that all conditions set forth in this Section 4.02 have been satisfied.

Section 4.03. Post Closing Conditions . The Credit Parties shall fulfill the obligations set forth on Schedule 4.03.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

Section 5.01. Representations and Warranties . In order to induce the Agents and Participating Lenders to enter into this Agreement and to make the Loans or issue Letters of Credit, as the case may be, each Credit Party hereby represents and warrants as follows:

(a) Organization, Good Standing, Etc. Each Credit Party (i) is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to conduct its business as now conducted and as presently contemplated, to make the borrowings hereunder (in the case of the Borrower), to execute and deliver each Loan Document to which it is a party, and to consummate the transactions contemplated thereby, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary for its business as currently conducted save for those jurisdictions where failure to be so qualified does not or could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

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(b) Authorization, No Conflict, Etc. The execution, delivery and performance by each Credit Party of each Loan Document to which it is or will be a party and the transactions contemplated thereunder, (i) have been or, with respect to such Credit Parties formed or acquired hereafter, will be, duly authorized by all necessary corporate, limited liability company or partnership action, as applicable, (ii) do not and will not contravene its Governing Documents, (iii) do not and will not violate any Requirements of Law or any Material Contract of such Credit Party binding on or otherwise affecting it, any of its Subsidiaries or any of its properties or its Subsidiaries’ properties except where failure to do so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and (iv) do not and will not result in or require the creation of any Lien (other than Permitted Liens or pursuant to any Loan Document) upon or with respect to any of its properties or its Subsidiaries’ properties.

(c) Governmental Approvals . No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority that has not been obtained is required in connection with the due execution, delivery and performance by each Credit Party of each Loan Document to which it is a party.

(d) Enforceability of Loan Documents . Each of the Loan Documents to which a Credit Party is a party has been duly executed and delivered by such Credit Party and constitutes the legal, valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, or by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

(e) Capitalization . On the Closing Date, (i) the authorized Capital Stock of each of the Credit Parties and each of their Subsidiaries, and the issued and outstanding Capital Stock of each of the Credit Parties and each of their Subsidiaries, are as set forth on Schedule 5.01(e) ; (ii) all of the issued and outstanding shares of Capital Stock of the Borrower and each of its Subsidiaries have been validly issued and, to the extent applicable, are fully paid and nonassessable, and the holders thereof are not entitled to any preemptive, first refusal or other similar rights; (iii)  Schedule 5.01(e) sets forth each plan pursuant to which shares of the Capital Stock of each of the Credit Parties and each of their Subsidiaries are issuable as of such date, copies of which plans have been delivered to the Administrative Agent and the Revolving Agent under this Agreement, in the form and on the terms in effect on such date, and the number of shares of Capital Stock of the Borrower and each of its Subsidiaries and each such subsidiary issuable under each such plan; (iv) except as set forth on Schedule 5.01(e) , there are no other plans or arrangements in existence relating to the issuance of shares of Capital Stock of any Subsidiary of any of the Credit Parties; and (v) except as set forth on Schedule 5.01(e) , there are no outstanding debt or equity securities of the Borrower or any of its Subsidiaries, and no outstanding obligations of any of the Credit Parties or any of its Subsidiaries convertible into or exchangeable for, or warrants, options or other rights for the purchase or acquisition from any of the Credit Parties or any of their Subsidiaries or other obligations of any of the Credit Parties or any of their Subsidiaries, to issue, directly or indirectly, any shares of Capital Stock of any such Person.

 

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(f) Subsidiaries . Schedule 5.01(f) is a complete and correct description of the name, jurisdiction of organization and ownership of the outstanding Capital Stock of each Subsidiary of the Credit Parties in existence on the Closing Date hereof. All of the issued and outstanding shares or units of Capital Stock of such Subsidiaries have been validly issued and are fully paid and nonassessable, and the holders thereof are not entitled to any preemptive, first refusal or other similar rights. Except as indicated on such Schedule 5.01(f) , all such Capital Stock is owned by one of the Credit Parties or one or more of their Wholly-Owned Subsidiaries. Except as set forth on Schedule 5.01(f) , there are no subscriptions, options, warrants, or calls relating to any shares of any Credit Party’s Subsidiaries’ Capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. No Credit Party or any of its Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of any Credit Party’s Subsidiaries’ Capital Stock or any security convertible into or exchangeable for any such Capital Stock.

(g) Litigation . As of the Closing Date, there is no pending, or to the knowledge of such Credit Party threatened, action, suit or proceeding affecting any Credit Party, its Subsidiaries or any of its respective properties or assets before any court or other Governmental Authority or any arbitrator that, individually or in the aggregate, (i) would reasonably be expected to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of any Loan Document or the consummation of the Loans evidenced hereby and by the other Loan Documents.

(h) Financial Condition; Material Adverse Effect .

(i) The 2007 Financial Statements, copies of which have been delivered to the Administrative Agent and the Revolving Agent, and any financial statements delivered pursuant to Section 6.01 , fairly present, in all material respects, the consolidated financial condition of the Company as at the respective dates thereof and the consolidated results of operations of the Company, the Credit Parties and their Subsidiaries for the fiscal periods ended on such respective dates, all in accordance with GAAP.

(ii) The Credit Parties have heretofore furnished to the Administrative Agent and the Revolving Agent projected annual balance sheets, income statements and statements of cash flows of the Company and its Subsidiaries, determined on a consolidated basis and in accordance with GAAP, for each Fiscal Year from and including the Fiscal Year ending December 31, 2007 to and including the Fiscal Year ending December 31, 2011. Such projections have been prepared in good faith based upon accounting principles consistent with the historical financial statements of the Company and are based upon stated assumptions that are reasonably believed by the Credit Parties to have been accurate (A) at the time made (B) at each time such projections are made available to any Agent or Lender or any of their Affiliates and (C) as of the Closing Date.

 

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(iii) As of the Closing Date, since December 31, 2006, no event or development has occurred and is continuing that has had or could reasonably be expected to have a Material Adverse Effect.

(i) Compliance with Law, Etc. No Credit Party or any Subsidiary of any Credit Party is in violation of its Governing Documents, any Requirements of Law, any judgment or order of any Governmental Authority applicable to it or any of its property or assets, or any material term of any Material Contract binding on it or any of its properties except for any such violations which, individually or in the aggregate, have not had and could not reasonably be expected to have a Material Adverse Effect. Each Credit Party and each Subsidiary of each Credit Party has policies in place to observe the requirements of the Patriot Act-Related Requirements consistent with U.S. industry practice.

(j) ERISA . None of the Credit Parties nor any ERISA Affiliate has (i) any “accumulated funding deficiency” (within the meaning of Section 412 of the Code and Section 302 of ERISA), whether or not waived, with respect to any Benefit Plan, (ii) failed to make any contribution or payment to any Benefit Plan which has resulted, or could reasonably be expected to result, in the imposition of a Lien or the posting of a bond or other security under Section 302(f) of ERISA or Section 401(a)(29) of the Code, (iii) incurred, or is reasonably likely to incur, any material liability under Title IV of ERISA (other than a liability to the U.S. Pension Benefit Guaranty Corporation for premiums under Section 4007 of ERISA) or (iv) violated any provision of ERISA that individually or in the aggregate can reasonably be expected to result in a Material Adverse Effect. None of the Credit Parties nor any ERISA Affiliate is obligated to contribute to a Multiemployer Plan.

(k) Taxes, Etc. Save in respect of the Fiscal Years of the Borrower ending December 31, 2005, December 31, 2006 and December 31, 2007 all material, Federal, state, foreign, provincial and local Tax returns and other reports (all such returns for all years, whether or not filed, the “ Applicable Tax Returns ”) required by Applicable Law to be filed by any Credit Party or any Subsidiary of a Credit Party have been filed, or extensions have been obtained, except to the extent subject to a Permitted Protest, and all Taxes due and payable (the “ Applicable Taxes ”) and all assessments, fees, applicable penalties, if any, and all other governmental charges upon such Credit Party and any Subsidiary of a Credit Party and upon its properties, assets, income, businesses and franchises that are due and payable have been paid, except to the extent subject to a Permitted Protest, and with respect to the Tax Returns in respect of the Fiscal Years of the Borrower ending December 31, 2005, December 31, 2006 and December 31, 2007, not yet filed, the aggregate liability as a result thereof does not exceed $2,000,000. All returns and reports filed are true, correct and complete in all material respects. Except as set forth in Schedule 5.01(k) , no taxing authority has, or has asserted, a right to a Lien on any assets of any Credit Party or Subsidiary of a Credit Party and with respect to each item listed on Schedule 5.01(k) , the Company has fully paid the tax liability associated therewith or will do so on the Closing Date. Each taxing authority with jurisdiction over the Credit Parties and with whom any Credit Party or any Subsidiary of a Credit Party should have and did not file an Applicable Tax Return received due, timely and proper notice of (a) the applicable bar date for filing a proof of claim in the Chapter 11 Cases; (b) notice of the hearing to approve the disclosure statement in the Chapter 11 Cases; and (c) the confirmation of the Plan of Reorganization and, in each case, proof of such service was filed with the Bankruptcy Court. All claims arising out of or related to the Applicable Tax Returns not filed would fall under Section 6.3 of the Plan of Reorganization and except to the extent expressly set forth therein, have been discharged by the Order confirming the Plan of Reorganization. Proper and accurate amounts have been withheld by each Credit Party and each Subsidiary of a Credit Party from its employees for all periods in compliance in all material respects with the federal, state, local, foreign or other tax, social security and unemployment withholding provisions of Applicable Law and such withholdings have been paid to the respective Governmental Authorities, except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

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(l) Margin Regulations . No Credit Party is, nor will any Credit Party be engaged, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U or X), and no proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. The Loans, the use of proceeds thereof and the pledge of the Collateral pursuant to the Security Documents do not violate Regulation T, U or X.

(m) Permits, Etc. Each Credit Party and any Subsidiary of a Credit Party has, and is in compliance with, all material permits, licenses, authorizations, approvals, entitlements and accreditations (collectively, the “ Permits ”) required for such Person lawfully to own, lease, manage or operate each business and Property currently owned, leased, managed or operated by such Person, except where the failure to have or to so comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. No condition exists or event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any Permit, and there is no claim that any portion thereof is not in full force and effect, except for any condition or event which, individually or in the aggregate, does not or could not, reasonably be expected to have a Material Adverse Effect.

(n) Properties . All Property of each Credit Party and any Subsidiary of a Credit Party material to its business is in good working order and condition, ordinary wear and tear excepted, except to the extent that the failure to be in such condition could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(o) Real Estate . (i) As of the Closing Date, Schedule 5.01(o) contains a true, accurate and complete list of (A) all Real Estate Assets and (B) all existing leases, subleases and any other occupancy agreements to which any Credit Party is a party with respect to any Real Estate Asset, regardless of whether such Credit Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease or other agreement (each such agreement, together with all amendments, modifications, supplements, renewals or extensions of any thereof, a “ Lease ”). Each Credit Party has, and is the sole owner of, good, insurable and marketable fee simple title to all of its owned Real Estate Assets or a good and valid leasehold estate and title in and to its leased Real Estate Assets, and has all necessary right, power and authority to mortgage, encumber, give, grant, bargain, sell, convey, confirm, pledge, assign, and hypothecate all of the Real Estate Assets in accordance with the terms of this Agreement. Except as identified on Schedule 5.01(o) , each Lease is in full force and effect and no Credit Party has any knowledge of any default that has occurred and is continuing thereunder, except for defaults as may have occurred as a result of the commencement of the Chapter 11 Cases on the Commencement Date. Each Lease constitutes the legally valid and binding obligation of each applicable Credit Party, enforceable against such Credit Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles.

 

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(ii) Condemnation . As of the Closing Date, there are neither any actual, nor, to the knowledge of any Credit Party, any threatened or contemplated condemnation or eminent domain proceedings that affect any Real Estate Asset or any part thereof, and no Credit Party has received any notice, oral or written, of the intention of any Governmental Authority or other Person to take or use all or any part thereof.

(iii) Encroachments . No improvements constituting a part of any Real Estate Asset encroach on any real property not owned or leased by a particular Credit Party.

(iv) Repairs and Alterations . As of the Closing Date, no Credit Party has received any notice from any insurance company which has issued an insurance policy with respect to any Real Estate Asset requesting performance of any structural or other repairs or alterations to such Real Estate Asset.

(v) Access to Public Streets . Except as indicated on a title policy insuring the Mortgage encumbering any particular Real Estate Asset, each parcel (or group of parcels) comprising such particular Real Estate Asset is located on public roads and streets with adequate ingress and egress available between such streets and such Real Estate Asset or otherwise has access to public roads and streets pursuant to access easements benefiting such Real Estate Asset.

(vi) Utilities . All utility systems required in connection with the use, occupancy and operation of each Real Estate Asset are sufficient for their present purposes, are fully operational and in working order, and are benefited by customary utility easements providing for the continued use and maintenance of such systems or, in the case of a leased Real Estate Asset, the Credit Party leasing the same has valid and enforceable rights to the same under the applicable Lease or otherwise.

(vii) Parking . Each Real Estate Asset consists of or otherwise has rights to use sufficient land, parking areas, sidewalks, driveways and other improvements to permit the continued use of such Real Estate Asset in the manner and for the purposes to which it is presently devoted.

 

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(p) Full Disclosure . None of the reports, financial statements, certificates or other written information furnished by or on behalf of a Credit Party to the Administrative Agent, the Revolving Agent or the Collateral Agent under this Agreement or any other Loan Document in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in the light of the circumstances under which it was made, not materially misleading; provided that to the extent any such reports, financial statements, certificates or other written information therein was based upon or constitutes a forecast or projection, the Credit Parties represent only that the Credit Parties acted in good faith and utilized assumptions reasonably believed by them to be accurate (i) at the time made (ii) at each time such projections are made available to any Agent or Lender or any of their Affiliates and (iii) as of the Closing Date. There are no contingent liabilities or obligations that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(q) Environmental Matters . Except as set forth on Schedule 5.01(q) , (i) the operations of each Credit Party and any Subsidiary of a Credit Party are and have been in material compliance with all applicable Environmental Laws, (ii) there has been no Release on, in, at, to, from or under any of the properties currently or formerly owned or operated by any Credit Party or any Subsidiary of a Credit Party or a predecessor in interest that could reasonably be expected to result in any material Environmental Liabilities and Costs to any Credit Party or any Subsidiary of a Credit Party, (iii) no Environmental Action has been asserted or threatened in writing against any Credit Party or any Subsidiary of a Credit Party which is unresolved, nor to the knowledge of any Credit Party are there any threatened Environmental Actions against a Credit Party or any Subsidiary of a Credit Party that in either case could reasonably be expected to result in any material Environmental Liabilities and Costs to any Credit Party or any Subsidiary of a Credit Party, (iv) to the knowledge of the Credit Parties no Environmental Action has been asserted against any facilities that may have received Hazardous Materials generated by a Credit Party or any Subsidiary of a Credit Party or any predecessor in interest that could reasonably be expected to result in any material Environmental Liabilities and Costs to any Credit Party or any Subsidiary of a Credit Party, (v) none of the Credit Parties or any Subsidiary of a Credit Party is subject to any outstanding order, decree, injunction or other agreement with any Governmental Authority or any indemnity or other agreement (other than routine permits, approvals, credit agreements and lease terms) imposing obligations with any third party relating to any Environmental Law that could reasonably be expected to result in any material Environmental Liabilities and Costs to any Credit Party or any Subsidiary of a Credit Party, (vi) to the knowledge of any Credit Parties there are no other circumstances or existing conditions involving any Credit Party or any Subsidiary of a Credit Party that could reasonably be expected to result in any such Credit Party or Subsidiary of a Credit Party becoming the subject of any Environmental Actions or material Environmental Liabilities and Costs including any material restriction on the ownership, use, or transfer of any property in connection with any Environmental Law, and (vii) the Credit Parties and any Subsidiary of a Credit Party made available to the Administrative Agent and the Revolving Agent copies of all material environmental reports, studies, assessments, sampling data and other material environmental documents in its possession relating to the Credit Parties and any Subsidiary of a Credit Party and their current and former properties and operations.

 

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(r) Insurance . Each Credit Party and each Subsidiary of a Credit Party maintains (either in the name of such Credit Party or in such Subsidiary’s own name) insurance with financially sound and reputable insurance companies or associations (including, without limitation, commercial general liability, property and business interruption insurance) with respect to its Properties (including all Real Estate Assets leased or owned by it) and business, in such amounts and covering such risks as is required by any Governmental Authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies of similar size in similar businesses similarly situated. All property policies covering the Collateral name the Collateral Agent as an additional insured or loss payee, in case of loss. Schedule 5.01(r) sets forth a list of all insurance maintained by such Credit Party or any Subsidiary of a Credit Party on the Closing Date.

(s) Solvency . On the Closing Date, on the date of each borrowing under Section 1.01(b) and on the date of the issuance, renewal or extension of any Letter of Credit under Section 1.06(a) , 1.06(b) or 1.06(d) , the Credit Parties, taken as a whole, are Solvent after giving effect to the transactions effected by the Loan Documents.

(t) Location of Bank Accounts . (i)  Schedule 5.01(t)(i) sets forth a complete and accurate list as of the Closing Date of all Deposit Accounts, commodities accounts and Securities Accounts of the Credit Parties and (ii)  Schedule 5.01(t)(ii) sets forth a complete and accurate list as of the Closing Date of all Deposit Accounts, commodities accounts and Securities Accounts of each Foreign Subsidiary, in each case, from which any of the Credit Parties receives cash in the ordinary course of business or on a regular basis (with respect to the Deposit Accounts), together with a description thereof (i.e., the bank or broker-dealer at which such Deposit Account or Securities Account is maintained, and the account number and the purpose thereof).

(u) Intellectual Property . (i) Each Credit Party and each Subsidiary of a Credit Party owns or has a right to use all the Intellectual Property that is used in the conduct of its business as currently conducted (the “ Company Intellectual Property ”). Schedule 5.01(u) to this Agreement is, as of the Closing Date or as of the most recent update thereof, a true, correct, and complete listing of all Registered Intellectual Property, material unregistered Trademarks and material unregistered Software as to which each Credit Party or Subsidiary of a Credit Party is the owner or is an exclusive licensee (collectively, “ Scheduled Intellectual Property Collateral ”).

(ii) Except as set forth in Schedule 5.01(u) :

(A) to the knowledge of each Credit Party and each Subsidiary of any Credit Party, the Company Intellectual Property owned or exclusively licensed by any Credit Party or Subsidiary does not misappropriate, infringe or otherwise violate any rights of any other Person. No Credit Party or Subsidiary of any Credit Party has received any demand, claim, notice, injunction, decree, order, judgment, award or inquiry from any Person in respect of the Company Intellectual Property which challenges, threatens to challenge or inquires as to whether there is any basis to challenge the validity or enforceability of the rights of, or the ownership by, any Credit Party or any Subsidiary of any Credit Party in, or the right of any Credit Party or any Subsidiary of any Credit Party to use, any such Company Intellectual Property, and no Credit Party nor any Subsidiary of any Credit Party knows of any basis for any such challenge;

 

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(B) no Credit Party or Subsidiary of any Credit Party has received any notice of any violation or infringement of any proprietary rights of any other Person that could reasonably be expected to result in a Material Adverse Effect;

(C) to the knowledge of each Credit Party and each Subsidiary of any Credit Party, no other Person is misappropriating, infringing or otherwise violating any rights of any Credit Party or any Subsidiary of any Credit Party in the Company Intellectual Property. No Credit Party or Subsidiary of any Credit Party is pursuing any claim or cause of action against any Person for infringement of the Company Intellectual Property owned or exclusively licensed by only Credit Party or Subsidiary of any Credit Party that could reasonably be expected to result in a Material Adverse Effect.

(v) Material Contracts . Set forth on Schedule 5.01(v) is a complete and accurate list of all Material Contracts to which any Credit Party or any Subsidiary of a Credit Party is a party, showing the parties and subject matter thereof and amendments and modifications thereto. As of the Closing Date, no Credit Party nor any Subsidiary of any Credit Party is in default under any Material Contract.

(w) Investment Company Act . None of the Credit Parties is, or is controlled by, an “investment company” or an “affiliated person” or “promoter” of, or “principal underwriter” of or for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

(x) Employee and Labor Matters . As of the Closing Date there is (i) no unfair labor practice complaint pending or, to the best of any Credit Party’s or any Subsidiary of a Credit Party’s knowledge, threatened against any Credit Party or any Subsidiary of a Credit Party before any Governmental Authority and no grievance or arbitration proceeding pending or, to the best of such Credit Party’s or any Subsidiary of such Credit Party’s knowledge, threatened against any Credit Party or any Subsidiary of a Credit Party which arises out of or under any collective bargaining agreement, and (ii) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or, to the best of such Credit Party’s or any Subsidiary of a Credit Party’s knowledge, threatened against any Credit Party or any Subsidiary of a Credit Party that, in the case of clause (i)  or (ii)  could reasonably be expected to have a Material Adverse Effect.

(y) Location of Collateral; Chief Place of Business; Chief Executive Office FEIN; Name . The Perfection Certificate sets forth a complete and accurate list as of the Closing Date of (i) each place of business (other than a location that is only a sales office) of each Credit Party, (ii) the chief executive office of each Credit Party, (iii) the exact legal name of each Credit Party, (iv) the jurisdiction of organization of each Credit Party, (v) the organizational identification number of each Credit Party (or indicates that such Credit Party has no organizational identification number) and (vi) the federal employer identification number of such Credit Party.

 

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(z) Collateral; Records; Commercial Tort Claims . Each material item of Collateral of the Credit Parties and their Subsidiaries is used or held for use in their business and is in good working order, ordinary wear and tear and damage by casualty excepted. Each Credit Party keeps materially correct, complete and accurate books and records. Schedule 5.01(z) sets forth a true and complete list of all material commercial tort claims of each of the Credit Parties.

(aa) Security Interests . Each Security Document creates in favor of the Collateral Agent a legal, valid and enforceable security interest in the Collateral purported to be secured thereby. Upon the filing of the UCC-1 financing statements and the recording of the collateral assignments for security referred to in the Security Agreement in the United States Patent and Trademark Office and the United States Copyright Office, such security interests in and Liens on the Collateral granted thereby shall be perfected security interests (to the extent the Collateral is governed by Article 9 of the UCC or constitutes Intellectual Property) and no further recordings or filings are or will be required in connection with the creation, perfection or enforcement of such security interests and Liens, other than (i) the filing of continuation statements or financing change statements in accordance with Applicable Law, (ii) the recording of the collateral assignments for security pursuant to the Security Agreement in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, with respect to after-acquired United States patent and trademark applications and registrations and United States copyrights and additional filings and/or other actions as may be required to perfect the Collateral Agent’s Lien in Registered Intellectual Property under the laws of a jurisdiction outside the United States and (iii) additional filings if a relevant Credit Party changes its name, identity or organizational structure or the jurisdiction in which each relevant Credit Party is organized.

(bb) Foreign Assets Control Regulations, Etc. Neither the execution and delivery of, nor the borrowing under any Loan Document, nor the use of proceeds from any Loan will violate (i) the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto, (ii) the Patriot Act or (iii) Executive Order No. 13,224, 66 Fed. Reg. 49,079 (2001), issued by the President of the United States (Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism). Without limiting the foregoing, none of the Credit Parties is or will become a “blocked person” as described in Section 1 of such Executive Order or engages or will engage in any dealings or transactions with, or is otherwise associated with, any such blocked person.

(cc) Ownership of Collateral . Each Credit Party has good and indefeasible title to, or a valid leasehold interest in, the Collateral, in each case, free and clear of Liens except for Permitted Liens.

(dd) Payments under Plan . No Credit Party and no Subsidiary of any Credit Party has or will make any payments on Indebtedness that arose prior to the commencement of the Chapter 11 Cases except in accordance with the Plan of Reorganization or the Confirmation Order or as otherwise authorized by order of the Bankruptcy Court entered prior to December 21, 2007.

 

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ARTICLE VI

REPORTING COVENANTS

Each Credit Party covenants and agrees jointly and severally that, from and after the date hereof (except as otherwise provided herein, or unless the Required Lenders have given their prior written consent) until all amounts owing hereunder or under any Security Document or in connection herewith or therewith have been paid in full, that:

Section 6.01. Financial Statements . Each Credit Party (i) shall keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which true and correct entries shall be made of all material financial transactions and the assets and business of each Credit Party and each such Subsidiary and (ii) shall maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated financial statements in conformity with GAAP, and each of the financial statements described below shall be prepared from such system and records. The Borrower shall deliver or cause to be delivered to the Agents and the Documentation Agent, in form and detail satisfactory to the Agents:

(a) Monthly Reports . As soon as available, but in any event within thirty five (35) days after the end of each Fiscal Month (including the last month of each Fiscal Year commencing with the Fiscal Month (and the year-to-date) ending December 31, 2007), (i) a consolidated balance sheet for the Company and its Subsidiaries as at the end of such Fiscal Month (and showing the same period from the previous Fiscal Year), (ii) the related consolidated statements of income of the Company and its Subsidiaries for such Fiscal Month (and the year-to-date), (iii) the related consolidated statements of cash flow of the Company and its Subsidiaries for such Fiscal Month and (iv) schedules of revenue backlog, surety obligations and outstanding Letters of Credit, in each case, in a form reasonably satisfactory to the Administrative Agent and the Revolving Agent, and certified by a Senior Officer of the Company as fairly presenting, in all material respects, the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations for the Fiscal Months indicated, such consolidated balance sheets and consolidated statements of income in accordance with GAAP, subject to normal year-end adjustments and the absence of footnotes.

 

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(b) Certificates . (i) Together with each delivery of any financial statement pursuant to subsection (a)  of this Section 6.01 , an Officer’s Certificate substantially in the form of Exhibit G (the “ Monthly Officer’s Certificate ”), executed by a Senior Officer of the Company, stating that, as of such date, such Senior Officer has reviewed the terms of the Loan Documents, and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and consolidated financial condition of the Company and its Subsidiaries during the accounting period covered by such financial statements, that such review has not disclosed the existence during or at the end of such accounting period, and that such officer does not have knowledge of the existence as at the date of such Officer’s Certificate, of any condition or event which constitutes an Event of Default or a continuing Default, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company and its Subsidiaries have taken, are taking and propose to take with respect thereto and (ii) together with the delivery of any financial statements pursuant to subsection (a) of this Section 6.01 for the third, sixth, ninth and twelfth Fiscal Months of each Fiscal Year, (A) a certificate substantially in the form of Exhibit H (the “ Quarterly Compliance Certificate ”), signed by the Company’s chief financial officer, chief executive officer or controller, setting forth calculations (with such specificity as the Administrative Agent may reasonably request) for the period then ended which demonstrate compliance, when applicable, with the provisions of Section 2.02, ARTICLE VIII and ARTICLE IX during such period, and (B) a certificate executed by the corporate secretary of the Company, stating that, as of such date, all of the representations and warranties of each Credit Party contained in Article V and in the other Loan Documents are true and correct in all material respects (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date) and providing, as an attachment thereto updated Schedules to such representations and warranties to reflect matters or events occurring from the date of the prior certificate delivered pursuant to this Section 6.01(b)(i)(B) to the date of such certificate (or, in the case of the first certificate delivered hereunder, from the Closing Date to the date of such certificate), and (iii) together with each delivery of the annual financial projections pursuant to subsection (c)  of this Section 6.01 , (A) a supplemental update to the Perfection Certificate or a confirmation that the information contained in such Perfection Certificate (as supplemented prior to such date) remains true and complete, and (B) a supplemental update to Schedule 5.01(t)(ii) or a confirmation that the information contained in such schedule (as supplemented prior to such date) remains true and complete, in each case, certified by an Authorized Officer of the Company.

(c) Annual Financial Statements and Projections . As soon as practicable and in any event not later than (i) ninety (90) days following the beginning of each Fiscal Year of the Company (except that the financial statements to be delivered pursuant to this Section 6.01(c)(i) in respect of Fiscal Year 2007 shall be delivered no later than July 31, 2008), the consolidated audited balance sheet of the Company and its Subsidiaries as at the end of the preceding Fiscal Year, and the respective related consolidated audited statements of income or operations, shareholders’ equity and cash flows for the preceding Fiscal Year, setting forth in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated balance sheet and statements to be certified by an Authorized Officer of the Company to the best of his or her knowledge, and qualified as set forth in said certification (including that such statements are subject to adjustments required by an independent public accounting firm during the course of its audit for that period), as fairly presenting the financial condition, results of operations, shareholders’ equity and cash flows of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP and (ii) forty-five (45) days following the beginning of each Fiscal Year of the Company, a financial forecast, prepared in accordance with the Company’s normal accounting procedures applied on a consistent basis, for such Fiscal Year including (A) a forecasted consolidated balance sheet, and the related consolidated statements of income and cash flows of the Company and its Subsidiaries for and as of the end of such Fiscal Year and (B) the amount of forecasted Capital Expenditures for such Fiscal Year.

 

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(d) Monthly Cash Forecasts and Liquidity Statements . As soon as practicable but in any event not later than (i) twenty-five (25) days following the beginning of each Fiscal Month concluded after the Closing Date, a monthly cash forecast for the next three (3) succeeding Fiscal Months, including the amount of forecasted cash collections and cash disbursements of the Company and its Subsidiaries for each such Fiscal Month, (ii) twenty-five (25) days following the beginning of each Fiscal Month concluded after the Closing Date, a summary of the actual monthly cash performance of the Company and its Subsidiaries for the preceding Fiscal Month, prepared in the same format as the forecasts delivered pursuant to clause (i) of this Section 6.01(d), together with a comparison of such performance to plan and (iii) ten (10) days following the beginning of each Fiscal Month, a statement (including relevant supporting reports) showing Liquidity as of the last day of the preceding Fiscal Month. The reports delivered pursuant to this Section 6.01(d) shall be prepared in accordance with the Company’s normal accounting procedures applied on a consistent basis and acceptable to the Administrative Agent and the Revolving Agent.

The financial statements, forecasts and other reports to be provided pursuant to Sections 6.01(a) , (c)  and (d)  (collectively, the “ Reports ”), shall each be prepared and delivered to the Term Lenders in consolidated and consolidating (by division) format with respect to the Company and its Subsidiaries. Each Report shall be prepared and delivered to the Revolving Lenders in consolidated format with respect to the Company and its Subsidiaries and in consolidating (by division) format with respect to the Williams Group only in the form previously agreed to between the Borrower and the Revolving Lenders party to this Agreement on the Closing Date (to include revenue, EBITDA and backlog information for the Williams Group); provided that , following the occurrence of an Event of Default, the Reports shall be delivered to the Revolving Lenders in consolidated and consolidating (by division) formats with respect to the Company and its Subsidiaries.

Section 6.02. Other Financial Information . (a) Each Credit Party shall deliver to each Agent and to the Documentation Agent any Credit Party’s such other information, with respect to (i) the Collateral, (ii) any Credit Party’s business, financial condition, results of operations, properties, projections, business or business prospects as such Agent may, from time to time, reasonably request, or (iii) Applicable Taxes or the status of filing the Applicable Tax Returns. Each of the Credit Parties hereby authorizes each Agent, the Documentation Agent and their respective representatives to communicate directly with the accountants so long as an Authorized Officer of such Credit Party participates in such communication and authorizes the accountants to disclose to each Agent, the Documentation Agent, each Lender and their respective representatives any and all financial statements and other financial information, including copies of any final management letter, that such accountants may have with respect to the Collateral or such Credit Party’s financial condition, results of operations, properties, projections, business and business prospects. The Agents, the Documentation Agent, the Lenders and their respective representatives shall treat any non-public information so obtained as confidential pursuant to, with respect to the Agents and the Lenders, Section 13.20 of this Agreement and, with respect to the Documentation Agent, such separate confidentiality agreement entered into between the Documentation Agent and the Credit Parties.

 

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(b) Each of the Credit Parties shall deliver to the Administrative Agent, the Revolving Agent and the Documentation Agent copies of all documents and financial statements, reports and notices, if any, sent or made available generally by such Credit Party to the holders of its Securities or to any Governmental Authority, and promptly upon their becoming available, copies of all press releases and other statements made available by any Credit Party to the public concerning material developments in the business of any Credit Party.

(c) The Company shall deliver to the Administrative Agent, the Revolving Agent and the Documentation Agent copies of any final management reports delivered to any of the Credit Parties or their Subsidiaries by the accountants in connection with the preparation of their financial statements.

Section 6.03. Defaults, Events of Default . Promptly upon any Authorized Officer obtaining knowledge of any condition or event which constitutes an Event of Default or Default, each Credit Party shall deliver to the Administrative Agent, the Revolving Agent and the Documentation Agent an Officer’s Certificate specifying (a) the nature and period of existence of any such claimed Event of Default, Default, condition or event, and (b) what action such Credit Party has taken, is and proposes to take with respect thereto.

Section 6.04. Lawsuits . (a) Promptly upon any Credit Party obtaining knowledge of the institution of, or written threat of, (i) any action, suit, proceeding or arbitration against or affecting such Credit Party or any Subsidiary or asset of such Credit Party which action, suit, proceeding or arbitration (A) claims damages in excess of $5,000,000 (five million Dollars), (B) could reasonably be expected to have a Material Adverse Effect, or (C) purports to affect the legality, validity or enforceability of any Loan Document, the Obligations or the security therefore, (ii) any investigation or proceeding before or by any Governmental Authority, the effect of which could reasonably be expected to materially limit, prohibit or restrict the manner in which such Credit Party currently conducts its business, (iii) any Forfeiture Proceeding which could reasonably be expected to have a Material Adverse Effect, and (iv) any material Condemnation or Condemnation proceeding, such Credit Party shall give written notice thereof to the Administrative Agent, the Revolving Agent and the Documentation Agent and provide such other information reasonably requested by the Administrative Agent, the Revolving Agent or the Documentation Agent as may be reasonably available to enable the Administrative Agent, the Revolving Agent or the Documentation Agent to evaluate such matters except, in each case, where the same is fully covered by insurance (other than applicable deductibles), and (b) in addition to the requirements set forth in clause (a) of this Section 6.04 , such Credit Party, upon request of the Administrative Agent, the Revolving Agent or the Documentation Agent, shall promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to clause (a) above and provide such other information as may be reasonably requested by the Administrative Agent, the Revolving Agent or the Documentation Agent and reasonably available to such Credit Party to enable the Administrative Agent, the Revolving Agent or the Documentation Agent to evaluate such matters.

Section 6.05. Insurance . As soon as practicable and in any event within ten (10) Business Days of any cancellation without replacement thereof of any material insurance coverage set forth on the most recent schedule delivered pursuant to Section 5.01(r) , the Company shall deliver to the Administrative Agent, Revolving Agent and Documentation Agent notice of such cancellation.

 

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Section 6.06. Environmental Notices . The Credit Parties shall, and shall cause their Subsidiaries to, notify the Agents and the Documentation Agent, in writing, promptly, and in any event within ten (10) Business Days after such Credit Party’s obtaining knowledge thereof, of any: (a) notice or claim to the effect that such Credit Party or any of its Subsidiaries is or may be liable to any Person as a result of the Release of any Hazardous Material; (b) investigation by any Governmental Authority of any Credit Party or any of its Subsidiaries evaluating whether any Remedial Action is needed to respond to the Release of any Hazardous Material; (c) notice that any Property of such Credit Party or any of its Subsidiaries is subject to an Environmental Lien; (d) any material violation of Environmental Laws by such Credit Party or any of its Subsidiaries or awareness by such Credit Party of a condition which would reasonably be expected to result in a material violation of any Environmental Law by such Credit Party or any of its Subsidiaries; (e) commencement or written threat of any judicial or administrative proceeding alleging a violation of or liability under any Environmental Law involving such Credit Party or any of its Subsidiaries; (f) any proposed acquisition of stock, assets, real estate or leasing of property, or any other action by such Credit Party or any of its Subsidiaries that would reasonably be expected to subject such Credit Party or such Subsidiary to material Environmental Liabilities and Costs; or (g) notice by or to a Governmental Authority concerning any Release of a Hazardous Material in excess of any reportable quantity from or onto property owned or operated by such Credit Party or any of its Subsidiaries or any Release or event requiring reporting pursuant to any Environmental Law or any material obligation to take any Remedial Action to abate any Release. For purposes of this Section 6.06 , notice shall include any other written communications given to an agent or employee of any Credit Party with direct or indirect supervisory responsibility with respect to the activity, if any, which is the subject of such notice. Upon the written request of the Administrative Agent, the Credit Parties shall provide the Administrative Agent with copies of any non-privileged documents related to any matter for which notice has been given pursuant to this Section 6.06 .

Section 6.07. Labor Matters . Each Credit Party shall notify the Administrative Agent, the Revolving Agent and the Documentation Agent in writing, promptly, but in any event within ten (10) Business Days after learning thereof, of (a) any material labor dispute to which such Credit Party could reasonably be likely to become a party, any actual or threatened strikes, lockouts or other disputes relating to such Credit Party’s plants and other facilities and (b) any material liability incurred with respect to the closing of any plant or other facility of such Credit Party.

Section 6.08. Other Information . Promptly upon receiving a request therefor from the Administrative Agent, Revolving Agent or the Documentation Agent, each Credit Party shall prepare and deliver to the Administrative Agent, the Revolving Agent and the Documentation Agent (a) such other information with respect to such Credit Party’s business, financial condition, results of operations, properties, projections, business or business prospects, (b) such other information with respect to the Collateral, including, without limitation, schedules identifying and describing the Collateral and any Dispositions thereof or (c) such other information with respect to such Credit Party, as from time to time may be reasonably requested by the Administrative Agent, the Revolving Agent or the Documentation Agent.

 

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Section 6.09. Taxes . The Credit Parties shall, and shall cause their Subsidiaries to, notify the Agents and the Documentation Agent, in writing, promptly, and in any event within five (5) Business Days after receipt thereof, of any: (a) notice or claim to the effect that a Credit Party or any Subsidiary of a Credit Party is or may be liable to any Governmental Authority for any Applicable Taxes; (b) notice that any Property of a Credit Party or any Subsidiary of a Credit Party is or may become subject to a Lien in favor of any Governmental Authority for Taxes; or (c) commencement or written threat of any judicial or administrative proceeding involving any Credit Party or any Subsidiary of any Credit Party for any Applicable Taxes. For purposes of this Section 6.09 , notice shall include any other written communications given to an agent or employee of any Credit Party with direct or indirect supervisory responsibility with respect to the activity, if any, which is the subject of such notice. Upon the written request of the Administrative Agent, the Credit Parties shall provide the Administrative Agent with copies of any non-privileged documents related to any matter for which notice has been given pursuant to this Section 6.09 .

ARTICLE VII

AFFIRMATIVE COVENANTS

Each Credit Party covenants and agrees jointly and severally, from and after the date hereof (except as otherwise provided herein, or unless the Required Lenders have given their prior written consent) until all amounts owing hereunder or under any Loan Document or in connection herewith or therewith have been paid in full, that:

Section 7.01. Compliance with Laws . Each Credit Party shall, and shall cause each of its Subsidiaries to, comply with all Requirements of Law (including with respect to the licenses, approvals, certificates, permits, franchises, notices, registrations and other governmental authorizations necessary to the ownership of its respective properties or to the conduct of its respective business, antitrust laws or Environmental Laws and laws with respect to social security and pension funds obligations) any judgment or order of any Governmental Authority applicable to it or any of its property or assets, and any material term of any Material Contract binding on it or any of its properties, except where the failure to do so, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Each Credit Party shall, and shall cause each of its Subsidiaries to, have policies in place to observe the applicable requirements of the Patriot Act-Related Requirements consistent with U.S. industry practice.

Section 7.02. Payment of Taxes and Claims . Each Credit Party shall, and shall cause each of its Subsidiaries to, pay (a) all material Taxes, assessments and other governmental charges imposed upon it or on any of its Properties or assets or in respect of any of its franchises, business, income or Property, and (b) all claims (including claims for labor, services, materials and supplies) for sums material in the aggregate to such Credit Party which have become due and payable and which by law have resulted or may result in a Lien upon any of such Credit Party’s Properties or assets, in each case prior to the time when any penalty or fine will be incurred by the Credit Party with respect thereto, except for (i) such Taxes, assessments, other governmental charges and claims that are being contested in a Permitted Protest or (ii) to the extent that the aggregate amount of such Taxes, assessments, charges and claims does not exceed $500,000 (five hundred thousand Dollars) at any one time.

 

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Section 7.03. Preservation of Corporate Existence . Each Credit Party shall, and shall cause each of its Subsidiaries to preserve and maintain its corporate existence; provided that this Section 7.03 shall not prohibit any merger, consolidation, liquidation or dissolution otherwise permitted by Section 8.04 or any sale, transfer or other Disposition permitted under Section 8.05 .

Section 7.04. Inspection of Property; Books and Records; Discussions . At any reasonable time during normal business hours and from time to time with at least three (3) Business Days’ prior notice, or at any time if a Default or Event of Default shall have occurred and be continuing, each Credit Party shall, and shall cause each of its Subsidiaries to, permit any authorized representative(s) designated by any Agent to visit and inspect any of its assets, to examine, audit, check and make copies of its financial and accounting records, books, journals, orders, receipts and any correspondence with regulators and other data relating to its respective businesses or the transactions contemplated by the Loan Documents (including in connection with environmental compliance, hazard or liability or insurance programs and in connection with the filing of any Tax Returns), and to discuss its affairs, finances and accounts with its officers and independent certified public accountants, all upon reasonable notice and at such reasonable times during normal business hours. The visitations and/or inspections by or on behalf of the Agents shall be at the Borrower’s expense; provided , however , that so long as no Default or Event of Default has occurred and is continuing, no more than one (1) visitation or inspection per Credit Party shall be made in any Fiscal Year. Each Credit Party shall, and shall cause each of its Subsidiaries to, keep and maintain in all material respects proper, complete and accurate books of record and account, in which entries in conformity with GAAP shall be made of all dealings and financial transactions and the assets and business of such Credit Party or Subsidiary in relation to its businesses and activities, including transactions and other dealings with respect to the Collateral. In addition, until all Applicable Tax Returns due have been filed, the Revolving Agent and/or the Administrative Agent may, at the Borrower’s expense, conduct tax Lien searches as to any Credit Party or any Subsidiary of a Credit Party, from time to time and in such Agent’s sole discretion, which is anticipated to be no less frequently than monthly. If an Event of Default has occurred and is continuing and the Loans have been accelerated, the Borrower, upon any Agent’s request, shall provide copies of any such records to such Agent or its representatives.

Section 7.05. Maintenance of Properties . Each Credit Party shall, and shall cause each of its Subsidiaries to, maintain, preserve and protect consistent with past practice all of its tangible Properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear and Casualty and Condemnation excepted, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect, and comply in all material respects with the provisions of all material Leases to which it is a party so as to prevent any material loss or forfeiture thereof or thereunder. With respect to Company Intellectual Property, if consistent with reasonable commercial judgment, each Credit Party shall, and shall cause each of its Subsidiaries to, maintain all Company Intellectual Property owned by such Credit Party or Subsidiary, including taking all commercially reasonable steps to preserve and protect such Company Intellectual Property, including maintaining the quality of any and all products or services used or provided in connection with any Trademark, substantially consistent with the quality of the products and services as of the date hereof, and ensuring that all licensed users of any such Trademark use such substantially consistent standards of quality. Immediately upon learning of the institution of any Condemnation of any of its owned or leased real property, any Credit Party shall notify each of the Agents of the pendency of such proceeding.

 

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Section 7.06. Further Assurances . Each Credit Party shall take such action and execute, acknowledge and deliver, and cause each of its Subsidiaries to take such action and execute, acknowledge and deliver, at its sole cost and expense, such agreements, instruments, updated or amended schedules (including without limitation Schedule 5.01(u) ) or other documents as the Collateral Agent may reasonably require from time to time in order (a) to carry out more effectively the purposes of this Agreement and the other Loan Documents, (b) to subject to valid and perfected first priority Liens (except for Permitted Liens) any of the Collateral or any other property of the Credit Parties acquired after the Closing Date and required to be so perfected pursuant to any Loan Document, (c) to establish and maintain the validity and effectiveness of any of the Loan Documents and the validity, perfection and priority of the Liens intended to be created thereby (except for Permitted Liens), and (d) to better assure, convey, grant, assign, transfer and confirm unto the Collateral Agent for the ratable benefit of the Secured Parties the rights now or hereafter intended to be granted to the Collateral Agent for the ratable benefit of the Secured Parties under this Agreement or any other Loan Document.

Section 7.07. Additional Security; Additional Guarantees; Further Assurances .

(a) If any Credit Party acquires a fee interest in any Real Estate Asset with a fair market value in excess of five hundred thousand Dollars ($500,000), such Credit Party shall notify the Agents thereof within fifteen (15) days thereafter, and if such interest has not otherwise been made subject to a Lien in favor of Collateral Agent, for the benefit of the Secured Parties, under a Mortgage delivered on the date hereof, then within sixty (60) days after acquiring such Real Estate Asset, or such later time as may be reasonably necessary, in the Collateral Agent’s reasonable discretion, the applicable Credit Party shall take all such actions and execute and deliver, or cause to be executed and delivered to the Agents, all such Mortgages, documents, instruments, agreements, opinions and certificates that the Collateral Agent shall reasonably request to create in favor of Collateral Agent, for the benefit of the Secured Parties, a valid and enforceable perfected first priority (subject to any Permitted Liens) Lien and security interest in such Real Estate Asset. In addition to the foregoing, each Credit Party shall, at the request of the Required Lenders, deliver, from time to time, to the Administrative Agent and the Revolving Agent such appraisals as are required by law or regulation applicable to such Real Estate Asset or to any Secured Party’s interest in such Real Estate Asset hereunder or under any Mortgage thereof.

(b) If any Credit Party acquires or develops any Intellectual Property, such Credit Party shall notify the Agents thereof within fifteen (15) days thereafter, and if such Intellectual Property has not otherwise been made subject to a valid and enforceable perfected first priority (subject to any Permitted Liens) Lien in favor of the Collateral Agent, for the benefit of the Secured Parties, then within fifteen (15) days after acquiring such Intellectual Property, or such later time as may be reasonably necessary, in the Collateral Agent’s reasonable discretion, the Credit Parties shall take all such actions and execute and deliver, or cause to be executed and delivered to the Agents, all such documents, instruments, agreements, opinions and certificates that the Collateral Agent shall reasonably request to create in favor of Collateral Agent, for the benefit of the Secured Parties, a valid and enforceable perfected first priority (subject to any Permitted Liens) Lien and security interest in such Intellectual Property.

 

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(c) Each Credit Party shall pledge, or cause to be pledged, to the Collateral Agent, for the benefit of the Collateral Agent and Secured Parties, all of the Capital Stock owned by a Credit Party of each Person that after the date hereof becomes a Domestic Subsidiary of such Credit Party, and 65% of the voting Capital Stock and 100% of the non-voting Capital Stock of each new Foreign Subsidiary of such Credit Party. The documentation for such security and pledge shall be in form and substance reasonably satisfactory to the Administrative Agent or the Collateral Agent and shall be substantially similar to the Loan Documents executed concurrently herewith with such modifications as are reasonably requested by the Collateral Agent.

(d) Each Credit Party will cause each Subsidiary which, after the Closing Date, is required to become a Guarantor to, at its own expense, execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record in any appropriate governmental office, any document or instrument reasonably deemed by the Collateral Agent to be necessary or desirable for the creation and perfection of the Liens on its assets intended to be created pursuant to the relevant Security Documents. The Credit Parties will take, and cause each Subsidiary described above in Section 7.07(c) to take, all actions reasonably requested by any Agent (including the filing of UCC-1s (or the appropriate equivalent filings under the laws of any relevant foreign jurisdiction), or the furnishing of legal opinions, etc.) in connection with the granting of such Liens.

(e) The Liens required to be granted pursuant to this Section 7.07 shall be granted pursuant to the respective Security Documents executed and delivered by the Credit Parties (or other security documentation substantially similar to such Security Documents or otherwise reasonably satisfactory in form and substance to the Collateral Agent) for the benefit of the Secured Parties and shall constitute valid and enforceable first priority perfected Liens on all of the Collateral subject thereto, prior to the rights of all third Persons and subject to no other Liens except Permitted Liens, and with such exceptions, conditions and qualifications as shall be permitted by the respective Security Documents. Any Additional Security Documents and other instruments related thereto or related to existing Security Documents shall be duly recorded or filed in such manner and in such places and at such times as are required by law to create, maintain, effect, perfect, preserve, maintain and protect the Liens, in favor of the Collateral Agent for the benefit of the Secured Parties, required to be granted pursuant to the Loan Documents and all taxes, fees and other charges payable in connection therewith shall be paid in full by the Borrower. At the time of the execution and delivery of any Security Documents or Additional Security Documents, the Credit Parties will, at the request of the Collateral Agent, cause to be delivered to the Collateral Agent such customary opinions of counsel and other related documents as may be reasonably requested by the Collateral Agent to assure that this Section 7.07 has been complied with.

 

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(f) Each Credit Party jointly and severally agrees that each action required above by this Section 7.07 shall be completed as promptly as reasonably practicable after such action is requested to be taken by any Agent; provided that any action required above by Section 7.07(c), (d), or (e)  with respect to a newly formed, created or acquired Subsidiary shall be completed as promptly as practicable following the formation, creation or acquisition of such Subsidiary.

Section 7.08. Powers; Conduct of Business . Each Credit Party shall, and shall cause each of its Subsidiaries to, qualify and remain qualified to do business and in good standing in each jurisdiction in which the nature of its business or the ownership of its properties requires it to be so qualified except for those jurisdictions where failure to so qualify does not have or could not reasonably be expected to have a Material Adverse Effect. Each Credit Party shall obtain, maintain and preserve, and cause each of its Subsidiaries to obtain, maintain and preserve, all permits, licenses, authorizations, approvals, entitlements and accreditations which are necessary or useful in the proper conduct of its business, except where the failure to maintain and preserve such permits, licenses, authorizations, approvals, entitlements and accreditations does not or could not reasonably be expected to have a Material Adverse Effect.

Section 7.09. Use of Proceeds . Proceeds of the Loans shall be used in accordance with Section 1.03 hereof.

Section 7.10. Environmental . Each Credit Party shall, and shall cause each of its Subsidiaries to, (a) comply, and cause it Subsidiaries to comply, in all material respects with Environmental Laws and provide to the Collateral Agent documentation of such compliance which Collateral Agent reasonably requests, which documentation shall include a notice by the Company six (6) months after the Closing Date of the steps taken by the Credit Parties or their Subsidiaries to address any outstanding matters described on Schedule 5.01(q) , (b) in the event of any material violation of any Environmental Law promptly commence and diligently pursue appropriate measures to abate such violation, and (c) perform any Remedial Action at property owned or operated by any Credit Party or any Subsidiary of any Credit Party (i) that is required of any Credit Party or any such Subsidiary pursuant to any Environmental Law or agreement with any Governmental Authority, or (ii) that was initiated prior to the Closing Date and is identified on Schedule 5.01(q) .

Section 7.11. Fiscal Year . Each Credit Party shall cause its Fiscal Year to end on December 31 of each year unless the Required Lenders consent to a change in such Fiscal Year (and appropriate related changes to this Agreement).

Section 7.12. Maintenance of Insurance . (a) Each Credit Party shall maintain, and cause each of its Subsidiaries to maintain (either in the name of such Credit Party or in such Subsidiary’s own name), insurance with financially sound and reputable insurance companies or associations (including, without limitation, commercial general liability, property and business interruption insurance) with respect to its Properties (including all Real Estate Assets leased or owned by it) and business, in such amounts and covering such risks as is required by any Governmental Authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies of similar size in similar businesses similarly situated. All property policies covering the Collateral shall name the Collateral Agent as an additional insured or loss payee, in case of loss. All certificates of insurance are to be delivered to the Collateral Agent and the policies shall contain a loss payable and additional insured endorsements in favor of the Collateral Agent (substantially in the form reasonably requested by the Collateral Agent), and shall provide for not less than thirty (30) days’ prior written notice to the Collateral Agent and other named insureds of the exercise of any right of cancellation.

 

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(b) Each Credit Party shall provide, and shall cause each of its Subsidiaries to provide, the Collateral Agent with copies of all insurance renewal certificates obtained by the Credit Parties and their Subsidiaries within three (3) Business Days of the receipt thereof.

(c) Until the indefeasible payment and satisfaction in full in cash of the Obligations, each Credit Party hereby waives, and shall cause each of its Subsidiaries to waive, all rights of subrogation against any Agent and the Secured Parties.

Section 7.13. Change in Collateral; Collateral Records . Each Credit Party shall advise the Collateral Agent promptly, in sufficient detail, of any change which could reasonably be expected to have a Material Adverse Effect relating to the value of the Collateral or any Lien granted thereon (other than Permitted Liens) and execute and, upon the Collateral Agent’s reasonable request, deliver, and cause each of its Subsidiaries to execute and deliver, to the Collateral Agent from time to time, solely for the Collateral Agent’s convenience in maintaining a record of Collateral, such written statements and schedules, maintained by any Credit Party or any Subsidiary of any Credit Party in the ordinary course of business, as the Collateral Agent may reasonably require, designating, identifying or describing the Collateral.

Section 7.14. Formation of Subsidiaries . In addition to Section 7.07 , at the time that any Credit Party forms any Domestic Subsidiary or acquires any Domestic Subsidiary after the Closing Date, such Credit Party shall within twenty (20) days (a) cause such Domestic Subsidiary to execute and deliver to each Agent a Guarantor Joinder Agreement in the form of Exhibit K-2, the Security Agreement, and such security documents all in form and substance reasonably satisfactory to the Agents (including being sufficient to grant the Collateral Agent, on behalf of the Secured Parties, a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary) and (b) provide to the Agents all other documentation (including financing statements), including, at the Collateral Agent’s request, one or more opinions of counsel reasonably satisfactory to the Agents, which in the opinion of each of them is appropriate with respect to the execution and delivery of the applicable documentation referred to above (including the grant and perfection of any Lien contemplated thereby). Any document, agreement, or instrument executed or issued pursuant to clause (a) of this Section 7.14 shall be a Loan Document.

Section 7.15. Cash Management .

(a) No Credit Party shall have any Deposit Account (other than the Excluded Account) , commodities account or Securities Account other than accounts subject to Control Agreements and the Credit Parties shall cause the Collateral Agent, on behalf of the Secured Parties, to have a valid, perfected, first-priority security interest in such accounts, subject in the case of the Excluded Account only, to the Lien permitted under Section 8.01(m) . The Credit Parties shall not permit the balance in the Excluded Account to exceed $3,000,000 (plus accrued and unpaid interest thereon) at any time.

 

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(b) No Credit Party shall close any Deposit Account, commodities account or Securities Account or any lockbox maintained by it as of the date hereof without the prior written consent of the Collateral Agent.

(c) Each Credit Party shall take all reasonable steps necessary from time to time to deposit or cause to be deposited promptly all of its Collections (including those sent in cash or otherwise directly to any Credit Party) into an account subject to a Control Agreement (other than with respect to the Excluded Account) .

(d) The Credit Parties shall notify each Agent in writing no later than ten (10) days prior to the establishment of any Deposit Account, commodities account or Securities Account that would have been required to be listed on Schedule 5.01(t) if such account was established on or prior to the Closing Date.

(e) Each Credit Party shall comply in all material respects with the provisions of each Control Agreement to which it is a party.

ARTICLE VIII

NEGATIVE COVENANTS

Each Credit Party covenants and agrees jointly and severally, from and after the date hereof (except as otherwise provided herein, or unless the Required Lenders have given their prior written consent) until all amounts owing hereunder or under any other Loan Document or in connection herewith or therewith have been paid in full that:

Section 8.01. Liens . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following (such Liens described below being referred to herein as “ Permitted Liens ”):

(a) Liens in favor of the Collateral Agent for the benefit of the Secured Party pursuant to any Loan Document;

(b) Liens existing on the Closing Date in the amounts and as otherwise listed on Schedule 8.01 and any renewals or extensions thereof in connection with any refinancing or renewal of the obligations secured thereby; provided that (i) such Lien is not extended to cover any additional property, (ii) the amount secured or benefited thereby is not increased from the amount then due on the obligation so refinanced or renewed and (iii) the direct or any contingent obligor with respect thereto is not changed;

(c) Statutory Liens for Taxes, fees, assessments or other governmental charges, not yet due or which are not delinquent or remain payable without penalty, or to the extent subject to a Permitted Protest;

(d) Statutory Liens securing the rights or claims of carriers, warehousemen, mechanics, materialmen, repairmen, landlords or other like Liens in favor of similar Persons arising in the ordinary course of business which are not delinquent or which are the subject of a Permitted Protest;

 

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(e) Liens consisting of pledges or deposits required to be made by the Company or any of its Subsidiaries in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation or public liability laws or similar legislation, other than any Lien imposed by ERISA;

(f) easements, rights-of-way, restrictions and other similar encumbrances affecting real property of the Company or any of its Subsidiaries which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;

(g) Liens incurred or deposits made to secure performance of (i) tenders, statutory obligations, bids, trade contracts, leases or other similar obligations (other than for borrowed money) entered into in the ordinary course of business or (ii) obligations under performance or surety bonds provided in the ordinary course of business; provided that any such Liens permitted under this Section 8.01(g) shall attach only to property directly relating to, or that is the subject of, such underlying obligations;

(h) licenses, operating Leases or subleases granted or entered into in the ordinary course of business not interfering in any material respect with the business of the Company or any of its Subsidiaries and not constituting Indebtedness;

(i) Liens in favor of customs or revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;

(j) Liens upon assets of the Company or any of its Subsidiaries subject to Capital Lease Obligations or purchase money Indebtedness to the extent such Capital Lease Obligations or purchase money Indebtedness are permitted by Section 8.03(i); provided that (x) such Liens only serve to secure the payment of Indebtedness arising under such Capital Lease Obligations or purchase money Indebtedness and (y) the Lien encumbering the asset or assets giving rise to any Capital Lease Obligations or purchase money Indebtedness does not encumber any other asset of the Company or any of its Subsidiaries;

(k) Liens arising from precautionary UCC financing statement filings regarding operating leases entered into in the ordinary course of business or from UCC financing statement filings or any other similar notices of Lien under any similar recording or notice statute regarding Liens permitted hereunder;

(l) Liens upon the Property of Foreign Subsidiaries securing Indebtedness permitted under Section 8.03(b); provided that (x) such Liens only serve to secure the payment of Indebtedness of Foreign Subsidiaries and (y) the Lien encumbering such Property does not encumber any other asset of the Company or any of its other Subsidiaries; and

(m) a Lien in favor of Bank of America N.A. upon cash and/or Cash Equivalents in the Excluded Account in an amount not to exceed $3,000,000 (three million Dollars) plus the amount of accrued and unpaid interest thereon;

 

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(n) statutory banker’s Liens or set-off rights in Deposit Accounts, Securities Accounts or commodities accounts to the extent of monthly and customary fees not yet due for maintenance of any Deposit Account, Securities Account or commodities account and permitted under a Control Agreement governing such Deposit Account, Securities Account or commodities account.

Section 8.02. Investments . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly make or hold any Investments in any Person, except:

(a) Investments held in the form of cash or Cash Equivalents;

(b) Investments made prior to the Closing Date set forth in Schedule 8.02 ;

(c) Advances or loans to directors, officers and employees of any Credit Party in the ordinary course of business as presently conducted in an aggregate principal amount not to exceed $100,000 in the aggregate at any one time outstanding;

(d) Investments by:

(i) any Credit Party in and to any Foreign Subsidiary in the form of contributions to capital, loans, advances, guarantees or other forms of credit support; provided that (A) the aggregate amount of such Investments does not exceed (i) $250,000 (two hundred and fifty thousand Dollars) outstanding at any time, plus (ii) up to $500,000 outstanding at any time from Braden Manufacturing LLC to Braden Manufacturing S.A. de C.V., and (B) each item of intercompany Indebtedness shall be evidenced by the Global Intercompany Note which shall be pledged as security for the Obligations of the holder thereof under the Loan Documents and delivered to the Administrative Agent pursuant to the terms of the Security Documents;

(ii) any Credit Party in and to any other Credit Party in the form of contributions to capital or loans or advances; provided that (A) any intercompany Indebtedness shall be unsecured, and (B) each item of intercompany Indebtedness held by any Credit Party shall be evidenced by the Global Intercompany Note which shall be pledged as security for the obligations of the holder thereof under the Loan Documents and delivered to the Administrative Agent pursuant to the terms of the Security Documents;

(iii) any Foreign Subsidiary in and to any other Foreign Subsidiary in an aggregate amount not to exceed $1,000,000;

(e) Guarantees permitted by Section 8.03(c) ;

(f) Investments received in connection with (x) the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business, or (y) in satisfaction of judgments or in settlement of litigation, arbitration or other disputes;

 

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(g) Investments made by the Company and its Subsidiaries that constitute (i) accounts receivable arising, (ii) trade debt granted, or (iii) deposits made in connection with the purchase price of goods or services, in each case in the ordinary course of business;

(h) advances to subcontractors in the ordinary course of business;

(i) Investments by Foreign Subsidiaries not to exceed $500,000 in the aggregate;

(j) Investments consisting of the entry into joint venture agreements for unincorporated joint ventures by any Credit Party for the limited purpose of negotiating, signing and performing construction, engineering, procurement, construction management and similar services provided that the aggregate value of all such Investments does not exceed $500,000 at any one time outstanding and provided further that no Credit Party or any Subsidiary of any Credit Party shall have any liability in excess of the Investment actually paid to such joint venture (as permitted by this Section 8.02(j) ) for any Indebtedness or any other obligation of any such joint venture; and

(k) Investments by a Credit Party in the form of Letters of Credit issued under this Agreement (i) in favor of the customers of Braden Europe to support the obligations of Braden Europe to such customers under Braden Europe Project Contracts in an aggregate amount that, when added together with the Letters of Credit listed on Schedule 8.02 in favor of customers of Braden Europe, does not exceed $5,000,000 (five million dollars); and/or (ii) in favor of the lender or lenders to Braden Shanghai to support, and not to exceed the amount of, Indebtedness permitted under Section 8.03(k) .

Section 8.03. Indebtedness . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Indebtedness, except for the following (such Indebtedness described below being referred to herein as “ Permitted Indebtedness ”):

(a) Indebtedness under the Loan Documents or any Hedging Agreement;

(b) Indebtedness outstanding prior to the Closing Date in the amount and as otherwise set forth in Schedule 8.03 and, solely with respect to the facility provided by ABN Amro as specified on Schedule 8.03 , any Permitted Indebtedness Refinancing in respect of such facility;

(c) guarantees of any Credit Party in respect of Indebtedness of the Credit Parties otherwise permitted hereunder;

(d) intercompany Indebtedness permitted under Section 8.02(d) ;

(e) (i) Indebtedness of the Company and its Subsidiaries in respect of performance, surety or appeal bonds provided in the ordinary course of business or (ii) unsecured Indebtedness of the Company and its Subsidiaries in respect of performance or completion guarantees provided in the ordinary course of business, but excluding, in each case, Indebtedness incurred through the borrowing of money or contingent liabilities in respect thereof and provided that the aggregate amount of all Indebtedness under this Section 8.03(e) , when added together with all Indebtedness consisting of performance, surety or appeal bonds and performance guarantees permitted under Section 8.03(b) , does not exceed $60,000,000 outstanding at any time;

 

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(f) Indebtedness of the Company and its Subsidiaries in respect of trade payables and accrued expenses arising in the ordinary course of business;

(g) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, so long as such Indebtedness is extinguished within five (5) Business Days of its incurrence;

(h) Indebtedness which may be deemed to exist in connection with agreements providing for indemnification, purchase price adjustments and similar obligations in connection with the acquisition or disposition of assets in accordance with the requirements of this Agreement;

(i) Indebtedness of the Borrower and its Subsidiaries evidenced by Capitalized Lease Obligations and purchase money Indebtedness, in an aggregate principal amount not to exceed $2,000,000 at any time outstanding;

(j) Indebtedness of Braden Europe under (i) a revolving credit facility in an amount not to exceed €1,000,000 and (ii) a letter of credit facility in an amount not to exceed €5,000,000;

(k) Indebtedness of Braden Shanghai in an aggregate amount not to exceed $2,000,000; and

(l) so long as no Default or Event of Default then exists or would result therefrom, additional Indebtedness not otherwise permitted hereunder in an aggregate principal amount not to exceed $1,000,000 at any time outstanding.

Section 8.04. Fundamental Changes and Acquisitions . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly, (a) merge, dissolve, liquidate, consolidate with or into another Person, (b) in addition to the conditions in Section 8.05 , Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person or (c) acquire all or substantially all of the assets of any Person or any division, brand or business unit thereof; provided that any Credit Party may merge into or consolidate with another Credit Party ( provided that a Borrower is the surviving entity to any such merger or consolidation between a Guarantor and a Borrower), make such Disposal to another Credit Party, or make such acquisition from another Credit Party and further provided that any Immaterial Foreign Subsidiary may voluntarily dissolve or merge into a Credit Party or a Subsidiary of a Credit Party.

 

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Section 8.05. Dispositions . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly, make any Disposition (other than any Casualty or Condemnation) or enter into any agreement to make any Disposition, except:

(a) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business;

(b) Dispositions of inventory and finished goods (i) in the ordinary course of business or (ii) consisting of the Deltak Customer Equipment Disposition;

(c) Dispositions of equipment or real property in the ordinary course of business in an amount not to exceed $500,000 per annum;

(d) (i) Dispositions of Property of any Credit Party to another Credit Party and (ii) Dispositions by any Credit Party of equipment not used in the business of such Credit Party to a Foreign Subsidiary, provided that with respect to any such Disposition by a Credit Party to a Foreign Subsidiary, such Disposition shall only be permitted to the extent the Deemed Investment Amount (as defined below) is permitted as an Investment under Section 8.02(d)(i) (and “ Deemed Investment Amount ” shall mean the amount by which the fair market value of the relevant Disposition exceeds the consideration received for such Disposition);

(e) Dispositions pursuant to a non-exclusive licensing arrangement entered into by the Company or any of its Subsidiaries with respect to any of its Intellectual Property in the ordinary course of its business consistent with past practice; and

(f) Any Disposition not otherwise permitted pursuant to this Section 8.05 provided (i) the Disposition is for not less than the fair market value of the assets subject thereto, (ii) the consideration received by the Company or applicable Subsidiary consists of at least 75% Cash, (iii) the net book value of such assets, together with the net book value of all other assets Disposed of pursuant to this clause (f) , does not exceed $2,500,000 over the term of this Agreement, (iv) immediately prior to and after giving effect to such Disposition no Default shall have occurred and be continuing and (v) the proceeds thereof are applied pursuant to Section 2.02 .

Section 8.06. Restricted Payments . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly declare or make any Restricted Payment or incur any obligation contingent or otherwise to do so; provided that (a) any Credit Party may make Restricted Payments to any other Credit Party, (b) any Subsidiary that is not a Credit Party may make Restricted Payments to any Credit Party, (c) any Subsidiary that is not a Credit Party may make Restricted Payments to any wholly owned Subsidiary of any Credit Party and (d) the Company may redeem, repurchase or otherwise acquire for value outstanding Capital Stock of the Company (or options or warrants to purchases the Company’s Capital Stock) following the death, disability or termination of employment of officers, directors or employees of the Company or any of its Subsidiaries so long as such redemption, repurchase or acquisition would not result in a Default or Event of Default.

Section 8.07. Amendment of Governing Documents . It shall not and shall not permit any of its Subsidiaries to amend, modify or otherwise change (a) its Governing Documents in any manner materially adverse to the Lenders or (b) its accounting policies or reporting practices.

 

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Section 8.08. Change in Nature of Business . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly engage in any business activity except (a) the business of designing, engineering, fabricating, installing and servicing equipment for the global energy, power infrastructure, process and other industrial operations or (b) providing routine and specialty maintenance and construction services to Persons engaged in the global energy, power infrastructure, process and other industrial operations and to governmental agencies and business activities that are reasonable extensions thereof and activities reasonably incidental thereto.

Section 8.09. Transactions with Affiliates . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly engage in any transaction or series of transactions with any Affiliate of any Credit Party other than (i) transactions exclusively between or among the Company and one or more Credit Parties that are Wholly-Owned Subsidiaries and not Foreign Subsidiaries or exclusively between or among such Credit Parties; (ii) transactions in the ordinary course of its business on terms and conditions as favorable to the Company or such Credit Party as would be obtainable by it in a comparable arm’s-length transaction with an independent, unrelated third party and (iii) to the extent permitted by Sections 8.01 , 8.02 , 8.04 , 8.05 or 8.06 .

Section 8.10. Limitations on Restricted Actions . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly enter into or create or otherwise cause to exist or become effective any agreement or arrangement other than the Loan Documents that: (a) limits the ability (i) of any Credit Party to make Restricted Payments to any other Credit Party or any Domestic Subsidiary of a Credit Party except as provided in Section 8.14 , (ii) of any Credit Party to act as a guarantor and pledge its assets pursuant to the Loan Documents; or (iii) of any Credit Party to create, incur, assume or suffer to exist Liens in favor of the Secured Parties on property of such Person; provided , however , that this clause (iii) shall not prohibit (A) customary provisions restricting subletting or assignment of any Lease governing any Leasehold Property of the Company or any of its Subsidiaries, (B) customary provisions restricting assignment of any licensing agreement (in which the Company or any of its Subsidiaries is the licensee) or other contract entered into by the Company or any of its Subsidiaries in the ordinary course of business and (C) any Operating Lease or Capitalized Lease, insofar as the provisions thereof limit grants of a security interest in, or other assignments of, the related Leasehold Property to any other Person; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person.

Section 8.11. Sale-Leasebacks; Off-Balance Sheet Obligation . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly enter into any Sale and Leaseback Transaction or Off-Balance Sheet Obligation.

Section 8.12. Impairment of Security Interests . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly (a) refuse to take or omit to take any action within ten (10) days following the request by any Agent to take or omit to take such action, which action or omission is, in the reasonable opinion of such Agent, necessary so as not to terminate, impair or limit the security interests in favor of the Secured Parties with respect to the Collateral or (b) grant to any Person (other than the Collateral Agent pursuant to the Security Documents) any interest whatsoever in the Collateral (other than Permitted Liens).

 

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Section 8.13. Ownership of Subsidiaries and Other Restrictions Relating to the Subsidiaries . Notwithstanding any other provision of this Agreement, It shall not and shall not permit any of its Subsidiaries to, directly or indirectly permit any Person (other than the Company or any Wholly-Owned Subsidiary) to own any Capital Stock of any Subsidiary of the Company except as otherwise permitted pursuant to this Agreement.

Section 8.14. Limitations on Dividends and Distributions and Other Payment Restrictions Affecting Subsidiaries . It shall not, and it shall not permit any of its Subsidiaries to, create or otherwise cause, incur, assume, suffer or permit to exist or become effective any consensual encumbrance or restriction of any kind on its ability (a) to pay dividends or to make any other distribution on any shares of its Capital Stock, (b) to subordinate or to pay, prepay, redeem or repurchase any Indebtedness owed to any Credit Party or Subsidiary of a Credit Party, (c) to make loans or advances to any Credit Party or Subsidiary of a Credit Party or (d) to transfer any of its property or assets to any Credit Party or Subsidiary of a Credit Party; provided , however , that nothing in clauses (a) through (d)  of this Section 8.14 shall prohibit or restrict: (A) this Agreement and the other Loan Documents; (B) any Applicable Law (including applicable currency control laws and applicable state or provincial corporate statutes restricting the payment of dividends or any other distributions in certain circumstances); (C) any restriction set forth in any document or agreement governing or securing any Permitted Indebtedness under Section 8.03(b) ; (D) in the case of clause (d) any restrictions on the subletting, assignment or transfer of any property or asset included in a Lease, license, sale conveyance or similar agreement with respect to such property or asset; (E) in the case of clause (d) any holder of a Permitted Lien from restricting on customary terms the transfer of any property or assets subject to such Permitted Lien; (F) any agreement or instrument in effect at the time a Person first became a Subsidiary of a Credit Party or the date such agreement or instrument is otherwise assumed by a Credit Party or any of its Subsidiaries, so long as such agreement or instrument was not entered into solely in contemplation of such Person becoming a Subsidiary of such Credit Party or such assumption; (G) customary provisions restricting assignment of any licensing agreement or other contract entered into by a Credit Party or any of its Subsidiaries in the ordinary course of business; (H) restrictions on the transfer of any asset pending the close of the sale of such asset; or (I) customary provisions with respect to the payment of dividends or other distributions by any Subsidiary that is not a Credit Party set forth in the Governing Documents for such Subsidiary so long as such provisions were not entered into in connection with any other agreement or arrangement not otherwise permitted under this Section 8.14 .

Section 8.15. Limitation on Issuance of Capital Stock . It shall not, and it shall not permit any of its Subsidiaries to, issue or sell or enter into any agreement or arrangement for the issuance and sale of any shares of its Capital Stock, any Securities convertible into or exchangeable for its Capital Stock or any warrants, options or other rights for the purchase or acquisition of any of its Capital Stock, other than (a) in connection with the plans set forth on Schedule 8.15 ; (b) the issuance of Capital Stock of any Subsidiary to any Credit Party (so long as such Capital Stock is pledged and delivered to the Collateral Agent within ten (10) days of the issuance thereof in accordance with the terms of the Security Agreement); (c) the issuance of Capital Stock by any Subsidiary of directors’ qualifying shares; or (d) the issuance of Capital Stock by the Company so long as any such issuance does not constitute a Change of Control.

 

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Section 8.16. Federal Reserve Regulations . It shall not, and it shall not permit any of its Subsidiaries to, use any Loan or the proceeds of any Loan for any purpose that would cause such Loan to be a margin loan under the provisions of Regulation T, U or X.

Section 8.17. Investment Company Act of 1940 . It shall not, and it shall not permit any of its Subsidiaries to, engage in any business, enter into any transaction, use any Securities or take any other action that would cause it or any of its Subsidiaries to become subject to the registration requirements of the Investment Company Act of 1940, as amended, by virtue of being an “investment company” or a company “controlled” by an “investment company” not entitled to an exemption within the meaning of such Act.

Section 8.18. Change Name . It shall not, and it shall not permit any of its Subsidiaries which are Credit Parties to, change any Credit Party’s name, organizational identification number, jurisdiction of organization, or organizational identity; provided , however , that a Credit Party may change its name upon at least ten (10) days’ prior written notice by the Company to the Collateral Agent of such change and so long as, at the time of such written notification, such Credit Party provides any financing statements, fixture filings, mortgages, Control Agreements or other documents necessary to perfect and continue perfected Liens.

ARTICLE IX

FINANCIAL COVENANTS

Each Credit Party covenants and agrees jointly and severally, from and after the date hereof (except as otherwise provided herein, or unless the Required Lenders have given their prior written consent) until all amounts owing hereunder or under any Security Document or in connection herewith or therewith have been paid in full, that:

Section 9.01. Total Leverage Ratio . Total Leverage Ratio, as of each date set forth below, shall not be greater than the ratio set forth opposite such date below:

 

Measurement Period Ending

   Ratio

March 31, 2008

   3.00x

June 30, 2008

   3.00x

September 30, 2008

   3.00x

December 31, 2008

   3.50x

March 31, 2009

   3.75x

June 30, 2009

   4.00x

September 30, 2009

   4.00x

December 31, 2009

   4.50x

March 31, 2010

   4.50x

June 30, 2010

   4.25x

 

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Measurement Period Ending

   Ratio

September 30, 2010

   4.00x

December 31, 2010

   3.75x

March 31, 2011

   3.75x

June 30, 2011

   3.50x

September 30, 2011

   3.25x

December 31, 2011

   3.00x

March 31, 2012

   3.00x

June 30, 2012

   2.75x

September 30, 2012

   2.50x

December 31, 2012

   2.25x

March 31, 2013

   2.25x

June 30, 2013

   2.25x

September 30, 2013

   2.25x

December 31, 2013

   2.25x

Section 9.02. Fixed Charge Coverage Ratio . The Fixed Charge Coverage Ratio, as of any date set forth below, shall not be less than the ratio set forth opposite such date below:

 

Measurement Period Ending

   Ratio

June 30, 2008

   1.15x

September 30, 2008

   1.25x

December 31, 2008

   1.40x

March 31, 2009

   1.30x

June 30, 2009

   1.10x

September 30, 2009

   1.10x

December 31, 2009

   1.05x

March 31, 2010

   1.05x

June 30, 2010

   1.10x

September 30, 2010

   1.10x

December 31, 2010

   1.15x

March 31, 2011

   1.20x

June 30, 2011

   1.25x

September 30, 2011

   1.35x

December 31, 2011

   1.45x

March 31, 2012

   1.50x

June 30, 2012

   1.50x

September 30, 2012

   1.50x

December 31, 2012

   1.50x

March 31, 2013

   1.50x

June 30, 2013

   1.50x

September 30, 2013

   1.50x

December 31, 2013

   1.50x

 

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Section 9.03. Minimum Liquidity . The Credit Parties, on a consolidated basis, shall have a level of Liquidity of not less than the amount set forth below on the date set forth opposite such amount.

 

Fiscal Month Ending

   Minimum
Liquidity

January 31, 2008

   $ 15,000,000

February 29, 2008

   $ 15,000,000

March 31, 2008

   $ 15,000,000

April 30, 2008

   $ 15,000,000

May 31, 2008

   $ 15,000,000

June 30, 2008

   $ 15,000,000

July 31, 2008

   $ 20,000,000

August 31, 2008

   $ 20,000,000

September 30, 2008

   $ 20,000,000

October 31, 2008

   $ 20,000,000

November 30, 2008

   $ 20,000,000

December 31, 2008

   $ 20,000,000

January 31, 2009

   $ 20,000,000

February 28, 2009

   $ 20,000,000

March 31, 2009

   $ 20,000,000

April 30, 2009

   $ 15,000,000

May 31, 2009

   $ 15,000,000

June 30, 2009

   $ 15,000,000

July 31, 2009

   $ 20,000,000

August 31, 2009

   $ 20,000,000

September 30, 2009

   $ 20,000,000

October 31, 2009

   $ 20,000,000

November 30, 2009

   $ 20,000,000

December 31, 2009

   $ 20,000,000

January 31, 2010

   $ 20,000,000

February 28, 2010

   $ 20,000,000

March 31, 2010

   $ 20,000,000

April 30, 2010

   $ 15,000,000

May 31, 2010

   $ 15,000,000

June 30, 2010

   $ 15,000,000

July 31, 2010

   $ 20,000,000

August 31, 2010

   $ 20,000,000

September 30, 2010

   $ 20,000,000

October 31, 2010

   $ 20,000,000

November 30, 2010

   $ 20,000,000

December 31, 2010

   $ 20,000,000

January 31, 2011

   $ 20,000,000

February 28, 2011

   $ 20,000,000

March 31, 2011

   $ 20,000,000

 

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Fiscal Month Ending

   Minimum
Liquidity

April 30, 2011

   $ 15,000,000

May 31, 2011

   $ 15,000,000

June 30, 2011

   $ 15,000,000

July 31, 2011

   $ 20,000,000

August 31, 2011

   $ 20,000,000

September 30, 2011

   $ 20,000,000

October 31, 2011

   $ 20,000,000

November 30, 2011

   $ 20,000,000

December 31, 2011

   $ 20,000,000

January 31, 2012

   $ 20,000,000

February 29, 2012

   $ 20,000,000

March 31, 2012

   $ 20,000,000

April 30, 2012

   $ 15,000,000

May 31, 2012

   $ 15,000,000

June 30, 2012

   $ 15,000,000

July 31, 2012

   $ 20,000,000

August 31, 2012

   $ 20,000,000

September 30, 2012

   $ 20,000,000

October 31, 2012

   $ 20,000,000

November 30, 2012

   $ 20,000,000

December 31, 2012

   $ 20,000,000

January 31, 2013

   $ 20,000,000

February 28, 2013

   $ 20,000,000

March 31, 2013

   $ 20,000,000

April 30, 2013

   $ 15,000,000

May 31, 2013

   $ 15,000,000

June 30, 2013

   $ 15,000,000

July 31, 2013

   $ 20,000,000

August 31, 2013

   $ 20,000,000

September 30, 2013

   $ 20,000,000

October 31, 2013

   $ 20,000,000

November 30, 2013

   $ 20,000,000

December 31, 2013

   $ 20,000,000

ARTICLE X

EVENTS OF DEFAULT, RIGHTS AND REMEDIES

Section 10.01. Events of Default . Each of the following occurrences shall constitute an event of default (an “ Event of Default ”).

(a) Failure to Make Payments When Due . Any Credit Party shall fail to pay (i) any principal or reimbursement obligations when due or (ii) any interest, fees, or any other monetary Obligation, and such failure shall continue for a period of three (3) Business Days after such amount was due (in each case, whether by scheduled maturity, required prepayment, acceleration, demand or otherwise).

 

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(b) Breach of Certain Covenants . Any Credit Party shall fail to perform or comply with any covenant or agreement contained in Section 7.03 , Section 7.04 , Section 7.06 , Section 7.07 , Section 7.08 , Section 7.09 , Section 7.10 , Section 7.11 , Section 7.12 , Section 7.14 , Section 7.15 , Article VIII , or Article IX under this Agreement.

(c) Breach of Representation or Warranty . Any representation, warranty or statement made or deemed made by or on behalf of any Credit Party or by any officer of the foregoing under any Loan Document or in any report, certificate, or other document delivered to any Agent or any Lender under Article VI of this Agreement or otherwise pursuant to any Loan Document prove to be incorrect or misleading in any material respect when made or deemed made.

(d) Other Defaults (Thirty (30) Day Cure) . Any Credit Party shall fail to perform or comply with any other covenant or agreement in any Loan Document and such failure continues for a period of thirty (30) days after learning of such failure or receiving written notice thereof from any Agent.

(e) Default as to Other Indebtedness and Material Contracts . Any Credit Party or any Subsidiary of a Credit Party shall (i) fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness if the aggregate amount of such Indebtedness is in excess of $2,500,000 in the aggregate and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness, if the effect thereof (with or without the giving of notice or lapse of time or both) is to permit or require an acceleration, mandatory redemption or other required repurchase of such Indebtedness or, as to such Indebtedness, permit the holder or holders of such Indebtedness to accelerate the maturity of any such Indebtedness or require a redemption or other repurchase of such Indebtedness; or any Indebtedness if the aggregate amount of such Indebtedness is $2,500,000 shall be declared due and payable (by acceleration or otherwise) by a Person (other than a Credit Party or any Subsidiary of a Credit Party) as a result of a breach, default or event of default by a Credit Party or any Subsidiary of a Credit Party, or required to be prepaid, redeemed or otherwise repurchased by any Credit Party or any Subsidiary of a Credit Party (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or the holder or holders of any Lien, securing obligations of $2,500,000 or more, shall commence foreclosure of such Lien upon property of any Credit Party or any Subsidiary of a Credit Party; or (ii) fail in the performance or observance (beyond the applicable grace period with respect thereto, if any) of one or more Material Contracts representing, in the aggregate, 10% or more of annual revenue or expense of the Credit Parties and their Subsidiaries on a consolidated basis during the trailing 12-month period measured as of the most recently completed Fiscal Quarter (other than those covered in clause (i) hereof) and (A) such failure together with any other such failures, has a Material Adverse Effect, whether as a result of termination or cancellation of any such Material Contract or otherwise, or (B) such failure (1) is not reasonably subject to cure by such Credit Parties and is not reasonably likely to be waived by the other contracting party, (2) would permit the other contracting party to cancel or terminate such Material Contract and (3) such termination or cancellation could reasonably be expected to have a Material Adverse Effect.

 

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(f) Voluntary Bankruptcy Proceeding . Any Credit Party (i) shall institute any proceeding or voluntary case seeking to adjudicate it as bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, receiver and manager, interim receiver, sequestration, administrator, monitor, custodian or other similar official for any such Credit Party or any Subsidiaries or for any substantial part of its property, (ii) shall consent to the entry of an order for relief in an involuntary bankruptcy case or to the conversion of an involuntary case to a voluntary case under bankruptcy, insolvency or reorganization law, (iii) shall be generally not paying its debts as such debts become due or shall admit in writing its inability to pay its debts generally, (iv) shall make a general assignment for the benefit of creditors or (v) shall take any action to authorize or effect any of the actions set forth above in this Section 10.01(f) .

(g) Involuntary Bankruptcy Proceeding .

(i) An involuntary case shall be commenced against any Credit Party or any Subsidiary of a Credit Party and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days; or a court having jurisdiction shall enter a decree or order for relief in respect of such Credit Party or Subsidiary of a Credit Party in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, provincial, local or foreign law; or the board of directors of such Credit Party or Subsidiary of a Credit Party (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing.

(ii) A decree or order of a court having jurisdiction for the appointment of a receiver, liquidator, sequestrator, trustee, receiver and manager, administrator, monitor, custodian or other officer having similar powers over any Credit Party or any Subsidiary of a Credit Party or over all or a substantial part of their respective assets shall be entered; or an interim receiver, trustee or other custodian of any Credit Party or any Subsidiary of a Credit Party or of all or a substantial part of their respective assets shall be appointed or a warrant of attachment, execution or similar process against any substantial part of their respective assets shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days; or the board of directors of any Credit Party or any Subsidiary of a Credit Party (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing.

(h) Invalidity of Documents . A court of competent jurisdiction shall declare that any material provision of any Loan Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against a Credit Party intended to be a party thereto; or the validity or enforceability thereof shall be contested by any Credit Party that is a party thereto; or a proceeding shall be commenced by a Credit Party or any Governmental Authority having jurisdiction over any Credit Party, seeking to establish the invalidity or unenforceability thereof; or a Credit Party shall deny in writing that it has any liability or obligation purported to be created under any Loan Document.

 

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(i) Loan Documents; Impairment . At any time, for any reason, (i) any Loan Document shall for any reason (other than pursuant to the express terms hereof or thereof) fail or cease to create a valid and perfected Lien on any Collateral or the Liens intended to be created or perfected thereby are, or any Credit Party seeks to render such Liens, invalid or unperfected with respect to any Collateral except as otherwise contemplated hereby or thereby, or (ii) Liens with respect to any Collateral in favor of the Collateral Agent contemplated by the Loan Documents shall be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated hereby or by the other Loan Documents (subject to Permitted Liens and to the exceptions set forth in the applicable Security Documents).

(j) Judgments . (i) One or more judgments or judicial or administrative orders for the payment of money exceeding $2,500,000 in the aggregate shall be rendered against any Credit Party or any Subsidiary of a Credit Party and remain unsatisfied, undischarged, unvacated or unbonded and either (A) enforcement proceedings shall have been commenced by any creditor upon any such judgment or judicial or administrative order or (B) there shall be a period of twenty (20) consecutive Business Days after entry thereof during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided , however , that any such judgment or order shall not give rise to an Event of Default under this Section 10.01(j)(i) if and to the extent that (I) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (II) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment or order; or (ii) one or more judgments or judicial or administrative orders are rendered against any Credit Party or any Subsidiary of a Credit Party that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect and such judgments or orders are not stayed within 10 days of entry, or (iii) any Credit Party or any Subsidiary or Affiliate of a Credit Party asserts any claim, or commences or threatens to commence any action, litigation, or proceeding, that purports to affect the legality, validity or enforceability of any Loan Document, the Obligations or the security therefor, or any judgment or judicial or administrative order is entered in any action, litigation or proceeding brought by any other Person that purports to affect the legality, validity or enforceability of any Loan Document, the Obligations or the security therefor.

(k) Change of Control . A Change of Control shall have occurred.

(l) ERISA . With respect to any Plan or Benefit Plan, as applicable, (i) a prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA occurs which could reasonably be expected to result in material liability to any Credit Party or any Subsidiary of a Credit Party, (ii) any accumulated funding deficiency (within the meaning of Section 412 of the Code and Section 302 of ERISA), whether or not waived, shall exist with respect to any Benefit Plan, or (iii) the occurrence of any ERISA Event; provided , however , that the events listed in clauses (i) through (iii)  shall constitute Events of Default only if the liability or deficiency of any Credit Party or any Subsidiary of a Credit Party or ERISA Affiliate, would reasonably be expected to exceed $2,500,000 in the aggregate for all such events.

 

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Section 10.02. Remedies . If any Event of Default specified in Section 10.01 shall have occurred and be continuing, the Administrative Agent upon the written request of Required Lenders, or, with respect to the termination of the Commitments of the Revolving Lenders, at the written request of the Required Revolving Lenders, at any time an Event of Default has occurred and is continuing, shall by written notice to the Company, take any or all of the following actions, without prejudice to the rights of any Agent or any Lender to enforce its claims against any Credit Party: (a) terminate or reduce the Commitments, whereupon the Commitments shall immediately be terminated or reduced, (b) declare all or a portion of the Loans then outstanding to be due and payable, whereupon all or such portion of the aggregate principal of such Loans and reimbursement obligations, all accrued and unpaid interest thereon, all fees and all other amounts payable under this Agreement and all other Obligations (other than Hedging Obligations) shall become immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Credit Parties, (c) require the Borrower to cash collateralize all outstanding Letters of Credit in an amount equal to 105% of the face amount of such Letters of Credit (by transfer of such funds to a Cash Collateral Account) and (d) exercise any and all of its other rights and remedies hereunder, under the other Loan Documents, under Applicable Law and otherwise; provided , however , that upon the occurrence of any Event of Default described in subsection (f) or (g)  of Section 10.01 , the Commitments shall automatically terminate and the Loans and reimbursement obligations then outstanding, together with all accrued and unpaid interest thereon, all fees and all other amounts due under this Agreement shall become immediately due and payable automatically, without presentment, demand, protest or notice of any kind, all of which are expressly waived by the Borrower, and provided further that the Collateral Agent shall pay and apply the proceeds of any sale or other disposition of the Collateral, or any part thereof, resulting from the exercise of the remedies as provided for in this Section 10.02 in accordance with Section 1.09(a) .

Section 10.03. Waivers by the Credit Parties . Except as otherwise provided for in this Agreement and Applicable Law, the Credit Parties waive (a) presentment, demand, protest, notice of presentment or dishonor, notice of intent to accelerate and notice of acceleration, (b) all rights to notice and a hearing prior to the Lenders’ taking possession or control of, or to the Lenders’ replevin, attachment or levy upon, any Collateral or any bond or Security which might be required by any court prior to allowing such Lenders to exercise any of their remedies, (c) the benefit of all valuation, appraisal and exemption laws and (d) all rights of set-off against any Secured Party as it applies to the payment of the Obligations. The Credit Parties acknowledge that they have been advised by counsel of their choice with respect to this Agreement, the other Loan Documents and the transactions evidenced by this Agreement and the other Loan Documents.

 

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ARTICLE XI

GUARANTY OF OBLIGATIONS OF BORROWER

Section 11.01. Guaranty . In order to induce the Agents and the Secured Parties to enter into this Agreement and to make available the Loans and Letters of Credit hereunder, and in recognition of the direct benefits to be received by each Guarantor from the proceeds of the Loans and Letters of Credit, each Guarantor hereby jointly and severally agrees with each Agent, for the benefit of the Secured Parties, as follows: each Guarantor hereby jointly, severally, unconditionally and irrevocably guarantees, as Primary Obligor and not merely as surety, the full and prompt payment when due, whether upon maturity, acceleration or otherwise, and the performance, of any and all of the Obligations of all other Credit Parties (such Obligations, collectively, the “ Guaranteed Obligations ”). If any or all of the Obligations becomes due and payable hereunder, each Guarantor jointly, severally, irrevocably and unconditionally promises to pay such Indebtedness to the Collateral Agent, for the benefit of the Secured Parties.

Section 11.02. Nature of Liability . The Guarantors jointly and severally agree that this Guaranty is a guaranty of payment and performance and not of collection, and that their obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of, and the liability of each Guarantor shall not be affected by, nor shall this Guaranty be discharged or reduced by reason of:

(a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Guaranty, any other Loan Document or any other agreement, document or instrument to which any Credit Party and/or Guarantors are or may become a party;

(b) the absence of any action to enforce this Guaranty or any other Loan Document or the waiver or consent by the Administrative Agent, the Revolving Agent, the Collateral Agent and/or Secured Parties with respect to any of the provisions thereof;

(c) any other continuing or other guaranty or undertaking of any Guarantor or of any other party as to the Obligations, or any payment on or in reduction of any such other guaranty or undertaking;

(d) the incapacity or any change in the name, style or constitution of any Credit Party or any other person liable;

(e) any dissolution, termination, increase, decrease or change in personnel by the Borrower;

(f) the Collateral Agent granting any time, indulgence or concession to, or compounding with, discharging, releasing or varying the liability of, any Credit Party or any other person liable or renewing, determining, varying or increasing any accommodation, facility or transaction or otherwise dealing with the same in any manner whatsoever or concurring in, accepting or varying any compromise, arrangement or settlement or omitting to claim or enforce payment from any Credit Party or any other person liable;

(g) the existence, value or condition of, or failure to perfect its Lien against, any Collateral for the Guaranteed Obligations or any action, or the absence of any action, by the Administrative Agent, the Revolving Agent or the Collateral Agent in respect thereof (including, without limitation, the release of any such Collateral);

 

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(h) the insolvency of any Credit Party, or any payment made to any Agent or Secured Party on the Obligations which any such Agent or Secured Party repays to any Credit Party pursuant to a court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding;

(i) any act or omission which would not have discharged or affected the liability of any Guarantor had it been a principal debtor instead of a Guarantor or by anything done or omitted which but for this provision might operate to exonerate or discharge any Guarantor; or

(j) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or Guarantor.

Section 11.03. Independent Obligation .

(a) The obligations of each Guarantor hereunder are independent of the obligations of any other Guarantor, any other party or the Borrower, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other Guarantor, any other party or the Borrower and whether or not any other Guarantor, any other party or the Borrower be joined in any such action or actions.

(b) Each Guarantor shall be regarded, and shall be in the same position, as principal debtor with respect to the Guaranteed Obligations. Each Guarantor jointly and severally agrees that any notice or directive given at any time to any Agent that is inconsistent with this Section 11.03 shall be null and void and may be ignored by the Administrative Agent, the Revolving Agent, the Collateral Agent and the Secured Parties, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless the Agents and the Secured Parties have specifically agreed otherwise in writing. It is agreed by and among the Guarantors, jointly and severally, the Agents and the Secured Parties that the foregoing waivers are of the essence of the transaction contemplated by the Loan Documents and that, but for this Guaranty and such waivers, the Agents and the Secured Parties would decline to enter into this Agreement.

Section 11.04. Demand by the Administrative Agent, the Revolving Agent or the Secured Parties . In addition to the terms of the Guaranty set forth in Section 11.01 , and in no manner imposing any limitation on such terms, it is expressly understood and agreed that, if, at any time, the outstanding principal amount of the Guaranteed Obligations under this Agreement (including all accrued interest thereon) is declared to be immediately due and payable, then the Guarantors shall, without demand, pay to the holders of the Guaranteed Obligations the entire outstanding Guaranteed Obligations due and owing to such holders. Payment by the Guarantors shall be made to the Administrative Agent or the Revolving Agent in immediately available funds to an account designated by the Administrative Agent or the Revolving Agent, as the case may be, or at the address set forth herein for the giving of notice to the Administrative Agent or the Revolving Agent or at any other address that may be specified in writing from time to time by the Administrative Agent or the Revolving Agent, and shall be credited and applied to the Guaranteed Obligations.

 

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Section 11.05. Enforcement of Guaranty . In no event shall the Administrative Agent, the Collateral Agent or the Revolving Agent have any obligation (although it is entitled, at its option) to proceed against the Borrower or any other Credit Party or any Collateral pledged to secure Guaranteed Obligations before seeking satisfaction from any or all of the Guarantors, and the Administrative Agent, the Collateral Agent or the Revolving Agent may proceed, prior or subsequent to, or simultaneously with, the enforcement of the Administrative Agent’s, the Collateral Agent’s or the Revolving Agent’s rights hereunder, to exercise any right or remedy it may have against any Collateral, as a result of any Lien it may have as security for all or any portion of the Guaranteed Obligations.

Section 11.06. Waiver . In addition to the waivers contained in Section 11.02 , the Guarantors waive, and agree jointly and severally that they shall not at any time insist upon, plead or in any manner claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshaling of assets or redemption law, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by the Guarantors of their Guaranteed Obligations under, or the enforcement by the Collateral Agent, the Administrative Agent, the Revolving Agent or the Secured Parties of, the Guaranty. The Guarantors hereby waive diligence, presentment and demand (whether for non payment or protest or of acceptance, maturity, extension of time, change in nature or form of the Guaranteed Obligations, acceptance of further Collateral, release of further Collateral, composition or agreement arrived at as to the amount of, or the terms of, the Guaranteed Obligations, notice of adverse change in the Borrower’s financial condition or any other fact which might increase the risk to the Guarantors) with respect to any of the Guaranteed Obligations or all other demands whatsoever and waive the benefit of all provisions of law which are or might be in conflict with the terms of the Guaranty. The Guarantors represent, warrant and jointly and severally agree that, as of the date of this Agreement, their obligations under the Guaranty are not subject to any offsets or defenses against the Administrative Agent, the Revolving Agent, the Collateral Agent or the Secured Parties or any Credit Party of any kind. The Guarantors further jointly and severally agree that their obligations under this Guaranty shall not be subject to any counterclaims, offsets or defenses against the Collateral Agent, the Revolving Agent, the Administrative Agent or any Secured Party or against any Credit Party of any kind which may arise in the future.

Section 11.07. Benefit of Guaranty . The provisions of the Guaranty are for the benefit of the Agents and the Secured Parties and their respective permitted successors, permitted transferees, endorsees and assigns, and nothing herein contained shall impair, as between any Credit Party and the Agents or the Secured Parties, the obligations of any Credit Party under the Loan Documents. In the event all or any part of the Guaranteed Obligations are transferred, endorsed or assigned by the Agents or any Secured Party to any Person or Persons in a manner permitted by this Agreement, any reference to “the Agents” or “the Secured Parties” herein shall be deemed to refer equally to such Person or Persons.

 

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Section 11.08. Modification of Guaranteed Obligations, Etc. Each Guarantor hereby acknowledges and agrees jointly and severally that the Agents and the Secured Parties may at any time or from time to time, with or without the consent of, or notice to, the Guarantors (in their capacity as Guarantors):

(a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Guaranteed Obligations;

(b) take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges;

(c) amend or modify, in any manner whatsoever, the Loan Documents;

(d) extend or waive the time for any Credit Party’s performance of, or compliance with, any term, covenant or agreement on its part to be performed or observed under the Loan Documents, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance;

(e) take and hold Collateral for the payment of the Guaranteed Obligations guaranteed hereby or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which the Agents or the Secured Parties have been granted a Lien, to secure any Obligations;

(f) release anyone who may be liable in any manner for the payment of any amounts owed by the Guarantors or any Credit Party to the Agents or any Secured Party;

(g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of any Guarantor or any other Credit Party are subordinated to the claims of the Agents and the Secured Parties; and/or

(h) apply any sums by whomever paid or however realized to any amounts owing by any Guarantor or any other Credit Party to any Agent or any Secured Party in such manner as any Agent or any Secured Party shall determine in its discretion.

The Agents and the Secured Parties shall not incur any liability to the Guarantors as a result of any of the foregoing actions, and no such action shall impair or release the Guaranteed Obligations of the Guarantors or any of them under the Guaranty.

Section 11.09. Reinstatement .

(a) The Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Credit Party or any Guarantor for liquidation or reorganization, should any Credit Party or any Guarantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any Credit Party’s or any Guarantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Guaranteed Obligations, or any part thereof, is, pursuant to Applicable Law, rescinded or reduced in amount, or must otherwise be restored or returned by any Agent or any Secured Party, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Guaranteed Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

 

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(b) If any claim is ever made upon any Agent or Secured Party for repayment or recovery of any amount or amounts received in payment or on account of any of the Obligations and any of the aforesaid payees repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (ii) compliance by the Secured Parties or the Agents with any requirement of a Governmental Authority having jurisdiction over the Secured Parties or the Agents, then and in such event each Guarantor jointly and severally agrees that any such judgment, decree or order shall be binding upon it, notwithstanding any revocation of the Guaranty or other instrument evidencing any liability of the Borrower or any termination of this Agreement, and each Guarantor shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Guaranteed Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

Section 11.10. Waiver of Subrogation, Etc. Notwithstanding anything to the contrary in the Guaranty or in any other Loan Document, each Guarantor hereby:

(a) until the indefeasible payment and satisfaction in full in cash of the Guaranteed Obligations, expressly waives, on behalf of itself and its successors and assigns (including any surety), any and all rights at law or in equity to subrogation, to reimbursement, to exoneration, to contribution, to indemnification, to set off or to any other rights that could accrue to a surety against a principal, to any Guarantor against a principal, to any Guarantor against a maker or obligor, to an accommodation party against the party accommodated, to a holder or transferee against a maker, or to the holder of any claim against any Person, and which any Guarantor may have or hereafter acquire against any other Credit Party in connection with or as a result of any Guarantor’s execution, delivery and/or performance of this Agreement; and

(b) acknowledges and agrees jointly and severally (i) that this waiver is intended to benefit the Agents and the Secured Parties and shall not limit or otherwise effect any Guarantor’s liability hereunder or the enforceability of the Guaranty and (ii) that the Agents, the Secured Parties and their respective successors and assigns are intended third-party beneficiaries of the waivers and agreements set forth in this Section 11.10 and their rights under this Section 11.10 shall survive payment in full of the Guaranteed Obligations.

 

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Section 11.11. Election of Remedies . If any Agent may, under Applicable Law, proceed to realize benefits under any of the Loan Documents giving the Agents and the Secured Parties a Lien upon any Collateral owned by any Credit Party, either by judicial foreclosure or by non judicial sale or enforcement, the Collateral Agent may, at its sole option, determine which of such remedies or rights it may pursue without affecting any of such rights and remedies under this Guaranty. If, in the exercise of any of its rights and remedies, the Collateral Agent shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Credit Party, whether because of any applicable laws pertaining to “election of remedies” or the like, the Guarantors hereby consent to such action by any Agent and waive any claim based upon such action, even if such action by any Agent shall result in a full or partial loss of any rights of subrogation which the Guarantors might otherwise have had but for such action by any Agent. Any election of remedies that results in the denial or impairment of the right of any Agent to seek a deficiency judgment against any Credit Party shall not impair each Guarantor’s obligation to pay the full amount of the Guaranteed Obligations. In the event any Agent shall bid at any foreclosure or trustee’s sale or at any private sale permitted by law or the Loan Documents, such Agent may bid all or less than the amount of the Guaranteed Obligations and the amount of such bid need not be paid by such Agent but shall be credited against the Guaranteed Obligations. The amount of the successful bid at any such sale 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 Guaranteed Obligations shall be conclusively deemed to be the amount of the Guaranteed Obligations guaranteed under the Guaranty, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which the Administrative Agent and the Secured Parties might otherwise be entitled but for such bidding at any such sale.

Section 11.12. Limitation on Amount Guaranteed; Contribution by Guarantors . Anything contained in this Article XI to the contrary notwithstanding, if any Fraudulent Transfer Law (as defined below) is determined by a court of competent jurisdiction to be applicable to the obligations of any Guarantor under this Agreement, such obligations of such Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code or any applicable provisions of comparable state law (collectively, the “ Fraudulent Transfer Laws ”), in each case after giving effect to all other liabilities of such Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (excluding, however, any liabilities of such Guarantor (a) in respect of intercompany indebtedness to the Borrower or other affiliates of the Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Guarantor hereunder and (b) under any guarantee of any subordinated indebtedness which guarantee contains a limitation as to maximum amount similar to that set forth in this Section 11.12 , pursuant to which the liability of such Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount).

Section 11.13. Additional Waivers . Each Guarantor waives all rights and defenses that the Guarantors may have because the Borrower’s Obligations are secured by real property. This means, among other things:

(i) The Secured Parties may collect from the Guarantors without first foreclosing on any real or personal property collateral pledged by the Borrower.

(ii) If the Secured Parties foreclose on any real property collateral pledged by the Borrower, (1) the amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price or (2) the Secured Parties may collect from the Guarantors even if the Secured Parties, by foreclosing on the real property collateral, have destroyed any right the Guarantors may have to collect from the Borrower.

 

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This is an unconditional and irrevocable waiver of any rights and defenses the Guarantors may have because the debtor’s debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or similar provisions in any other jurisdiction.

ARTICLE XII

THE AGENTS

Section 12.01. Appointment of Agents .

(a) Each Participating Lender hereby irrevocably designates and appoints MORGAN STANLEY SENIOR FUNDING, INC. as Administrative Agent under this Agreement and the other Loan Documents, MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent under this Agreement and the other Loan Documents and THE CIT GROUP/BUSINESS CREDIT, INC. as Revolving Agent under this Agreement and the other Loan Documents. The provisions of this Article 12 are solely for the benefit of the Agents, the Agent-Related Persons and the Participating Lenders and no Credit Party nor any other Person, other than permitted sub-agents, shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement and the other Loan Documents, each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for any Credit Party or any other Person. No Agent shall have duties or responsibilities except for those expressly set forth in this Agreement and the other Loan Documents. Unless otherwise provided, each Agent may execute its functions and duties under this Agreement and the other Loan Documents by or through any Agent-Related Person and shall be entitled to the advice of counsel concerning all matters pertaining to such functions and duties. No Agent shall be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct. The duties of each Agent shall be mechanical and administrative in nature and no Agent shall have, or be deemed to have, by reason of this Agreement, any other Loan Document or otherwise, a fiduciary relationship in respect of any Secured Party or any other Person. Except to the extent, if any, expressly set forth otherwise in this Agreement, no Agent shall have any duty to disclose, and shall not be liable for failure to disclose, any information relating to any Credit Party, any of such Credit Party’s Subsidiaries, any Account Debtor or any other Person that is communicated to or obtained by any Agent-Related Person in any capacity. No Agent-Related Person shall be liable to any Secured Party for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for damages caused by its own gross negligence or willful misconduct.

 

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(b) If any Agent shall request instructions from the Required Lenders, Required Revolving Lenders, Required Term Lenders or all affected Lenders with respect to any act or action (including a failure to act) in connection with this Agreement or any other Loan Document, then such Agent shall be entitled to refrain from taking any action (or to take any action) with respect thereto, unless and until such Agent shall have received instructions from the Required Lenders, Required Revolving Lenders, Required Term Lenders or all affected Lenders, as the case may be, and no Agent shall incur liability to any Person by reason of so refraining from acting (or taking any action). Each Agent shall be fully justified in failing or refusing to take any action hereunder or under any other Loan Document (a) if such action would, in the opinion of such Agent, be contrary to law or the terms of this Agreement or any other Loan Document, (b) if such action would, in the opinion of such Agent, expose such Agent to any claim or liability to any Person (including without limitation Environmental Liabilities and Costs) or (c) if such Agent shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Without limiting the foregoing, no Participating Lender shall have any claim or right of action whatsoever against any Agent as a result of such Agent acting or refraining from acting hereunder or under any other Loan Document in accordance with the instructions of Required Lenders, Required Revolving Lenders, Required Term Lenders or all affected Lenders.

Section 12.02. Agents’ Reliance, Etc. No Agent-Related Person shall be liable for any action taken or omitted to be taken by it under or in connection with this Agreement or the other Loan Documents, except to the extent of actual damages, if any, caused by such Agent-Related Person’s own gross negligence or willful misconduct. Without limiting the generality of the foregoing, each Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent or Revolving Agent, as the case may be, receives written notice of the assignment or transfer thereof signed by such payee and in form and substance reasonably satisfactory to such Agent; (b) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Secured Party and shall not be responsible to any Secured Party for any statements, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Credit Party or to inspect the Collateral (including the books and records) of any Credit Party; (e) shall not be responsible to any Secured Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (f) shall incur no liability under or in respect of this Agreement or the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy) believed by it to be genuine and signed or sent by the proper party or parties.

Section 12.03. Agents in Individual Capacities . With respect to its Commitments hereunder, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not an Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include each of the Agents in its individual capacity. Each Agent and its respective Affiliates may lend money to, invest in, and generally engage in any kind of business with, any Credit Party, any Credit Party’s Affiliate and any Person that may do business with or own securities of any Credit Party or any such Affiliate, all as if such Agent were not an Agent and without any duty to account therefor to Lenders. Each Agent and its respective Affiliates may accept fees and other consideration from any Credit Party for services in connection with this Agreement or otherwise without having to account for the same to Lenders. Each Lender acknowledges the potential conflict of interest between the Agents in their capacity as Lenders holding disproportionate interests in the Loans and Agents in their capacity as Agents and expressly consents to, and waives any claim based in whole or in part upon, such conflict of interest.

 

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Section 12.04. Lender Credit Decision . Each Lender and each other Secured Party acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by any Agent-Related Person hereinafter taken, including any review of the affairs or Property of the Credit Parties, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender or any other Secured Party. Each Lender and each other Secured Party also acknowledges that it has, independently and without reliance upon any Agent-Related Person, any Lender or any Secured Party and based on such documents and information as such Lender or such other Secured Party has deemed appropriate, made its own credit and financial analysis of the Credit Parties and its own decision to enter into this Agreement, the other Loan Documents and the transactions contemplated hereby and thereby. Each Lender and each other Secured Party also acknowledges that it will, independently and without reliance upon any Agent-Related Person or any other Secured Party and based on such documents and information as such Lender or such Secured Party shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement, the other Loan Documents or otherwise. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by such Agent, if any, no Agent-Related Person shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospectus, operations, Property, financial and other condition or creditworthiness of the Borrower or any other Person, whether or not party to a Loan Document, that may come into the possession of any of the Agent-Related Persons. Each Lender acknowledges the potential conflict of interest of each other Lender as a result of Lenders holding disproportionate interests in the Loans, and expressly consents to, and waives any claim based upon, such conflict of interest.

Section 12.05. Costs and Expenses; Indemnification . Each Lender hereby agrees that it is and shall be obligated to pay to or reimburse each Agent for the amount of such Lender’s Pro Rata Share of any fees, costs, and expenses incurred by such Agent or permitted sub-agent in the performance of its functions and duties under this Agreement and the Loan Documents to the extent that the Credit Parties have not done so and without limiting their obligation to do so. The Lenders agree to indemnify the Agents and permitted sub-agents (to the extent not reimbursed by Credit Parties and without limiting the obligations of Credit Parties hereunder), ratably according to their respective Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any Agent or permitted sub-agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted to be taken by any Agent or permitted sub-agent in connection therewith; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent’s or permitted sub-agent’s own gross negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse each Agent or permitted sub-agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by such Agent or permitted sub-agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and each other Loan Document, to the extent that such Agent or permitted sub-agent is not reimbursed for such expenses by Credit Parties.

 

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Section 12.06. Successor Agents .

(a) The Administrative Agent may resign at any time by giving not less than thirty (30) days’ prior written notice thereof to the other Agents, the Participating Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent with the consent of the Company (not to be unreasonably withheld or delayed); provided that such consent shall not be required if a Default or Event of Default shall have occurred and be continuing. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days following the resigning Administrative Agent’s giving notice of resignation, then the resigning Administrative Agent may (after consulting with the Company), on behalf of Lenders, appoint a successor Administrative Agent, which shall be a Lender, if a Lender is willing to accept such appointment, or otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank or financial institution if such commercial bank or financial institution is organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least three hundred million Dollars ($300,000,000). If no successor Administrative Agent has been appointed pursuant to the foregoing, within thirty (30) days following the date such notice of resignation was given by the resigning Administrative Agent, such resignation shall become effective and the Required Lenders shall thereafter perform all the duties of such Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning Administrative Agent. Upon the earlier of the acceptance of any appointment as such Administrative Agent hereunder by a successor Administrative Agent or the effective date of the resigning Agent’s resignation, the resigning Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents, except that any indemnity rights or other rights in favor of such resigning Administrative Agent shall continue. After any resigning Administrative Agent’s resignation hereunder, the provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was acting as Administrative Agent under this Agreement and the other Loan Documents.

 

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(b) The Collateral Agent may resign at any time by giving not less than thirty (30) days’ prior written notice thereof to the other Agents, the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Collateral Agent with the consent of the Company (not to be unreasonably withheld or delayed); provided that such consent shall not be required if a Default or Event of Default shall have occurred and be continuing. If no successor Collateral Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the resigning Collateral Agent’s giving notice of resignation, then the resigning Collateral Agent may (after consulting with the Company), on behalf of Lenders, appoint a successor Collateral Agent, which shall be a Lender, if a Lender is willing to accept such appointment, or otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank or financial institution if such commercial bank or financial institution is organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least three hundred million Dollars ($300,000,000). If no successor Collateral Agent has been appointed pursuant to the foregoing, within thirty (30) days following the date such notice of resignation was given by the resigning Collateral Agent, such resignation shall become effective and the Required Lenders shall thereafter perform all the duties of such Collateral Agent hereunder until such time, if any, as the Required Lenders appoint a successor Collateral Agent as provided above. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning Collateral Agent. Upon the earlier of the acceptance of any appointment as such Collateral Agent hereunder by a successor Collateral Agent or the effective date of the resigning Collateral Agent’s resignation, the resigning Collateral Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents, except that any indemnity rights or other rights in favor of such resigning Collateral Agent shall continue. After any resigning Collateral Agent’s resignation hereunder, the provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was acting as Collateral Agent under this Agreement and the other Loan Documents.

(c) The Revolving Agent may resign at any time by giving not less than thirty (30) days’ prior written notice thereof to the other Agents, the L/C Issuer, the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Revolving Agent with the consent of the Company (not to be unreasonably withheld or delayed); provided that such consent shall not be required if a Default or Event of Default shall have occurred and be continuing. If no successor Revolving Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the resigning Revolving Agent’s giving notice of resignation, then the resigning Revolving Agent may (after consulting with the Company), on behalf of Lenders, appoint a successor Revolving Agent, which shall be a Lender, if a Lender is willing to accept such appointment, or otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank or financial institution if such commercial bank or financial institution is organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least three hundred million Dollars ($300,000,000). If no successor Revolving Agent has been appointed pursuant to the foregoing, within thirty (30) days after the date such notice of resignation was given by the resigning Revolving Agent, such resignation shall become effective and the Required Revolving Lenders shall thereafter perform all the duties of such Revolving Agent hereunder until such time, if any, as the Required Lenders appoint a successor Revolving Agent as provided above. Upon the acceptance of any appointment as Revolving Agent hereunder by a successor Revolving Agent, such successor Revolving Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning Revolving Agent. Upon the earlier of the acceptance of any appointment as such Revolving Agent hereunder by a successor Revolving Agent or the effective date of the resigning Revolving Agent’s resignation, the resigning Revolving Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents, except that any indemnity rights or other rights in favor of such resigning Revolving Agent shall continue. After any resigning Revolving Agent’s resignation hereunder, the provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was acting as Revolving Agent under this Agreement and the other Loan Documents.

 

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(d) Collateral Sub-Agents . Each Lender by its execution and delivery of this Agreement (or any joinder hereto or any Assignment and Acceptance hereunder) agrees that, in the event it shall hold any monies or other investments on account of the Credit Parties, such monies or other investments shall be held in the name and under the control of the Administrative Agent, Revolving Agent or such Lender, and the Administrative Agent, Revolving Agent or such Lender shall hold such monies or other investments as a collateral sub-agent for the Collateral Agent under this Agreement and the other Loan Documents. The Credit Parties, by their execution and delivery of this Agreement, hereby consent to the foregoing.

Section 12.07. Collateral Matters .

(a) Each Participating Lender hereby irrevocably authorizes the Collateral Agent and any permitted sub-agent, at its option and in its sole discretion, to release any Lien on any or all Collateral (i) upon the termination of the Commitments and the payment and satisfaction in full of all Obligations; (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if the Company certifies in writing to the Collateral Agent that the sale or disposition is permitted under this Agreement or the other Loan Documents (and the Collateral Agent may rely conclusively on any such certificate, without further inquiry); (iii) constituting Property in which the Credit Parties owned no interest at the time the security interest was granted or at any time thereafter; (iv) constituting property leased to the Credit Parties under a lease that has expired or is terminated in a transaction permitted under this Agreement; or (v) constituting Equipment which, in the aggregate with all other dispositions of Equipment covered by this clause (v) , has a fair market value or book value, whichever is less, of five million Dollars ($5,000,000) or less over the life of the Loans. Upon request by the Collateral Agent or the Company at any time, the Administrative Agent, the Revolving Agent and the Lenders will confirm in writing the Collateral Agent’s authority to release any such Liens on particular types or items of Collateral pursuant to this Section 12.07 . Notwithstanding the foregoing, the Collateral Agent is not and shall not be required to execute any document necessary to evidence the release of any Lien on terms that, in the Collateral Agent’s opinion, would expose the Collateral Agent to liability, create any obligation, or entail any consequence other than the release of such Lien without recourse, representation, or warranty. No release of any Lien shall in any manner discharge, affect, or impair the Obligations or any other Lien, including, the Collateral Agent’s Lien upon the proceeds of sale of any Collateral that is the subject of any such release.

(b) The Collateral Agent shall have no obligation whatsoever to any Secured Party (i) to assure that the Collateral exists or is owned by the applicable Credit Party or is cared for, protected, or insured or has been encumbered, or (ii) to assure that the Liens of the Collateral Agent or any other Secured Party have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or (iii) to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Collateral Agent pursuant to any of the Loan Documents. It is understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the terms and conditions contained herein, the Collateral Agent may act in any manner it may deem appropriate, in its sole discretion given the Collateral Agent’s own interest in the Collateral and in its capacity as one of the Secured Parties and that the Collateral Agent shall have no other duty or liability whatsoever to any Secured Party as to any of the foregoing, except as otherwise provided herein.

 

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Section 12.08. Collateral Restrictions on Actions by the Agents and the Participating Lenders; Sharing Payments . Subject to Section 12.03 , if, at any time or times any Participating Lender shall receive (a) by payment, foreclosure, set-off or otherwise, any proceeds of Collateral for application to any of the Obligations or any other payments with respect to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Participating Lender from the Administrative Agent or the Revolving Agent pursuant to the terms of this Agreement or (b) payments from the Administrative Agent or the Revolving Agent in excess of such Participating Lender’s ratable portion of all such distributions by the Administrative Agent or the Revolving Agent, such Participating Lender promptly shall turn the same over to the Administrative Agent or the Revolving Agent, in kind, and with such endorsements as may be required to negotiate the same to the Administrative Agent or the Revolving Agent, or in same-day funds, as applicable, for the account of the Participating Lenders and for apportionment and application to the Obligations in accordance with this Agreement.

Section 12.09. Several Obligations; No Liability . Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of an Agent in its capacity as such, and not by or in favor of the Participating Lenders, any and all obligations on the part of the Administrative Agent or the Revolving Agent, if any, to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Participating Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Participating Lender any interest in, or subject any Participating Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Participating Lender. Each Participating Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Participating Lender shall have any obligation, duty, or liability to any Participant of any other Participating Lender. Except as provided in Section 12.05 , no Agent-Related Person and no Participating Lender shall have any liability for the acts of any other Agent-Related Person or any other Participating Lender. No Participating Lender shall be responsible to the Credit Parties or any other Person for any failure by any other Participating Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein.

 

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Section 12.10. Several Obligations; No Liability . Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of an Agents in their capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of the Administrative Agent and/or the Revolving Agent, if any, to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lenders. Each Lender shall be solely responsible for notifying its Participating Lenders of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participating Lender of any other Lender. Except as provided expressly herein, no Agent and no Lender shall have any liability for the acts of any other Agent or any other Lender. No Lender shall be responsible to the Borrowers or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder, under any other Loan Document or in connection with the financing contemplated herein.

ARTICLE XIII

MISCELLANEOUS

Section 13.01. Notices, Etc . All notices and other communications provided for hereunder shall be in writing and shall be mailed, telecopied, emailed or delivered:

if to any Credit Party, at the following address :

Global Power Equipment Group Inc.

6120 South Yale, Suite 1480

Tulsa, Oklahoma 74136

United States

Attention: Candice Cheeseman, General Counsel

Phone: (918) 274-2554

Fax: (918) 274-2367

Email: ccheeseman@globalpower.com

with a copy to :

White & Case LLP

1155 Avenue of the Americas

New York, NY 10036

Attention: David E. Joyce

Phone: (212) 819-8200

Fax: (212) 354-8113

Email: djoyce@whitecase.com

 

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Conner & Winters, LLP

4000 One Williams Center

Tulsa, OK 74172-1048

Attn: Gary Betow

Tel: (918) 586-5714

Fax: (918) 586-8688

if to the Administrative Agent or the Collateral Agent, at the following address :

Morgan Stanley Senior Funding, Inc.

1585 Broadway, Floor 2

New York, New York 10036

United States

Attention: Jim Farner

Phone: 212-761-1596

Fax: 212-507-2086

Email: jim.farner@morganstanley.com

Or

Morgan Stanley & Co., Inc.

1585 Broadway, Floor 2

New York, New York 10036

United States

Attention: Jim Farner

Phone: 212-761-1596

Fax: 212-507-2086

Email: jim.farner@morganstanley.com

In each case, with a copy to :

Sullivan & Cromwell LLP

1888 Century Park East

Los Angeles, California 90067-1725

United States

Attention: Hydee R. Feldstein

Phone: +1-310-712-6690

Fax: +1-310-712-8800

Email: feldsteinh@sullcrom.com

if to the Revolving Agent, at the following address :

The CIT Group/Business Credit, Inc.

11 West 42 nd , 13 th Floor

New York, New York 10036

United States

Attention: Renee Singer

Phone: (212) 461-7751

Fax: (212) 461-7760

Email: renee.singer@cit.com

 

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with a copy to :

The CIT Group/Business Credit, Inc.

11 West 42 nd , 13 th Floor

New York, New York 10036

United States

Attention: Andrew Hausspiegel

Phone: (212) 461-7720

Fax: (212) 461-7760

Email: andrew.hausspiegel@cit.com

And with a copy to :

Paul, Hastings, Janofsky & Walker LLP

600 Peachtree Street, NE, Suite 2400

Atlanta, Georgia 30308

United States

Attention: Chris D. Molen

Phone: (404) 815-2210

Fax: (404) 815-2424

Email: chrismolen@paulhastings.com

or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 13.01 . All such notices and other communications shall be effective, (a) if mailed, when received or five (5) Business Days after deposited in the mails as registered or certified (in each case with return receipt requested) with postage pre-paid and properly addressed, whichever occurs first, (b) if telecopied, when transmitted and confirmation received, (c) if emailed, when transmitted and confirmation acknowledged by recipient or (d) if delivered, upon delivery, except that notices to the Administrative Agent or Revolving Agent pursuant to Article I shall not be effective until received by the Administrative Agent or Revolving Agent.

Section 13.02. Amendments, Etc.

(a) Except as set forth below or as otherwise provided in this Agreement, no amendment or waiver of any provision of this Agreement, any Loan or any other Loan Document, nor consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Company and the Required Lenders (or the Administrative Agent at the request of the Required Lenders), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Except as set forth below, all such amendments, modifications, terminations or waivers requiring the consent of any Lenders shall require the written consent of Required Lenders.

 

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(b) No amendment, modification, termination or waiver or consent shall, without the consent of the Administrative Agent, the Revolving Agent, the Company and each Lender directly affected thereby, do any of the following:

(i) increase the principal amount of any Lender’s Commitment (which action shall be deemed only to affect those Lenders whose Commitments are increased and may be approved by Required Lenders, including those Lenders whose Commitments are increased);

(ii) reduce the principal of or rate of interest on any Loan owed or any fees payable to such affected Lender;

(iii) postpone or extend any date fixed for any payment of principal or, interest due on, any Loan owed to such affected Lender;

(iv) release all or substantially all of the Collateral or the Guarantors, or subordinate the right of the Collateral Agent and the Lenders with respect to all or substantially all of the Collateral (except as expressly permitted herein or in the other Loan Documents);

(v) amend, modify or waive this Section 13.02 ; or

(vi) amend or waive the priorities established under Section 1.09 , the definitions of the terms “Required Lenders”, “Required Revolving Lenders,” “Required Term Lenders” or “Pro Rata Share”; insofar as such definitions affect the substance of this Section 13.02 .

(c) If at any time (i) the Fixed Charge Coverage Ratio is greater than 1.2 to 1.0 for the last four Fiscal Quarter period most recently ended, and (ii) the Credit Parties, on a consolidated basis, have a Liquidity level of $5,000,000 (five million dollars) in excess of the requirement set forth in Section 9.03 as of the end of the most recently ended Fiscal Month, then any non-compliance under Section 9.01 or Section 9.02 or any Event of Default under Section 10.01 (e)(ii) may be waived and/or the covenant levels may be amended by the Required Term Lenders (or by the Administrative Agent upon the written direction of the Required Term Lenders) without the consent of any of the Revolving Lenders; provided however , that any such waiver or amendment shall not reduce the Fixed Charge Coverage Ratio covenant level set forth in Section 9.02 below 1.2 to 1.0 without the consent of the Required Revolving Lenders.

(d) No amendment, modification, termination or waiver affecting the rights or duties of any Agent or any L/C Issuer under this Agreement or any other Loan Document shall be effective unless in writing and signed by such Agent or the L/C Issuer, as the case may be, in addition to the Lenders required hereinabove to take such action.

 

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Furthermore, no amendment, modification, termination or waiver shall be required for the Collateral Agent to take additional Collateral pursuant to any Loan Document. No notice to or demand on any Credit Party in any case shall entitle such Credit Party or any other Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 13.02 shall be binding upon each Lender and each future Lender.

Section 13.03. Non-Consenting Lenders; Defaulting Lenders .

(a) If in connection with any proposed amendment, modification, waiver or termination (a “ Proposed Change ”) requiring the consent of Required Lenders or all affected Lenders, the consent of the Required Term Lenders and the Required Revolving Lenders and the consent of the Administrative Agent has been obtained, but the consent of other Lenders or Agents whose consent is required has not been obtained (any Lender whose consent is obtained as described in this Section 13.03 being referred to as a “ Consenting Lender ,” and any Lender whose consent is not obtained as described in this Section 13.03 being referred to as a “ Non-Consenting Lender ”), then at the Borrower’s request the Administrative Agent (or a Person reasonably acceptable to the Administrative Agent) shall have the right (but shall have no obligation), with the Administrative Agent’s written consent and in the Administrative Agent’s sole discretion, to purchase for Cash from any such Non-Consenting Lenders, and all such Non-Consenting Lenders agree that they shall, upon Administrative Agent’s request, sell and assign to Administrative Agent (or to such Person), all right, title and interest of such Non-Consenting Lender under the Loan Documents for an amount equal to the principal balance of all Loans held by such Non-Consenting Lender and all accrued interest and fees (but not including any Prepayment Fee) with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment and Acceptance.

(b) Defaulting Lenders . The failure of any Defaulting Lender to make any Loan or any payment required to be made by such Lender hereunder shall not relieve any other Lender (each such other Lender, an “ Other Lender ”) of any of its obligations to make any Loan or payment or otherwise, but none of any Other Lender, the Administrative Agent or the Revolving Agent shall be responsible to the Credit Parties or to any other Person for the failure of any Defaulting Lender to meet its obligations hereunder. Notwithstanding anything set forth herein to the contrary, a Defaulting Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a “Lender” (or be included in the calculation of “Required Lenders,” “Required Revolving Lenders” or “Required Term Lenders,” as applicable) for any voting or consent rights under or with respect to any Loan Document. At the Borrower’s request with the Administrative Agent’s consent and in the Administrative Agent’s sole discretion, the Administrative Agent (or a Person reasonably acceptable to the Administrative Agent) shall have the right (but shall have no obligation) to purchase from any Defaulting Lender, and each Defaulting Lender agrees that it shall, at Administrative Agent’s request, sell and assign to Administrative Agent (or to such Person), all right, title and interest of such Defaulting Lender under the Loan Documents for an amount equal to the principal balance of all Loans held by such Defaulting Lender and all accrued interest and fees then due and other Obligations owing to such Lender (but not including any Prepayment Fee) with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment and Acceptance.

 

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Section 13.04. No Waiver; Remedies, Etc. No failure on the part of the Lenders or any Agent to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right under any Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Lenders and the Agents provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Lenders and the Agents under any Loan Document against any party thereto are not conditional or contingent on any attempt by the Lenders and the Agents to exercise any of their rights under any other Loan Document against such party or against any other Person.

Section 13.05. Expenses; Taxes; Attorneys’ Fees . The Borrower will pay promptly following demand therefor, all Participating Lender Expenses. Without limitation of the foregoing or any other provision of any Loan Document: (i) the Borrower agrees to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter reasonably determined by the Lenders to be payable in connection with this Agreement or any other Loan Document, and the Borrower agrees to hold the Lenders harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions, (ii) the Borrower agrees to pay all broker fees with respect to any broker retained by the Borrower or any of its Subsidiaries that may become due in connection with the transactions contemplated by this Agreement and (iii) during the continuance of a Default or an Event of Default, if a Credit Party (A) fails to make any payments or deposits with respect to any taxes of any kind or nature to the extent that such payments or deposits are due and payable prior to delinquency, (B) fails to make any payments or deposits with respect to any other governmental assessment prior to the time that any Lien may inure against any property of any Credit Party, or (C) fails to make any payments or deposits with respect to any insurance premiums then due and payable or otherwise comply with Section 7.12 , then the Administrative Agent, in its sole discretion and without prior notice to the Borrower, may do any or all of the following, without duplication: (1) make payment of the same or any part thereof, (2) in the case of any failure described in clause (iii)(C) above, obtain and maintain insurance policies of the type described in Section 5.01(r) and take the actions with respect to such policies which are authorized pursuant to such policies. Any payment described above in clause (2) shall not constitute an agreement by the Lenders to make similar payments in the future or a waiver by the Lenders of any Event of Default under this Agreement. The Administrative Agent and Revolving Agent need not inquire as to, or contest the validity of, any such obligation. The Administrative Agent and Revolving Agent agree to provide to the Borrower an invoice with respect to each cost or expense incurred in connection with the Loan Documents by any Lender promptly upon the Administrative Agent’s or Revolving Agent’s receipt thereof, and agree, upon the reasonable request of the Borrower, to provide reasonable backup information with respect to such costs or expenses (subject to the right of the Administrative Agent and Revolving Agent to take whatever steps are reasonably necessary to protect any confidential or privileged information which may be contained therein). Notwithstanding the foregoing, no Borrower shall be required to reimburse the legal fees and expenses of more than one outside counsel (in addition to up to one local counsel in each applicable local jurisdiction) for each of (i) the Administrative Agent, the Collateral Agent or the Participating Lenders and (ii) the Revolving Agent, in each case under this Section 13.05 unless on advice of outside counsel, representation of more than one such Person would be inappropriate due to the existence of an actual or potential conflict of interest.

 

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Section 13.06. Right of Set-Off . If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates, is hereby authorized at any time and from time to time, to the fullest extent permitted by Applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of the Borrower or any other Credit Party against any and all of the obligations of the Borrower or such Credit Party now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Credit Party may be contingent or unmatured or are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender and their respective Affiliates under this Section 13.06 are in addition to other rights and remedies (including other rights of set-off) that such Lender or their respective Affiliates may have. Each Lender agrees to notify the Borrower and the Administrative Agent and Revolving Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such set-off and application.

Section 13.07. Severability . Any provision of this Agreement, which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

Section 13.08. Complete Agreement; Sale of Interest . The Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and thereof, supersede any previous agreement or understanding between them relating hereto or thereto and may not be modified, altered or amended except by an agreement in writing signed by the Credit Parties and the Lenders in accordance with Section 13.02 . The Credit Parties may not sell, assign or transfer any of the Loan Documents or any portion thereof, including their rights, title, interests, remedies, powers and duties hereunder or thereunder. The Credit Parties hereby consent to any Lender’s sale of participations, assignment, transfer or other disposition, at any time or times, of any of the Loan Documents or of any portion thereof or interest therein, including such Lender’s rights, title, interests, remedies, powers or duties thereunder, subject, in the case of a participation, assignment, transfer or other disposition, to the provisions of Section 13.09 .

Section 13.09. Binding Effect; Assignment; Register .

(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 no Credit Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by any Credit Party without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Affiliates of the Administrative Agent) any legal or equitable right, remedy or claim under or by reason of this Agreement.

 

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(b) Any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Loans at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining outstanding amount of the Loans at the time owing to it (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) or in the case of an assignment to an entity described in clause (d) of the definition of Eligible Assignee, any such assignment shall not be less than one million Dollars ($1,000,000), unless each of the Administrative Agent and Revolving Agent otherwise consents (such consent not to be unreasonably withheld or delayed), and (ii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance. Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (d) of this Section 13.09 , from and after the effective date specified in each Assignment and Acceptance, the Eligible 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 Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Section 2.05 , Section 3.03 , Section 3.04 , Section 13.17 , and Section 13.18 to the extent any claim thereunder relates to an event arising out of such Lender’s status or activity as Lender prior to such assignment.

(c) Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 13.09 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 (e) of this Section 13.09 .

(d) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s office a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Term Lenders, and the Term Loan Commitment of, and principal amount of the Term Loan owing to, each Lender pursuant to the terms hereof from time to time (the “ Term Register ”). The Revolving Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Revolving Agent’s office a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Revolving Lenders, and the Revolving Commitment of, and principal amount of the Revolving Loans owing to, each Revolving Lender pursuant to the terms hereof from time to time (the “ Revolving Register ”). The entries in either register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. Each register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. The Borrower may request in writing a copy of either register from time to time and the Administrative Agent or the Revolving Agent, as appropriate, will promptly deliver a copy of such register to the Borrower promptly thereafter.

 

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(e) Any Lender may, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a “ Participant ”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Agents and the Participating Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement, provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in Section 13.02(b)(ii) or Section 13.02(b)(iii) that affects such Participant. Subject to paragraph (f) of this Section 13.09 the Borrower agrees that each Participant shall be entitled to the benefits of Section 2.05 , Section 3.03 and Section 3.04 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section 13.09 . To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 13.05 as though it were a Lender, provided such Participant agrees to be subject to Section 12.05 as though it were a Lender.

(f) Any Lender selling a participation to a Participant shall, as agent for the Borrower, keep a register, in substantially the same form as such Lender’s respective register, of each such Participant, specifying such Participant’s entitlement to payments of principal and interest with respect to such participation.

(g) A Participant shall not be entitled to receive any greater payment under Section 2.05 or Article III 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 Borrower’s prior written consent. A Participant that would be a Non-U.S. Lender if it were a Lender shall not be entitled to the benefits of Section 2.05 unless the Borrower are notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.05 as though it were a Lender.

(h) Any Lender may, without the consent of the Borrower, the Administrative Agent or the Revolving 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 without limitation (i) any pledge or assignment to secure obligations to a Federal Reserve Bank and (ii) in the case of any Lender that is a Fund, any pledge or assignment of all or any portion of such Lender’s rights under this Agreement to any holders of obligations owed, or securities issued, by such Lender as security for such obligations or securities, or to any trustee for, or any other representative of, such holders, and this Section 13.09 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.

 

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Section 13.10. Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any of the other Loan Documents by telecopy shall have the same force and effect as the delivery of an original executed counterpart of this Agreement or any of such other Loan Documents. Any party delivering an executed counterpart of any such agreement by telecopy shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of such agreement.

Section 13.11. GOVERNING LAW . THIS AGREEMENT, THE NOTES AND, EXCEPT TO THE EXTENT OTHERWISE PROVIDED THEREIN, THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

Section 13.12. CONSENT TO JURISDICTION, SERVICE OF PROCESS AND VENUE . ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE BOROUGH OF MANHATTAN, COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH CREDIT PARTY HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH CREDIT PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH CREDIT PARTY AT THE ADDRESS FOR NOTICES SET FORTH IN SECTION 13.01 , SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDERS OR THE AGENTS TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION. EACH CREDIT PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

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Section 13.13. WAIVER OF JURY TRIAL, ETC. THE CREDIT PARTIES, THE LENDERS AND THE AGENTS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, THE NOTES OR OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH CREDIT PARTY CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDERS OR THE AGENTS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDERS OR THE AGENTS WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH CREDIT PARTY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS AND THE AGENTS ENTERING INTO THIS AGREEMENT.

Section 13.14. Consent . Except as otherwise expressly set forth herein or in any other Loan Document to the contrary, if the consent, approval, satisfaction, determination, judgment, acceptance or similar action (an “ Action ”) of the Lenders or the Agents shall be permitted or required pursuant to any provision hereof or any provision of any other agreement to which the Borrower or any other Guarantors are parties and to which the Lenders or the Agents are party or have succeeded thereto, such Action shall be required to be in writing and may be withheld or denied by the Lenders or the Agents with or without any reason in their reasonable discretion.

Section 13.15. Interpretation . Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against the Lenders, the Agents or the Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.

Section 13.16. Reinstatement; Certain Payments . If any claim is ever made upon the Secured Parties or the Agents for repayment or recovery of any amount or amounts received by the Secured Parties or the Agents in payment or received on account of any of the Obligations, the Secured Parties or the Agents shall give prompt notice of such claim to the Borrower, and if the Secured Parties or the Agents repay all or part of such amount by reason of (a) any judgment, decree or order of any court of competent jurisdiction or administrative body having jurisdiction over the Secured Parties or the Agents or any of their respective property, or (b) compliance by the Secured Parties or the Agents with any requirement of a Governmental Authority having jurisdiction over the Secured Parties or the Agents, then and in such event the Borrower agrees that (i) any such judgment, decree or order shall be binding upon it notwithstanding the cancellation of any instrument evidencing the Obligations or the other Loan Documents or the termination of this Agreement or the other Loan Documents and (ii) it shall be and remain liable to the Secured Parties or the Agents hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by the Secured Parties or the Agents.

 

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Section 13.17. Indemnification . In addition to the Borrower’s other Obligations under this Agreement, the Borrower agrees to defend, protect, indemnify and hold harmless the Lenders and each of their respective Affiliates and their officers, directors, trustees, employees, agents and advisors, the Administrative Agent, the Revolving Agent, the Collateral Agent, the Agent-Related Persons and the Lender-Related Persons (collectively called the “ Indemnitees ”) from and against any and all claims, losses, demands, settlements, damages, liabilities, obligations, penalties, fines, fees, reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees, costs and expenses, but excluding income, franchise and similar taxes of an Indemnitee) incurred by such Indemnitees (but not taxes, which shall be governed by Section 2.05 and Section 13.05 ), whether prior to or from and after the Closing Date, as a result of or arising from or relating to or in connection with any of the following: (a) the Administrative Agent, the Revolving Agent, the Collateral Agent or the Lenders furnishing of funds to the Borrower under this Agreement, including, without limitation, the management of any such Loans, (b) any matter relating to the financing transactions contemplated by this Agreement or the other Loan Documents or by any document executed in connection with the transactions contemplated by this Agreement or the other Loan Documents, (c) any claim, litigation, investigation or administrative or judicial proceeding in connection with any transaction contemplated in, or consummated under, the Loan Documents or (d) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, including without limitation, claims, litigations, investigations or other proceedings arising out of (i) the presence, disposal, Release of any Hazardous Materials on, in, at, to, from or under any property at any time owned or occupied by the Borrower or any of its Subsidiaries (or any of their respective predecessors in interest or title) or at any facility which received Hazardous Materials generated by the Borrower or any of its Subsidiaries or any of their respective predecessors in interest in connection with the receipt of such Hazardous Materials, (ii) any alleged personal injury (including wrongful death) or property damage (real or personal) arising out of or related to any Hazardous Materials generated by any Credit Party or any of its Subsidiaries, (iii) any investigation, lawsuit brought or threatened, settlement reached or government order relating to such Hazardous Materials, (iv) any alleged violation of any Environmental Law by any Credit Party or any of its Subsidiaries or any of their respective predecessors in interest, and/or (v) any Environmental Action (collectively, the “ Indemnified Matters ”); provided, however, that the Borrower shall not have any obligation to any Indemnitee under this Section 13.17 if such Indemnified Matter results solely from the gross negligence or willful misconduct of such Indemnitee, as determined by a final and non-appealable order by a court of competent jurisdiction, or as a result of the presence or release of Hazardous Materials that are first brought on to a property after such property is transferred to any Indemnitee or its successors or assigns by foreclosure, deed-in-lieu of foreclosure or similar transfer; provided , however , that no Credit Party shall be required to reimburse the legal fees and expenses of more than one outside counsel (in addition to up to one local counsel in each applicable local jurisdiction) for all Indemnitees under this Section 13.17 unless on advice of outside counsel, representation of all such Indemnitees would be inappropriate due to the existence of an actual or potential conflict of interest. Such indemnification for all of the foregoing losses, damages, fees, costs and expenses of the Indemnitees shall be due and payable promptly after demand therefor. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 13.17 may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under Applicable Law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.

 

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Section 13.18. Interest . It is the intention of the parties hereto that each Agent and each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby or by any other Loan Document would be usurious as to any Agent or any Lender under laws applicable to it (including the laws of the United States of America and the State of New York or any other jurisdiction whose laws may be mandatorily applicable to such Agent or such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in this Agreement or any other Loan Document or any agreement entered into in connection with or as security for the Obligations, it is agreed as follows: (a) the aggregate of all consideration which constitutes interest under law applicable to any Agent or any Lender that is contracted for, taken, reserved, charged or received by such Agent or such Lender under this Agreement or any other Loan Document or agreements or otherwise in connection with the Obligations shall under no circumstances exceed the maximum amount allowed by such Applicable Law, any excess shall be canceled automatically and if theretofore paid shall be credited by such Agent or such Lender on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Agent or such Lender, as applicable, to the Borrower); and (b) in the event that the maturity of the Obligations is accelerated by reason of any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Agent or any Lender may never include more than the maximum amount allowed by such Applicable Law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Agent or such Lender, as applicable, as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Agent or such Lender, as applicable, on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Agent or such Lender to the Borrower). All sums paid or agreed to be paid to any Agent or any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Agent or such Lender, be amortized, prorated, allocated and spread throughout the full term of the Loans until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such Applicable Law. If at any time and from time to time, (i) the amount of interest payable to any Agent or any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Agent or such Lender pursuant to this Section 13.18 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Agent or such Lender would be less than the amount of interest payable to such Agent or such Lender computed at the Highest Lawful Rate applicable to such Agent or such Lender, then the amount of interest payable to such Agent or such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Agent or such Lender until the total amount of interest payable to such Agent or such Lender shall equal the total amount of interest which would have been payable to such Agent or such Lender if the total amount of interest had been computed without giving effect to this Section 13.18 .

For purposes of this Section 13.18 , the term “Applicable Law” shall mean that law in effect from time to time and applicable to the loan transaction between the Borrower, on the one hand, and the Agents and the Lenders, on the other, that lawfully permits the charging and collection of the highest permissible, lawful non-usurious rate of interest on such loan transaction and this Agreement, including laws of the State of New York and, to the extent controlling, laws of the United States of America.

 

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The right to accelerate the maturity of the Obligations does not include the right to accelerate any interest that has not accrued as of the date of acceleration.

Section 13.19. Records . The unpaid principal of, and interest on, the Obligations, the interest rate or rates applicable to such unpaid principal and interest, the duration of such applicability, the Commitment, and the accrued and unpaid fees payable pursuant to Section 3.06 , including, without limitation, fees set forth in the Fee Letter, shall at all times be ascertained from the records of the Lender and Agents, which shall be conclusive and binding absent manifest or demonstrable error.

Section 13.20. Confidentiality . The Agents and the Participating Lenders each individually (and not jointly or jointly and severally) agree that material, non-public information regarding the Borrower and its Subsidiaries, their operations, assets, and existing and contemplated business plans shall be treated by the Agents and the Participating Lenders in a confidential manner, and shall not be disclosed (i) by any Agent or any Participating Lender to Persons who are not parties to this Agreement, or (ii) in the case of the consolidating reports provided to the Term Lenders only under Section 6.01(d) , by any Agent or any Term Lender to any Person who is not a Term Lender under this Agreement, in each case, for a period of six (6) months following the Maturity Date, and, in each case, except (a) to attorneys for and other advisors, accountants, auditors, employees and consultants to any Participating Lender or any Agent, (b) to Subsidiaries and Affiliates of any Participating Lender or any Agent; provided , however , that any such Subsidiary or Affiliate shall have agreed to receive such information hereunder subject to the terms of this Section 13.20 , (c) as may be required by statute, decision, or judicial or administrative order, rule, or regulation, (d) as may be agreed to in advance in writing by the Borrower or its Subsidiaries or as requested or required by any Governmental Authority pursuant to any subpoena or other legal process, (e) as to any such information that is or becomes generally available to the public (other than as a result of prohibited disclosure by any Agent or any Participating Lender), (f) in connection with any assignment, prospective assignment, sale, prospective sale, participation or prospective participations, or pledge or prospective pledge of any Participating Lender’s interest under this Agreement; provided , however , that any such assignee, prospective assignee, purchaser, prospective purchaser, participant, prospective participant, pledgee, or prospective pledgee shall have agreed in writing to receive such information hereunder subject to the terms of this Section 13.20 , and (g) in connection with any litigation or other adversary proceeding involving parties hereto which such litigation or adversary proceeding involves claims related to the rights or duties of such parties under this Agreement or the other Loan Documents; provided , however , that, unless prohibited by applicable law, statute, regulation, or court order, such Participating Lender or such Agent shall: (x) where legally permissible, notify the Borrower of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or, if practicable, prior to the disclosure thereof, and (y) notify all other Persons described in clause (a) above that they are bound by, the provisions of this Section 13.20 ; provided , however , with respect to such material, non-public information identified by the Credit Parties in writing as restricted material (“ Restricted Material ”) that the Credit Parties are required to keep confidential for a longer period of time (such additional period, a “ Restricted Period ”), the Agents and the Participating Lenders agree to treat such Restricted Material confidentially in accordance with this Section 13.20 for such applicable Restricted Period to the extent the Agents and the Participating Lenders receive written notice of such Restricted Period.

 

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Section 13.21. Lender Advertising . The Agents and the Lenders shall be entitled to advertise the closing of the transactions contemplated by this Agreement in such trade publications, business journals, newspapers of general circulation and otherwise, as the Agents and the Lenders shall deem appropriate, including, without limitation, the publication of a tombstone announcing the closing of this transaction; provided that the Agents and the Lenders shall obtain written consent of the Borrower prior to disseminating any advertisement described in this Section 13.21 which consent shall not be reasonably withheld.

Section 13.22. Common Enterprise . The successful operation and condition of each of the Credit Parties is dependent on the continued successful performance of the functions of the group of the Credit Parties as a whole and the successful operation of each of the Credit Parties is dependent on the successful performance and operation of each other Credit Party. Each Credit Party expects to derive benefit (and its board of directors or other governing body has determined that it may reasonably be expected to derive benefit), directly and indirectly, from (a) successful operations of each of the other Credit Parties and (b) the credit extended by the Lenders to the Borrower hereunder, both in their separate capacities and as members of the group of companies. Each Credit Party has determined that execution, delivery and performance of this Agreement and any other Loan Documents to be executed by such Credit Party is within its purpose, will be of direct and indirect benefit to such Credit Party, and is in its best interest.

Section 13.23. USA PATRIOT ACT . Each Participating Lender that is subject to the requirements of the Patriot Act hereby notifies the Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies each Credit Party and each Subsidiary of the Credit Parties, which information includes the name and address of each Credit Party and each Subsidiary of the Credit Parties and other information that will allow such Lender to identify the Credit Parties and their Subsidiaries in accordance with the Patriot Act.

Section 13.24. Survival of Representations, Warranties Covenants and Obligations . All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith and all agreements, covenants and obligations set forth in Sections 1.04 , 1.06(f) , 1.08 , 1.09 , 2.05 , 12.05 , 13.05 , 13.16 and 13.17 shall survive the execution and delivery hereof and thereof, notwithstanding any investigation made by any Agent or any Participating Lender or on their behalf and notwithstanding that any Agent or any Lender may have had notice or knowledge of any Default at any time, and such representations, warranties, agreements, covenants and obligations shall continue in full force and effect as long as any Obligation shall remain unpaid or unsatisfied.

 

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ARTICLE XIV

DEFINITIONS; CERTAIN TERMS

Section 14.01. Definitions .

2007 Financial Statements ” means the unaudited consolidated (and consolidating by division) balance sheet of the Company and its Subsidiaries, determined on a consolidated basis and in accordance with GAAP, as of November 30, 2007 and the related consolidated (and consolidating by division) statement of operations, shareholders’ equity and cash flows of the Company and its Subsidiaries, determined on a consolidated basis and in accordance with GAAP, for the 11-month period then ended.

Account ” means an “ account ” as that term is defined in the UCC.

Account Debtor ” means any Person that is obligated on an Account, chattel paper or general intangible.

Action ” has the meaning ascribed to such term in Section 13.14 .

Additional Security Documents ” means any Security Documents entered into pursuant to Section 7.07 .

Administrative Agent ” has the meaning ascribed to such term in the introductory paragraph hereto.

Affiliate ” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

Agent-Related Person ” means each of the Agents, each Affiliate of an Agent, and each officer, director, employee, counsel, consultant, agent, and attorney-in-fact of each Agent and each Affiliate of an Agent.

Agents ” means, collectively, the Administrative Agent, the Revolving Agent and the Collateral Agent.

Aggregate Revolving Exposure ” means the sum of (a) the outstanding Revolving Loans under this Agreement and (b) the Letter of Credit Exposure.

Agreement ” has the meaning ascribed to such term in the introductory paragraph hereto.

ALTA ” means American Land Title Association.

Alternate Base Rate ” at any time means the rate of interest per annum equal to the higher of (a) the rate of interest quoted by the Administrative Agent prime or base commercial lending rate and (b) the rate that is 0.50% in excess of the Federal Funds Rate. Any change in the Alternate Base Rate due to a change in rate referred to in clause (a) of this definition or the Federal Funds Rate shall be effective on the opening of business on the date of such change.

 

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Alternate Base Rate Loans ” means Loans that bear interest at an interest rate based on the Alternate Base Rate.

Applicable Cash Flow Percentage ” means, in connection with Offers to Prepay (a) on any Sweep Date occurring prior to Fiscal Year 2011, 75%, (b) on any Sweep Date occurring during or following Fiscal Year 2011, (i) 50%, if the Total Leverage Ratio for the preceding Fiscal Year was at least 3.0:1.0, or (ii) 25%, if the Total Leverage Ratio for the preceding Fiscal Year was less than 3.0:1.0.

Applicable Law ” means, in respect of any Person, all provisions of constitutions, laws, statutes, rules, regulations, treaties, directives, guidelines and orders of Governmental Authorities applicable to such Person, including zoning ordinances, all Environmental Laws, and all orders, decisions, judgments and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party or by which it is bound.

Applicable Margin ” means a percentage per annum, as set forth below:

 

     Alternate Base
Rate Loan
    LIBOR Rate Loan  

Revolving Loans

   1.75   2.75

Term Loans

   5.75   6.75

Applicable Tax Returns ” has the meaning ascribed to such term in Section 5.01(k) .

Applicable Taxes ” has the meaning ascribed to such term in Section 5.01(k) .

Approved Bank ” has the meaning ascribed to such term in the definition of “Cash Equivalents.”

Approved Fund ” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

Asset Sale ” means any sale, lease or other disposition (including any such transaction effected by way of merger or consolidation) by the Company or any of its Subsidiaries of any asset but excluding Dispositions permitted by Sections 8.05(a), (b), (c), (d)(i) and (e) .

Assignment and Acceptance ” means an Assignment and Acceptance substantially in the form of Exhibit I attached hereto and made a part hereof (with blanks appropriately completed) delivered to the Administrative Agent in connection with an assignment of a Lender’s interest under this Agreement in accordance with Section 13.09 .

Authorized Officer ” means, with respect to any Credit Party, the chief executive officer, chief administrative officer, chief financial officer, vice president of financial compliance and reporting, and treasurer, controller or chief accounting officer or other officer with similar responsibility designated by the Board of Directors or similar governing body of the Credit Party.

 

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Auto Renewal Letter of Credit ” has the meaning ascribed to such term in Section 1.06(a)(ii) .

Availability Period ” means the period from the Closing Date to the Maturity Date.

Available Commitments ” means, as of any date, the Total Revolving Commitment minus the Aggregate Revolving Exposure.

Bankruptcy Code ” means Title 11 of the United States Code (11 U.S.C. §§ 101 et seq .), as amended from time to time, and any successor statute.

Bankruptcy Court ” has the meaning ascribed to such term in the Recitals.

Benefit Plan ” means an employee pension benefit plan, excluding any Multiemployer Plan, which is subject to Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.

Braden Europe ” means Braden Europe B.V.

Braden Shanghai ” means Braden Power Equipment (Shanghai) Co., Ltd.

Board of Directors ” means the board of directors of the Company.

Borrower ” has the meaning ascribed to such term in the introductory paragraph hereto.

Business Day ” means any day that is not a Saturday, a Sunday or a day on which commercial banks are required or permitted to be closed in the State of New York; provided that when used in connection with a rate determination, borrowing or payment in respect of a LIBOR Rate Loan, the term “ Business Day ” shall also exclude any day on which banks in London, England are not open for dealings in U.S. Dollar deposits in the London interbank market.

Capital Expenditures ” means, with respect to any Person for any period, the sum of the aggregate of all expenditures by such Person and its Subsidiaries arising during such period that, in accordance with GAAP, are or should be included in the “property, plant and equipment” account on its consolidated balance sheet, including all applicable Capitalized Lease Obligations with respect to “property, plant and equipment”, paid or payable during such period, excluding in each case, (a) any such expenditures made for the repair, replacement or restoration of assets to the extent paid or reimbursed by any insurance policy or condemnation award to the extent such expenditures are permitted under the Loan Documents, (b) any leasehold improvement expenditures to the extent paid or reimbursed by the applicable lessor, sublessor or sublessee and (c) any acquisition of all or substantially all of the assets of, all of the Capital Stock of, or a business line, unit, office or division of any Person.

 

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Capital Stock ” means (a) with respect to any Person that is a corporation, any and all shares, options, warrants, interests, participations or other equivalents (however designated and whether or not voting) of or in a Person, including common stock, preferred stock or any other “equity security” and (b) with respect to any Person that is not a corporation, any and all partnership, limited liability company interests or other equity interests of such Person excluding, in the case of clauses (a) and (b) above, any debt security that is exchangeable for or convertible into such capital stock.

Capitalized Lease ” means, with respect to any Person, any lease of real or personal property by such Person as lessee which is required under GAAP to be capitalized on the balance sheet of such Person.

Capitalized Lease Obligations ” means, with respect to any Person, obligations of such Person and its Subsidiaries as lessee under Capitalized Leases as determined in accordance with GAAP.

Cash Collateral Account ” has the meaning ascribed to such term in Section 1.06(g) .

Cash Equivalents ” means:

(a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof ( provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than 364 days from the date of acquisition;

(b) time deposits (including Eurocurrency time deposits), certificates of deposit (including Eurocurrency certificates of deposit) and bankers’ acceptances of (i) any Lender or any Affiliate of any Lender, (ii) any commercial bank of recognized standing either organized under the laws of the United States (or any State or territory thereof) having capital and surplus in excess of $500,000,000 or (iii) any bank whose short-term commercial paper rating (at the time of acquisition of such security) by S&P is at least “A-1” or the equivalent thereof (any such bank, an “ Approved Bank ”), in each case with maturities of not more than 364 days from the date of acquisition;

(c) commercial paper issued by any Lender or Approved Bank or by the parent company of any Lender or Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating (at the time of acquisition of such security) of at least “A-1” or the equivalent thereof by S&P of at least “P-1” or the equivalent thereof by Moody’s, or guaranteed by any industrial company with a long-term unsecured debt rating (at the time of at least “Aa” or the equivalent thereof by Moody’s, and in each case maturing within 364 days after the date of acquisition;

(d) repurchase agreements with any Lender or any Approved Bank maturing within seven (7) days from the date of acquisition that are fully collateralized by investment instruments that would otherwise be Cash Equivalents; and

(e) investments in money market funds with any Approved Bank substantially all of whose assets of which are comprised of securities described in the foregoing clauses (a) through (d).

 

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Cash Management Bank ” has the meaning ascribed to such term in Section 4.01(z)(i) .

Casualty ” means any casualty, loss, damage, destruction or other similar loss with respect to real or personal property or improvements.

Change in Law ” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

Change of Control ” means (a) that any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act) acquires Control or otherwise becomes beneficial owner (as that term is defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, of 35%, or more, of the Capital Stock of the Company having the right to vote for the election of members of the Board of Directors or (b) a majority of the members of the Board of Directors do not constitute Continuing Directors.

Chapter 11 Cases ” has the meaning ascribed to such term in the Recitals.

Closing Date ” means the Business Day, on or before January 31, 2008, on which all of the conditions precedent set forth in Section 4.01 have been satisfied (or waived in accordance with the terms of this Agreement).

Code ” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections.

Collateral ” has the meaning ascribed to such term in the Security Agreement.

Collateral Agent ” has the meaning ascribed to such term in the introductory paragraph hereto.

Collections ” means all cash, checks, notes, instruments, and other items of payment (including insurance and condemnation proceeds, cash proceeds of sales and other voluntary or involuntary dispositions of property, rental proceeds, and tax refunds).

Commencement Date ” has the meaning ascribed to such term in the Recitals.

Commercial Code ” means the New York Uniform Commercial Code, as in effect from time to time.

Commitment Letter ” means the Commitment Letter, dated December 20, 2007, between the Company and the Administrative Agent.

Commitments ” means the Revolving Commitments and the Term Loan Commitments.

Company ” has the meaning ascribed to such term in the introductory paragraph hereto.

 

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Company Intellectual Property ” has the meaning ascribed to such term in Section 5.01(v)(i) .

Condemnation ” means any taking by a Governmental Authority of property or assets, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation or in any other manner.

Confirmation Order ” has the meaning ascribed to such term in the Recitals.

Consenting Lender ” has the meaning ascribed to such term in Section 13.03(a).

Consolidated Capital Expenditures ” means, for any period, the aggregate of all Capital Expenditures of the Company during such period, except, for purposes of this definition, consolidated solely with respect to the Credit Parties.

Consolidated EBITDA ” means, for any period, for the Credit Parties, determined on a consolidated basis, an amount equal to Consolidated Net Income for such period, plus (a) the following (without duplication) to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Expense for such period; (ii) the provision for federal, state, local and foreign income taxes for such period; (iii) depreciation and amortization expense; (iv) cash restructuring charges and associated professional fee expenses taken on or after December 1, 2007 and prior to January 31, 2008 in an amount not to exceed $12,000,000 (twelve million Dollars), (v) extraordinary cash expenses associated with tax and audit work incurred on or after December 1, 2007 and prior to the first anniversary of the Closing Date in an amount not to exceed $2,000,000 (two million Dollars), (vi) cash expenses resulting from a draw of a Letter of Credit issued for the benefit of Air Liquide and associated with the Air Liquide settlement in an amount not to exceed $5,700,000 (five million seven hundred thousand Dollars) (vii) any non-cash write downs or non-cash write-offs including fixed asset impairments or write-downs, intangible asset impairments, deferred tax asset write-offs and non-cash stock compensation expenses, (viii) all extraordinary, non-recurring, non-cash items decreasing Consolidated Net Income for such period and (ix) cash costs and expenses not to exceed $1,000,000 (one million Dollars), incurred with respect to defending and/or prosecuting the SNC Litigation during the period from the Closing Date to December 31, 2009; and minus (b) the following (without duplication) to the extent included in calculating such Consolidated Net Income: (i) all items constituting interest income, (ii) Federal, state, local and foreign income tax benefits for such period; (iii) write ups, re-evaluations and non-Cash gains resulting from the marking or re-evaluation of any asset and (iv) all extraordinary, non-recurring, non-Cash items increasing Consolidated Net Income for such period; provided that Consolidated EBITDA for each monthly period ending on or prior to November 30, 2007 shall be the amount specified for such period on Schedule C-1 hereto.

Consolidated Fixed Charges ” means, for any period, the sum (without duplication) of the amounts for such period, as determined on a consolidated basis for the Credit Parties, of (a) Consolidated Interest Expense paid or payable in Cash and (b) scheduled principal payments in respect of Consolidated Total Debt.

 

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Consolidated Interest Expense ” means, for any period, total interest expense (including that portion attributable to Capitalized Leases in accordance with GAAP and capitalized interest) of the Credit Parties, as determined on a consolidated basis, with respect to all outstanding Indebtedness of the Credit Parties, including all commissions, discounts and other fees and charges owed with respect to letters of credit.

Consolidated Net Income ” means, for any period, the net income (loss) of the Credit Parties for such period, determined on a consolidated basis.

Consolidated Total Debt ” means, as of any particular time and after eliminating inter-company items, all Debt for Borrowed Money of the Credit Parties, determined on a consolidated basis.

Continuing Director ” means (a) any member of the Board of Directors who was a director (or comparable manager) of the Company on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of the Company and whose initial assumption of office resulted from such contest or the settlement thereof.

Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

Control Agreement ” means, with respect to a Securities Account, a Deposit Account or a commodities account, an agreement, in form and substance reasonably satisfactory to the Collateral Agent, which effectively gives control (under the UCC) to the Collateral Agent in such Securities Account and all investment property contained therein, in such Deposit Account and all funds contained therein, or such commodities account and all property contained therein, in each case, as amended, supplemented or otherwise modified.

Copyrights ” has the meaning ascribed to such term in the Security Agreement.

Credit Parties ” means, collectively, the Borrower and the Guarantors.

Debt for Borrowed Money ” of any Person means, at any date of determination, without duplication, the sum of (a) all items that, in accordance with GAAP, would be classified as debt on a consolidated balance sheet of such Person at such date and (b) all obligations of such Person under acceptance, letter of credit or similar facilities at such date; provided that, with respect to the Company and its Subsidiaries, Debt for Borrowed Money shall exclude, to the extent otherwise included in the items in clause (a) or (b) above, (i) accounts payable and accrued liabilities in the ordinary course of business of the Company and its Subsidiaries, and (ii) notes, bills and checks presented in the ordinary course of business by such Person to banks for collection or deposit.

 

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Deemed Investment Amount ” has the meaning set forth in Section 8.05(d) .

Default ” means an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

Default Interest ” shall have the meaning ascribed to it in Section 3.01(b) .

Defaulting Lender ” means a Revolving Defaulting Lender or a Term Defaulting Lender.

Deltak Customer Equipment Disposition ” means a disposition of Deltak assets to a customer party to, and as required pursuant to, those certain agreements by and between Deltak and certain of its customers for the completion of heat recovery steam generation units, as authorized by the Bankruptcy Court pursuant to orders entered on October 2, 2006 and October 26, 2006.

Deposit Account ” means a “ deposit account ” as that term is defined in the UCC.

Disposition ” or “ Dispose ” means the sale, transfer, license, lease, Casualty or Condemnation or other disposition (including any Sale and Leaseback Transaction or any sale of any Capital Stock of any Subsidiary) of any Property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes issued by any other Person or accounts receivable or any rights and claims associated therewith or any capital stock of, or other Capital Stock of, any other Person; provided that the foregoing shall not be deemed to imply that any such disposition is permitted under this Agreement. The term “Disposition” shall not include any Equity Issuance.

Dollar ”, “ Dollars ” and the symbol “ $ ” each means lawful money of the United States of America.

Domestic Subsidiary ” means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia.

Eligible Assignee ” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, and (d) any other Person (other than a natural person) (i) approved by the Administrative Agent and, in the case of a Revolving Loan assignment, the Revolving Agent (each such consent not to be unreasonably withheld or delayed), and, (ii) unless an Event of Default has occurred and is continuing, notified in writing to and approved by the Company (each such approval not to be unreasonably withheld or delayed and to be deemed given in all cases unless, within two business days after receipt of any such notification identifying any Person as a potential assignee, the Company shall have delivered a written objection to the Administrative Agent identifying reasonable grounds for such objection).

EMU Legislation ” means the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.

 

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Environmental Actions ” means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter or other communication from any Governmental Authority or other Person alleging a violation of, or liability under, any Environmental Law or Release of Hazardous Materials on, in, at, to, from or under (a) any assets, properties or businesses of the Credit Parties or any of their Subsidiaries or any of their respective predecessors in interest and (b) any facilities which received Hazardous Materials generated by the Credit Parties or any of their Subsidiaries or any of their respective predecessors in interest.

Environmental Laws ” means any federal, state, local or foreign law or regulation relating to the protection of the environment or health and safety as it relates to any Hazardous Material compliance or exposure, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601, et seq .), the Hazardous Materials Transportation Act (49 U.S.C. § 1801, et seq .), the Resource Conservation and Recovery Act (42 U.S.C. § 6901, et seq .), the Federal Clean Water Act (33 U.S.C. § 1251 et seq .), the Clean Air Act (42 U.S.C. § 7401 et seq .), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq .) and the Occupational Safety and Health Act (29 U.S.C. § 651 et seq .) as it relates to any Hazardous Material compliance or exposure and any other law, including common law, relating to the environment or health and safety as it relates to any Hazardous Material compliance or exposure (including, without limitation, laws relating to the storage, generation, use, handling, manufacture, processing, labeling, transportation, treatment, reuse, recycling, release and disposal of Hazardous Materials) and any environmental requirement or any health or safety requirement as it relates to any Hazardous Material compliance or exposure of any Governmental Authority, as such laws or requirements may be amended or otherwise modified from time to time, and any other present or future federal, state, provincial, local or foreign statute, ordinance, rule, regulation, order, judgment, decree, permit, license or other binding determination (including the common law) of any Governmental Authority imposing liability or establishing standards of conduct for protection of the environment.

Environmental Liabilities and Costs ” means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigations and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any violation of any Environmental Law, environmental condition or any Release of Hazardous Materials from or onto (a) any property presently or formerly owned by the Credit Parties or any of their Subsidiaries or (b) any facility which received Hazardous Materials or wastes generated by the Credit Parties or any of their Subsidiaries but excluding the routine costs and expenses incurred in the ordinary course of maintaining compliance with Environmental Laws.

Environmental Lien ” means any Lien in favor of any Person or Governmental Authority for Environmental Liabilities and Costs or otherwise relating to any Environmental Law.

Equipment ” means, with respect to any Person, all of such Person’s now owned or hereafter acquired right, title, and interest with respect to equipment (including, without limitation, “equipment” as such term is defined in Article 9 of the UCC), machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing.

 

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Equity Issuance ” means any issuance by any Credit Party of any Capital Stock to any Person (other than another Credit Party) or receipt by any Credit Party of a capital contribution from any Person (other than another Credit Party), including the issuance of Capital Stock, pursuant to the exercise of options or warrants and the conversion of any Indebtedness to equity; provided that the foregoing shall not be deemed to imply that any such issuance is permitted under this Agreement.

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections.

ERISA Affiliate ” means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which would be deemed to be a “ controlled group ” within the meaning of Sections 414(b), (c), (m) and (o) of the Code.

ERISA Event ” means (a) a Reportable Event with respect to any Benefit Plan, (b) the filing of a notice of intent to terminate a Benefit Plan in a distress termination (as described in Section 4041(c) of ERISA), (c) the institution by the Pension Benefit Guaranty Corporation of proceedings to terminate a Benefit Plan or Multiemployer Plan, (d) the appointment of a trustee to administer any Benefit Plan under Section 4042 of ERISA, or (e) any event requiring any Credit Party or any Subsidiary of any Credit Party or any ERISA Affiliate of any Credit Party or any Subsidiary of any Credit Party to provide security to a Benefit Plan under Section 401(a)(29) of the Code.

Eurocurrency ” and the symbol “€” each means the lawful currency of the Participating Member States introduced in accordance with EMU Legislation.

Event of Default ” has the meaning ascribed to such term in Section 10.01 .

Excess Cash Flow ” means, for any Fiscal Year, without duplication, (a) Consolidated EBITDA during such Fiscal Year plus (b) Extraordinary Receipts received during such Fiscal Year plus (c) the amount of any increase in Net Working Capital during such Fiscal Year minus (d) Capital Expenditures of the Company paid in Cash during such Fiscal Year to the extent such Capital Expenditures are made in accordance with the Loan Documents minus (e) all regularly scheduled payments and voluntary prepayments of principal of the Term Loans during such Fiscal Year minus (f) the aggregate amount of cash Taxes and net cash interest paid or payable by the Credit Parties on a consolidated basis during such Fiscal Year minus (g) to the extent item (c) of this definition is not relevant for the applicable testing period, the amount of any decrease in Net Working Capital during such Fiscal Year.

Excess Hedging Amount ” means the amount of all Hedging Obligations outstanding in excess of $3,000,000 (three million Dollars).

 

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Excluded Account ” means the deposit account no. 003344879484 of Williams Industrial Services Group, LLC held with Bank of America, N.A.

Excluded Taxes ” means, with respect to the Participating Lenders or any other recipient of any payment to be made by or on account of any obligation of the Credit Parties 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, for tax purposes, is organized or in which its principal office or applicable lending office is located, or in which it or its lending office does business; (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction; and (c) any withholding taxes payable with respect to payments under the Loan Documents under any law (including any law, rule, regulation or treaty or any interpretation or application thereof by any Governmental Authority or any request, guideline or directive (whether or not having the force of law) by any Governmental Authority) in effect on the Closing Date; (d) any withholding tax that is attributable to such Non-U.S. Lender’s failure to comply with Section 2.05(e) .

Extraordinary Receipts ” means any cash received by the Company and its Subsidiaries not in the ordinary course of business, not consisting of proceeds from the issuance of Capital Stock, debt or Disposition of Collateral and not otherwise included in the calculation of Net Income of the Company, including without limitation, (a) pension plan reversions, (b) judgments, proceeds of settlements or other consideration of any kind in connection with any claim or cause of action, (c) indemnity payments, (d) tax refunds but excluding tax refunds received in connection with or as the result of any settlement, audit, or amendment to any tax return and (e) insurance proceeds other than Net Casualty/Condemnation Proceeds.

Federal Funds Rate ” means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent in the exercise of its reasonable discretion.

Federal Reserve Board ” means the Board of the Federal Reserve System or any Governmental Authority succeeding to its functions.

Fee Letter ” means the Fee Letter, dated December 20, 2007, between the Company and the Administrative Agent.

Fiscal Month ” means each fiscal month of the Company consisting of a four (4) or five (5) week period.

Fiscal Quarter ” means the fiscal quarter of the Company ending on each March 31, June 30, September 30 and December 31 of any Fiscal Year.

 

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Fiscal Year ” means the fiscal year of the Company ending on the last day of the last Fiscal Month of the Company.

Fixed Charge Coverage Ratio ” means, as of any date of determination, from and after December 31, 2008, the ratio of (a) Consolidated EBITDA for the four consecutive Fiscal Quarters most recently ended minus Consolidated Capital Expenditures for such period minus provisions for Federal, state, local and foreign taxes of the Credit Parties for such period to (b) Consolidated Fixed Charges for such period; provided however , that for the period ended June 30, 2008 the Fixed Charge Coverage Ratio shall be calculated for the two consecutive Fiscal Quarters (rather than the four) most recently ended, and for the period ended September 30, 2008 the Fixed Charge Coverage Ratio shall be calculated for the three consecutive Fiscal Quarters (rather than the four) most recently ended.

Foreign Subsidiary ” means a Subsidiary other than a Domestic Subsidiary.

Forfeiture Proceeding ” means any action, proceeding or investigation affecting any Credit Party before any court, governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or the receipt of notice by any such party that any of them is a suspect in or a target of any governmental inquiry or investigation, in each case, which may result in an indictment of any of them or the seizure or forfeiture of any of its properties.

Fraudulent Transfer Laws ” has the meaning ascribed to such term in Section 11.12 .

Fund ” means any Person that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

Funding Date ” means, with respect to any Loan, the date of the funding of a Loan.

GAAP ” means generally accepted accounting principles in effect from time to time in the United States, provided that, for the purpose of the financial amounts and the definitions used herein, “GAAP” shall mean generally accepted accounting principles in effect on the date hereof and consistent with those used in the preparation of the financial statements, and provided further that, if there occurs after the date of this Agreement any change in GAAP that affects in any material respect the calculation of any financial covenant contained in ARTICLE IX , the Administrative Agent, the Revolving Agent and the Borrower shall negotiate in good faith an amendment to such financial covenant and any other provision of this Agreement that relates to the calculation of such financial covenant with the intent of having the respective positions of the Lenders and the Borrower after such change in GAAP conform as nearly as possible to their respective positions as of the date of this Agreement and, after the execution of any such amendment or consent by the Required Lenders in connection with any such change in GAAP, “GAAP” shall mean generally accepted accounting principles in effect on the effective date of such amendment or consent. Until any such amendments have been agreed upon, the covenants in ARTICLE IX shall be calculated as if no such change in GAAP has occurred.

Global Intercompany Note ” means the promissory note issued as contemplated by the Security Agreement, substantially in the form of Exhibit M to the Security Agreement.

 

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Governing Documents ” means, (a) with respect to any corporation, (i) the articles/certificate of incorporation (or the equivalent organizational documents) of such corporation, (ii) the by-laws (or the equivalent governing documents) of the corporation and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such corporation’s Capital Stock; (b) with respect to any general partnership, (i) the partnership agreement (or the equivalent organizational documents) of such partnership and (ii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any of the partnership interests; (c) with respect to any limited partnership, (i) the partnership agreement (or the equivalent organizational documents) of such partnership, (ii) a certificate of limited partnership (or the equivalent organizational documents) and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any of the partnership interests; (d) with respect to any limited liability company, (i) the certificate of limited liability (or equivalent filings) of such limited liability company, (ii) the operating agreement (or the equivalent organizational documents) of such limited liability company, and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any of such company’s membership interests; and (e) with respect to any unlimited liability company, (i) the certificate of incorporation (or the equivalent organizational documents) of such unlimited liability company, (ii) the memorandum and articles of association (or the equivalent governing documents) of such unlimited liability company and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such unlimited liability company’s Capital Stock.

Governmental Authority ” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

Guaranteed Obligations ” has the meaning ascribed to such term in Section 11.01 .

Guarantors ” means the Domestic Subsidiaries of the Borrower.

Guaranty ” means the guaranty of each of the Guarantors pursuant to ARTICLE XI .

Hazardous Materials ” means (a) any element, compound or chemical that is regulated under any Environmental Law including any substance that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous substance or chemical, hazardous waste, special waste, or solid waste under Environmental Laws; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d) any waste exhibiting a hazardous characteristic as defined by applicable Environmental Laws, including, but not limited to, corrosivity, ignitability, toxicity or reactivity as well as any radioactive or explosive materials; and (e) friable asbestos-containing materials.

 

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Hedging Agreement ” means any and all interest rate or short term currency transactions, agreements or documents now existing or hereafter entered into by a Credit Party or any Subsidiary of a Credit Party with a Hedging Agreement Provider so long as a copy of such transaction agreement or document is delivered to the Administrative Agent within three (3) business days of the date entered into and, in the case of each such transaction, agreement or document, is entered into solely for the purpose of hedging such Credit Party’s or such Subsidiary’s exposure to fluctuations in interest rates or currencies and not for speculative purposes.

Hedging Agreement Provider ” means with respect to a Hedging Agreement, any of (a) the Administrative Agent, (b) a Lender at the time the Hedging Agreement is entered into or (c) an Affiliate of any of the foregoing.

Hedging Agreement Provider Joinder Agreement ” means a joinder agreement substantially in the form of Exhibit K-1 . Each Hedging Agreement Provider may from time to time enter into a Joinder Agreement.

Hedging Obligations ” means obligations and liabilities owed to a any Hedging Agreement Provider, by any Credit Party or any Subsidiary under a Hedging Agreement.

Hedging Priority Amount ” means the amount of all Hedging Obligations outstanding up to an aggregate amount not to exceed $3,000,000 (three million Dollars).

Highest Lawful Rate ” means the highest rate of interest permissible under any law which a court of competent jurisdiction shall deem applicable.

Immaterial Foreign Subsidiary ” means a Foreign Subsidiary that, as of any date of determination, (a) has less than $100,000 in assets, (b) has less than $25,000 of liabilities owed to Persons other than a Credit Party or a Subsidiary of a Credit Party, and (c) has generated less than $100,000 of revenue for the 12 months most recently ended as of such date (or, in the case of a Subsidiary without at least 12 months of prior operating history, is reasonably projected by the Credit Parties to generate less than $100,000 of revenue during its first full year of operation). All Immaterial Foreign Subsidiaries in existence on the Closing Date are identified on Schedule I .

Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b) all direct or contingent obligations of such Person arising under letters of credit, bankers’ acceptances, bank guarantees, surety bonds and similar instruments;

(c) net obligations of such Person under any Swap Contract;

(d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);

 

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(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f) Capitalized Leases, Off-Balance Sheet Obligations, and Sale and Leaseback Transactions;

(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Capital Stock of such Person or any other Person, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

(h) all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer in an amount proportionate to such Person’s interest therein, unless such Indebtedness is expressly made non-recourse to such Person or except to the extent such Indebtedness is owed by such partnership or joint venture to such Person; provided that the pledge of any Capital Stock of such joint venture shall not constitute recourse to such Person for the purposes of this definition. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any Capitalized Lease or Off-Balance Sheet Obligation as of any date shall be deemed to be the amount of attributable Indebtedness in respect thereof as of such date.

Indemnified Matters ” has the meaning ascribed to such term in Section 13.17 .

Indemnified Taxes ” means all Taxes imposed upon or with respect to payments from the Credit Parties to the Participating Lenders or any recipient of any payment to be made by or on account of any obligation of the Credit Parties hereunder pursuant to this Agreement, other than Excluded Taxes.

Indemnitees ” has the meaning ascribed to such term in Section 13.17 .

Intellectual Property ” has the meaning ascribed to such term in the Security Agreement.

Interest Payment Date ” means the last Business Day of each Fiscal Quarter, commencing on the first such date to occur after the Closing Date, and the Maturity Date; provided that, with respect to the amount of any Loan prepaid, the Interest Payment Date shall be the date of such prepayment.

Interest Rate ” means (a) with respect to the Term Loans, interest at a rate equal to either, at the Borrower’s option, (i) LIBOR Rate plus the Applicable Margin for Term Loans or (ii) the Alternate Base Rate, plus the Applicable Margin for Term Loans and (b) with respect to the Revolving Loans, interest at a rate equal to, at the Borrower’s option, (i) the Alternate Base Rate plus the Applicable Margin for Revolving Loans or (ii) LIBOR Rate plus the Applicable Margin for Revolving Loans.

 

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Inventory ” means all Credit Parties’ now owned or hereafter acquired right, title, and interest with respect to (a) all “inventory” as defined in Article 9 of the UCC and (b) all goods held for sale or lease or to be furnished under contracts of service or so leased or furnished, all raw materials, work in process, finished goods, and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in any Credit Party’s business; all goods which are returned to or repossessed by any Credit Party; and all computer programs embedded in any of the foregoing and all accessions thereto and products thereof (in each case, regardless of whether characterized as inventory under the UCC).

Investment ” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities or other ownership or profits interest of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of, any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

IRS ” means the Internal Revenue Service or any successor federal tax Governmental Authority.

L/C Issuer ” has the meaning ascribed to it in Section 1.06(a) .

Lead Arranger ” has the meaning ascribed to such term in the introductory paragraph hereto.

Lease ” has the meaning ascribed to such term in Section 5.01(o) .

Leasehold Property ” means any leasehold interest of any Credit Party as lessee under any lease of real property.

Lender-Related Persons ” means, with respect to any Lender, such Lender, together with such Lender’s Affiliates, and the officers, directors, employees, counsel, agents, and attorneys-in-fact of such Lender and such Lender’s Affiliates.

Lenders ” means, collectively, the lenders identified on the signature pages hereof, together with their respective successors and permitted assigns, each a “ Lender ”.

Letter of Credit ” means a letter of credit issued by the L/C Issuer (or its designee) or a Person approved by the Revolving Agent as it may hereafter be amended or replaced from time to time pursuant to the terms of this Agreement or otherwise in form and substance reasonably satisfactory to the L/C Issuer.

 

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Letter of Credit Application ” shall have the meaning associated with such term in Section 1.06(d) .

Letter of Credit Exposure ” means at any time, the sum of (a) the aggregate undrawn amount at such time of all outstanding Letters of Credit of the L/C Issuer plus (b) the aggregate unpaid amount at such time of all unreimbursed drawings under Letters of Credit.

Letter of Credit Issuance Fee ” shall have the meaning ascribed to it in Section 3.06(d) .

Letter of Credit Obligations ” means all outstanding obligations incurred by the Revolving Lenders at the request of the Borrower, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance of Letters of Credit by the Revolving Lenders or another L/C Issuer or the purchase of a participation with respect to any Letter of Credit. The amount of such Letter of Credit Obligations shall equal the maximum amount that may be payable under Letters of Credit at such time or at any time thereafter by the Revolving Lenders thereupon or pursuant thereto.

LIBOR Period ” means, with respect to any LIBOR Rate Loan, the period commencing on the date of the making of such LIBOR Rate Loan (or the continuation of a LIBOR Rate Loan or the conversion of an Alternate Base Rate Loan to a LIBOR Rate Loan) and ending one, two, three or six months (and to the extent available to all of the Revolving Lenders or Term Lenders, as applicable, nine or twelve months) thereafter; and provided that the foregoing provisions are subject to the following:

(a) if any LIBOR Period pertaining to a LIBOR Rate Loan would otherwise end on a day that is not a Business Day, such LIBOR Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such LIBOR Period into another calendar month, in which event such LIBOR Period shall end on the immediately preceding Business Day;

(b) any LIBOR Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Period) shall end on the last Business Day of the relevant calendar month; and

(c) any LIBOR Period in respect of any Loan that would otherwise extend beyond the Maturity Date shall end on the Maturity Date.

LIBOR Rate ” means for each LIBOR Period, a rate of interest determined by the Revolving Agent equal to:

(a) the offered rate for deposits in United States Dollars for the applicable LIBOR Period that appears on Reuter’s Page LIBOR 01 as of 11:00 a.m. (London time), on the second full Business Day next preceding the first day of such LIBOR Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by

 

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(b) a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day that is two (2) Business Days prior to the beginning of such LIBOR Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Federal Reserve Board or other Governmental Authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Federal Reserve Board) that are required to be maintained by a member bank of the Federal Reserve System.

If such interest rates shall cease to be available from Reuter’s (or its successor satisfactory to Administrative Agent), the LIBOR Rate shall be determined from such financial reporting service or other information as shall be mutually acceptable to the Revolving Agent and the Company.

LIBOR Rate Loans ” means Loans which bear interest at a rate determined by reference to the LIBOR Rate.

Lien ” means any lien, security interest, imperfection of title or other encumbrance of any kind, or any other type of preferential arrangement which has the effect of a lien or security interest, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property.

Liquidity ” means the amount available to be borrowed as Revolving Loans under Section 1.01(a) plus cash or Cash Equivalents of the Credit Parties subject to Control Agreements.

Loan Documents ” means this Agreement, the Notes, the Security Documents, the Fee Letter and all other agreements, instruments, and other documents executed and delivered by any Credit Party pursuant hereto or thereto or otherwise evidencing or securing any Loan, in each case, excluding any Hedging Agreements.

Loans ” means, collectively, the Revolving Loans and the Term Loans.

Material Adverse Effect ” means a material adverse effect on (a) the business, assets, liabilities, operations, condition (financial or otherwise) operating results, performance or projections of the Company and its Subsidiaries taken as a whole, (b) the ability of the Credit Parties to perform their obligations hereunder or under any of the other Loan Documents or (c) the rights and remedies of any Agent or any Lender hereunder or under any other Loan Document. It is understood that the filing of a notice of appeal by SNC-Lavalin from the Order Sustaining Estate Parties’ Objections to Proofs of Claim Nos. 1099 and 1100 Filed by SNC-Lavalin Power Ontario Inc. and Temporarily Allowing for Plan Voting Purposes Claim No. 1099 shall not, in and of itself, constitute a Material Adverse Effect.

 

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Material Contract ” shall mean any agreement under which the Company and its Subsidiaries on a consolidated basis receives or pays or is projected to receive or pay $7,500,000 (seven million five hundred thousand Dollars) or more during any 12-month period.

Maturity Date ” means the earlier of (i) the Scheduled Maturity Date or (ii) the date upon which the Loans are due and payable hereunder, whether by acceleration or otherwise.

Monthly Officer’s Certificate ” has the meaning ascribed to such term in Section 6.01(b) .

Moody’s ” means Moody’s Investors Service and any successor thereto.

Mortgaged Property ” means each parcel of real property and the improvements thereto as set forth as of the Closing Date on Schedule 14 and any other such property which becomes subject to a Mortgage granted in connection with this Agreement.

Mortgages ” means the mortgages and deeds of trust executed and delivered by certain of the Credit Parties in favor of the Collateral Agent, in form and substance reasonably satisfactory to the Collateral Agent, as the same may be amended, modified and otherwise supplemented from time to time.

Multiemployer Plan ” means a “ multiemployer plan ” as defined in Section 4001(a)(3) of ERISA to which any Credit Party or any Subsidiary of any Credit Party or any of their ERISA Affiliates has contributed, or has been obligated to contribute, at any time during the preceding six years, or has liability.

Net Cash Proceeds ” means 100% of the Cash received by a Credit Party or any Subsidiary of a Credit Party from time to time in connection with an Asset Sale or Equity Issuance (whether as initial consideration, through the payment of deferred consideration, the release of any reserve taken in connection with such sale or issuance or the release or adjustment of any provision for Taxes in connection with such sale or issuance), after deducting therefrom only (a) the principal amount of any Indebtedness of such Credit Party secured by any Permitted Lien on any asset that is the subject of an Asset Sale (other than Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such Asset Sale (other than Indebtedness under this Agreement), together with any interest thereon or fees in connection therewith, (b) reasonable fees and expenses related to any such sale or issuance reasonably incurred by such Credit Party in connection therewith and (c) a provision for any Taxes to be paid or reasonably estimated to be payable, in connection with any such sale or issuance (after taking into account any tax credits or deductions and any tax sharing arrangements); provided , however , that with respect to any Asset Sale, in the event that a Credit Party or any Subsidiary is required to take a reserve in accordance with GAAP against any contingent liabilities associated with any such sale, such Credit Party or Subsidiary may deduct from the Net Cash Proceeds received from such Disposition an amount equal to such reserve; provided , further , upon the release of such reserves or the determination that such reserves are no longer necessary, such amounts shall be considered Net Cash Proceeds and applied to the prepayment of Loans in accordance with Section 2.02(a) .

 

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Net Casualty/Condemnation Proceeds ” means, with respect to any Casualty or Condemnation, the amount of any insurance proceeds or condemnation awards received by a Credit Party or any Subsidiary from time to time in connection with such Casualty or Condemnation (net of all reasonable fees and expenses related thereto reasonably incurred by such Credit Party in connection therewith), but excluding any proceeds or awards of errors and omissions insurance; provided , however , in the event that a Credit Party or any Subsidiary is required to take a reserve in accordance with GAAP against any contingent liabilities associated with such Casualty or Condemnation, such Credit Party or Subsidiary may deduct from the Net Cash Proceeds received from such Casualty or Condemnation an amount equal to such reserve; provided , further , upon the release of such reserves or the determination that such reserves are no longer necessary, such amounts shall be considered Net Cash Proceeds and applied to the prepayment of Loans in accordance with Section 2.02(a) or Section 2.20(c) , as applicable.

Net Income ” means, with respect to any Person for any period, the net income (loss) of such Person and its consolidated Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

Net Working Capital ” means the (i) increase (or decrease) of each of accounts payable, billings in excess of costs, and other current liabilities of the Company and its Subsidiaries, on a consolidated basis, during any Fiscal Year, plus or minus (ii) the decrease (or increase) of each of total accounts receivable, inventory, cost in excess of billings, and other current assets of the Company and its Subsidiaries, on a consolidated basis, during any Fiscal Year; provided, however, that all of the accrued but unpaid professional fees and other costs of administration of, or incurred during, the Chapter 11 Cases by the Company or any of its Subsidiaries and any amounts identified in items (iv), (v), (vi), and (ix) of clause (a) of Consolidated EBITDA shall be deducted from both clause (i) and clause (ii) of this definition in determining Net Working Capital as of any date.

Non-Consenting Lender ” has the meaning ascribed to such term in Section 13.03(a) .

Non-U.S. Lender ” has the meaning ascribed to such term in Section 2.05(e)(i) .

Note ” has the meaning ascribed to such term in Section 1.05(a) .

Notice of Borrowing ” means a notice substantially in the form of Exhibit A attached hereto and made a part hereof.

Notice of Conversion/Continuation ” means a notice substantially in the form of Exhibit E attached hereto and made a part hereof.

Obligations ” means all Loans, advances, debts, liabilities, obligations, Hedging Obligations, covenants and duties, owing by any Credit Party to the Administrative Agent, the Revolving Agent, the L/C Issuer, the Collateral Agent, any Lender, any Affiliate of any Lender, any Hedging Agreement Provider or any Person entitled to indemnification pursuant to this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, interest rate contract, foreign exchange contract or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, but in all such circumstances only to the extent now existing or hereafter arising or however acquired, arising under or in connection with this Agreement, the Notes or any other Loan Document. The term includes all interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), charges, expenses, fees, attorneys’ fees and disbursements and any other sum chargeable to the Credit Parties under this Agreement, the Notes or any other Loan Document or any Hedging Agreement.

 

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Off-Balance Sheet Obligation ” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment); it being the intent of the parties hereto that no monetary obligations under true operating leases be included in Off-Balance Sheet Obligations.

Offer to Prepay ” has the meaning ascribed to such term in Section 2.02(d) .

Operating Lease ” means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capitalized Lease other than any such lease under which that Person is the lessor.

Other Lender ” has the meaning ascribed to such term in Section 13.03(b) .

Other Taxes ” has the meaning ascribed to such term in Section 2.05(b) .

Participant ” has the meaning ascribed to such term in Section 13.09(e) .

Participating Lender ” means, individually and collectively, each of the Lenders and each L/C Issuer.

Participating Lender Expenses ” means all:

(a) costs or expenses (including taxes and insurance premiums) paid, advanced or incurred by or on behalf of any Agent in connection with the Loans or Letters of Credit, the Collateral, or any other transaction with the Credit Parties or any Subsidiary of a Credit Party;

(b) reasonable fees or charges paid or incurred by or on behalf of any Agent in connection with the Participating Lenders’ transactions with the Credit Parties or their Subsidiaries, including fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches, searches with the patent and trademark office, or the copyright office), filing, recording, publication, real estate surveys, real estate title policies and endorsements, environmental audits and appraisals;

(c) reasonable costs and expenses incurred by any Agent or any Participating Lender in the disbursement of funds to, for the benefit of, or on behalf of, any Credit Party, any Subsidiary of a Credit Party or any Participating Lender (by wire transfer or otherwise);

 

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(d) charges paid or incurred by any Agent resulting from the dishonor or return of checks or other items of payment;

(e) reasonable costs and expenses paid or incurred by any Agent or any Participating Lender to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated;

(f) fees and expenses of or incurred by any Agent related to any action permitted to be taken under this Agreement or any other Loan Document, including in connection with inspections, audits or appraisals of the Collateral, the resignation or appointment of any Agent, or the taking of any action upon the instruction of the Required Lenders, Required Revolving Lenders, Required Term Lenders or all affected Lenders;

(g) reasonable costs and expenses of or incurred by any Agent or any Participating Lender in connection with third party claims or any other suit or proceeding relating to the Loan Documents, the validity, priority or enforceability of the Obligations or the interest of the Secured Parties in all or any portion of the Collateral or otherwise in connection with the transactions contemplated by the Loan Documents or the relationship of any one or more of the Participating Lenders with any Credit Party or any Subsidiary of a Credit Party;

(h) the reasonable costs and expenses (including attorneys’ fees) incurred by any Agent in advising, structuring, drafting, reviewing, administering, syndicating, or amending the Loan Documents;

(i) each Agent’s and each Participating Lender’s reasonable costs and expenses (including attorneys’, accountants’, consultants’, and other advisors’ fees and expenses) incurred after the occurrence of any Event of Default, in any workout or restructuring, in any bankruptcy or other insolvency proceeding, or otherwise in terminating, enforcing, or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral;

(j) all liabilities and costs arising from or in connection with the past, present or future operations of a Credit Party involving any damage to real or personal Property or natural resources or harm or injury alleged to have resulted from any Release of Hazardous Materials on, upon or into such Property;

(k) any Environmental Liabilities and Costs incurred in connection with any facility of any Credit Party including any Remedial Action for any Hazardous Materials present on or arising out of the operations of any facility of any Credit Party; and

(l) any liabilities and costs incurred in connection with any Environmental Lien.

Participating Member State ” means each state so described in any EMU Legislation.

Patent ” shall have the meaning ascribed to such term in the Security Agreement.

 

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Patriot Act ” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Title III of Pub. L. No. 107-56 (signed into law October 26, 2001).

Patriot Act-Related Requirements ” means the Patriot Act, the Trading with the Enemy Act, the International Emergency Economic Powers Act, the International Security and Development Cooperation Act, the Export Administration Act, the Arms Export Control Act and similar statutes administered by the Office of Foreign Assets Control or the U.S. Bureau of Export Administration and the regulations promulgated under such statutes.

Perfection Certificate ” means the perfection certificate in the form set forth as Exhibit J.

Permits ” has the meaning ascribed to such term in Section 5.01(m) .

Permitted Indebtedness ” shall have the meaning ascribed to such term in Section 8.03 .

Permitted Indebtedness Refinancing ” means, with respect to any Indebtedness, any subsequent extension, renewal or refinancing thereof; provided that (i) the aggregate principal amount of the Indebtedness to be extended, renewed or refinanced does not increase from that amount outstanding at the time of any such extension, renewal or refinancing and (ii) the terms of the Indebtedness following such extension, renewal or refinancing are no less favorable to the obligors than prior to such extension, renewal or refinancing and are not materially adverse to the Lenders taken as a whole.

Permitted Liens ” shall have the meaning ascribed to such term in Section 8.01 .

Permitted Protest ” means the right of a Person to protest any Lien (other than any such Lien that secures all or any portion of the Obligations) or Taxes, provided that (a) a reserve with respect to such obligation is established, if required, by such Person in such amount as is required under GAAP and (b) any such protest is instituted promptly and prosecuted diligently and in good faith by such Person.

Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

Plan ” means any “employee benefit plan”, as defined in Section 3(3) of ERISA.

Plan of Reorganization ” has the meaning ascribed to such term in the Recitals.

Pledged Debt ” has the meaning ascribed to such term in the Security Agreement.

Post-Petition Loan Agreement ” has the meaning ascribed to such term in the Recitals.

Prepayment Fee ” has the meaning ascribed to such term in Section 2.03 .

Property ” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.

 

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Proposed Change ” shall have the meaning ascribed to such term in Section 13.03(a) .

Pro Rata Share ” means, at any time, with respect to (a) any Revolving Lender in the case of any determination to be made hereunder dealing with the rights or obligations of such Revolving Lender as between itself and the other Revolving Lenders, the percentage obtained by dividing (i) the Revolving Commitment of such Revolving Lender at such time by the Total Revolving Commitments at such time or, (ii) if the Revolving Commitments have been terminated, the amount of such Revolving Lender’s Revolving Loans and Letter of Credit Exposure at such time by the Aggregate Revolving Exposure at such time (b) any Term Lender in the case of any determination to be made hereunder dealing with the rights or obligations of such Term Lender as between itself and the other Term Lenders, the percentage obtained by dividing the amount of such Term Lender’s Term Loan at such time by the aggregate Term Loans of all Term Lenders at such time or (c) any Lender in the case of any determination to be made hereunder dealing with the rights or obligations of such Lender as between itself and the other Lenders, the percentage obtained by dividing , (i) if such Lender is a Revolving Lender, (A) the Revolving Commitment of such Lender at such time by the Total Revolving Commitments and the aggregate Term Loans of all Term Lenders at such time or, (B) if the Revolving Commitments have been terminated, the amount of such Revolving Lender’s Revolving Loans and Letter of Credit Exposure at such time by the Total Aggregate Exposure at such time or (ii) if such Lender is a Term Lender, (A) the amount of such Term Lender’s Term Loan at such time by the Total Revolving Commitments and the aggregate Term Loans of all Term Lenders at such time or, (B) if the Revolving Commitments have been terminated, the amount of such Term Lender’s Term Loan at such time by the Total Aggregate Exposure at such time. The initial Pro Rata Shares are set out on Schedule B .

Quarterly Compliance Certificate ” has the meaning ascribed to such term in Section 6.01(b) .

Ratings Agencies ” means Moody’s and S&P, or if either of such Persons cease to perform credit ratings or other applicable services, such nationally recognized statistical rating organization the Administrative Agent may select.

Real Estate Asset ” means any real property, or any direct or indirect interest in any real property, in which any Credit Party has a fee, leasehold or other interest, including without limitation the Mortgaged Properties.

Registered Intellectual Property ” means all Intellectual Property that has been registered with, filed in or issued by, as the case may be, the United States Patent and Trademark Office or such other similar filing offices, domestic or foreign, as applicable.

Regulation T ”, “ Regulation U ”, and “ Regulation X ” mean, respectively, Regulations T, U, and X of the Federal Reserve Board or any successor, as the same may be amended or supplemented from time to time.

Release ” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, seeping, migrating, dumping or disposing of any Hazardous Material (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Material) into the indoor or outdoor environment, including ambient air, soil, surface or ground water.

 

119


Remedial Action ” means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any other way address Hazardous Materials in the indoor or outdoor workplace environment; (b) prevent or minimize a Release or threatened Release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (c) perform pre-remedial studies and investigations and post-remedial operation and maintenance activities; or (d) any other actions authorized by 42 U.S.C. § 9601.

Reportable Event ” means any of the events described in Section 4043(c) of ERISA or the regulations thereunder other than a Reportable Event as to which the provision of thirty (30) days’ notice to the Pension Benefit Guaranty Corporation is waived under applicable regulations.

Reports ” shall have the meaning assigned to such term in Section 6.01(e) .

Required Lenders ” means Lenders comprising the Required Revolving Lenders and the Required Term Lenders.

Required Revolving Lenders ” means, at any time, collectively, (i) the Revolving Lenders having more than 50% of the Total Revolving Commitments or (ii) if the Revolving Commitments have been terminated, more than 50% of the aggregate outstanding amount of the Aggregate Revolving Exposure.

Required Term Lenders ” means, at any time, Term Lenders having more than 50% of the aggregate outstanding amount of the Term Loans.

Requirements of Law ” means, as to any Person, the charter and by-laws or other organizational or Governing Documents of such Person, and any law, ordinance, rule, regulation, requirement, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, including, without limitation, the Patriot Act Related Requirements, the Securities Act, the Securities Exchange Act, Regulations T, U and X, ERISA, the Internal Revenue Code, the Fair Labor Standards Act and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit or environmental, labor, employment, occupational safety or health law, rule or regulation.

Restricted Material ” has the meaning ascribed to such term in Section 13.20 .

Restricted Payments ” means, with respect to any Person, (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of, such Person, now or hereafter outstanding, except a dividend or distribution payable solely in shares of that class of stock or in any junior class of stock to the holders of that class, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of, partnership interest of or other equity interest of, such Person now or hereafter outstanding, (c) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to any Indebtedness which is subordinated to the Obligations and (d) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of such Person now or hereafter outstanding.

 

120


Restricted Period ” has the meaning ascribed to such term in Section 13.20 .

Revolving Agent ” has the meaning ascribed to such term in the introductory paragraph hereto.

Revolving Commitment ” means, with respect to any Revolving Lender, the obligation of such Revolving Lender at such time to make Revolving Loans and to incur Letter of Credit Obligations or purchase risk participations in Letters of Credit pursuant to the terms and conditions of this Agreement and as specified in Schedule C .

Revolving Defaulting Lender ” has the meaning ascribed to such term in Section 1.01(d) .

Revolving Lender ” means a Lender that has a Revolving Commitment and/or that has an outstanding Revolving Loan.

Revolving Loan ” has the meaning ascribed to such term in Section 1.01(a) .

Revolving Note ” has the meaning ascribed to such term in Section 1.05(a) .

Revolving Register ” has the meaning ascribed to such term in Section 13.09(d) .

S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.

Sale and Leaseback Transaction ” means any arrangement pursuant to which any Credit Party, directly or indirectly, becomes liable as lessee, guarantor or other surety with respect to any Lease, whether an Operating Lease or a Capitalized Lease, of any Property that such Credit Party (a) has sold or transferred (or is to sell or transfer) to, or arranged the purchase by, a Person other than a Credit Party or (b) intends to use for substantially the same purpose as any other Property that has been sold or is transferred (or is to be sold or transferred) by such Credit Party to a Person other than a Credit Party in connection with such Lease.

Scheduled Maturity Date ” means January 22, 2014.

Secured Parties ” means the Agents, the Participating Lenders and the Hedging Agreement Providers.

Securities ” means any Capital Stock, shares, voting trust certificates, bonds, debentures, notes, loans or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include the Obligations.

 

121


Securities Account ” shall have the meaning provided in Section 8-501(a) of the UCC.

Securities Act ” means the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time.

Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended or any successor Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time.

Security Agreement ” means the Security and Pledge Agreement, dated as of the date hereof, among the Borrower, the other Assignors identified therein and the Collateral Agent in the form of Exhibit L , as such agreement may be amended, supplemented or otherwise modified from time to time in accordance therewith and herewith.

Security Documents ” means the Security Agreement, the Mortgages, the Control Agreements and any other documents granting a Lien upon the Collateral as security for all or any part of the Obligations.

Senior Officer ” means, with respect to any Credit Party, such Credit Party’s president, chief executive officer, chief administrative officer, chief financial officer, managing director or chief accounting officer.

SNC Litigation ” means the litigation with respect to, or arising from, the filing of a notice of appeal by SNC-Lavalin from the Order Sustaining Estate Parties’ Objections to Proofs of Claim Nos. 1099 and 1100 Filed by SNC-Lavalin Power Ontario Inc. and Temporarily Allowing for Plan Voting Purposes Claim No. 1099.

Software ” shall have the meaning ascribed to such term in the Security Agreement.

Solvent ” or “ Solvency ” with respect to any Person means (a) the fair value of the property of such Person exceeds its total liabilities (including, without limitation, contingent liabilities), (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay its probable liability on its existing debts as they become absolute and matured, (c) such Person does not intend to incur debts or liabilities beyond its ability to pay, as such debts and liabilities mature, and (d) such Person is not engaged, and is not about to engage, in business or a transaction for which its property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

Subsidiary ” means, with respect to any Person at any date, any corporation, limited or general partnership, limited liability company, trust, association or other entity (a) the accounts of which would be consolidated with those of such Person in such Person’s consolidated financial statements if such financial statements were prepared in accordance with GAAP or (b) of which more than 50% of (i) the outstanding Capital Stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors of such corporation, (ii) the interest in the capital or profits of such partnership or limited liability company or (iii) the beneficial interest in such trust or estate is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such Person.

 

122


Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, rate hedging agreements, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement, including any such obligations or liabilities under any such master agreement.

Swap Termination Value ” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

Sweep Date ” means with respect to any Fiscal Year, the 120 th day following the end of such Fiscal Year.

Syndication Agent ” has the meaning ascribed to such term in the introductory paragraph hereto.

Taxes ” means any and all present or future taxes, levies, imposts, deductions, charges or withholdings imposed by any Governmental Authority.

Term Defaulting Lender ” has the meaning ascribed to such term in Section 1.02(d) .

Term Lender ” means a Lender that has a Term Loan Commitment outstanding and/or an outstanding Term Loan.

Term Loan ” has the meaning ascribed to such term in Section 1.02(a) .

Term Loan Commitment ” means, with respect to any Lender, the obligation of such Lender at such time to make a Term Loan pursuant to the terms and conditions of this Agreement.

Term Note ” has the meaning ascribed to it in Section 1.05(a) .

 

123


Term Register ” has the meaning ascribed to such term in Section 13.09(d) .

Title Company ” shall have the meaning ascribed to such term in Section 4.01(y)(iii) .

Title Policy ” shall have the meaning ascribed to such term in Section 4.01(y)(iii) .

Total Aggregate Exposure ” means the sum of (a) the Aggregate Revolving Exposure and (b) the Term Loans.

Total Leverage Ratio ” means, on any date, the ratio of (a) an amount equal to (i) Consolidated Total Debt on such date minus (ii) the aggregate amount of Letter of Credit Obligations outstanding on such date to (b) Consolidated EBITDA for the four (4) Fiscal Quarters most recently ended on such date.

Total Revolving Commitment ” means the aggregate principal amount of the Revolving Commitments of all the Revolving Lenders (it being understood and agreed that the maximum aggregate principal amount of the Revolving Commitments shall not exceed sixty million Dollars ($60,000,000), as reduced from time to time pursuant to the terms hereof).

Trademarks ” shall have the meaning ascribed to such term in the Security Agreement.

UCC ” means the Uniform Commercial Code enacted in the State of New York, as in effect from time to time; provided , however , that if by reason of mandatory provisions of law, any or all of the attachment, perfection, effect of perfection, non-perfection, priority or remedies with respect to the Collateral Agent’s Liens is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “ UCC ” means the Uniform Commercial Code as enacted and in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection, effect of perfection, non-perfection, priority or remedies.

Unused Commitment Fee ” has the meaning ascribed to such term in Section 3.06(b) .

Wholly-Owned ” means, when used to describe any Subsidiary of a Credit Party, that all of the Capital Stock (other than directors’ qualifying shares) of such Subsidiary is owned by one or more Credit Parties or Wholly-Owned Subsidiaries of the Credit Parties.

Williams Group ” means, collectively, Williams Industrial Services Group, L.L.C., Williams Industrial Services, LLC, Williams Specialty Services, LLC, Williams Plant Services, LLC and WSServices L.P.

 

124


Section 14.02. Terms Generally . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

Section 14.03. Accounting and Other Terms . Unless otherwise expressly provided herein, each accounting term used herein shall have the meaning given to it under GAAP. All terms used in this Agreement which are defined in Article 8 or Article 9 of the UCC and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

Section 14.04. Time References . Unless otherwise indicated herein, all references to time of day refer to Eastern standard time or Eastern daylight saving time, as in effect in New York, New York on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”; provided , however , that with respect to a computation of fees or interest payable to the Agents or the Lenders, such period shall in any event consist of at least one full day.

(signature pages follow)

 

125


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

 

GLOBAL POWER EQUIPMENT GROUP INC.,

a Delaware corporation, as Borrower

By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   President and Chief Executive Officer

DELTAK CONSTRUCTION SERVICES, INC.,

a Wisconsin corporation, as a Guarantor

By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   Director

DELTAK, L.L.C.,

A Delaware limited liability company, as a Guarantor

By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   Director

BRADEN CONSTRUCTION SERVICES, INC.,

A Delaware corporation, as a Guarantor

By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   Director

BRADEN MANUFACTURING, L.L.C.,

A Delaware limited liability company, as a Guarantor

By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   Director
GLOBAL POWER PROFESSIONAL SERVICES, L.L.C., A Delaware limited liability company, as a Guarantor
By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   Manager

 

126


WILLIAMS INDUSTRIAL SERVICES GROUP, L.L.C., a Delaware limited liability company, as a Guarantor
By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   Manager

WILLIAMS INDUSTRIAL SERVICES, LLC,

a Georgia limited liability company, as a Guarantor

By:  

/s/ Michael E. Hanson

  Name:   Michael E. Hanson
  Title:   Manager

WILLIAMS SPECIALTY SERVICES, LLC,

a Georgia limited liability company, as a Guarantor

By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   Manager

WILLIAMS PLANT SERVICES, LLC,

a Georgia limited liability company, as a Guarantor

By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   Manager

WSSERVICES, LP,

a California limited partnership, as a Guarantor

By:  

/s/ John M. Matheson

  Name:   John M. Matheson
  Title:   Manager

 

127


Schedule 4.03

As of the date hereof, the Borrower has been unable to conclude certain matters and/or provide certain items required or contemplated under the Credit Agreement and has requested that the Agent and Lenders agree as contemplated by Section 4.03 of the Credit Agreement (a) to permit the Borrower and the other Credit Parties to close the Credit Agreement, notwithstanding the outstanding items more fully described below, and (b) to grant an extension of time in which to satisfy each such outstanding items. The Agent and the Lenders are willing to permit the closing of the Credit Agreement and to provide this extension of time pursuant to the terms of this Agreement.

In consideration of the mutual covenants contained herein, the parties hereto hereby agree as follows.

1. The Credit Parties shall:

(a) On or before January 25, 2008, deliver to the Administrative Agent copies of the articles of incorporation for Deltak Construction Services, Inc. certified as of a recent date by the appropriate governmental official of the state of Wisconsin;

(b) On or before January 25, 2008, deliver to the Collateral Agent the following stock certificates:

(i) a stock certificate (and related stock power) representing 100% of the Capital Stock held by Global Power Equipment Group Inc. in Williams Industrial Services Group, L.L.C.;

(ii) a stock certificate (and related stock power) representing 100% of the Capital Stock held by Williams Industrial Services Group, L.L.C. in Williams Industrial Services, LLC;

(iii) a stock certificate (and related stock power) representing 100% of the Capital Stock held by Williams Industrial Services Group, L.L.C. in Williams Plant Services, LLC;

(iv) a stock certificate (and related stock power) representing 100% of the Capital Stock held by Williams Industrial Services Group, L.L.C. in Williams Specialty Services, LLC; and

(v) a stock certificate (and related stock power) representing 100% of the Capital Stock held by Williams Specialty Services, LLC in WSServices, LP;

(c) On or before February 1, 2008, the Credit Parties shall, at their sole expense, have obtained and filed with all appropriate authorities, including without limitation the United States Patent and Trademark Office, any and all further documentation necessary and desirable in the Collateral Agent’s sole opinion, to (i) fully release any and all security interests Bank of America, N.A. or Deutsche Bank Trust Company Americas (successor-in-interest to Bankers Trust Company) has or may have in any Intellectual Property held by Deltak, L.L.C or


Deltak, LLC and Braden Manufacturing, L.L.C or Braden Manufacturing, LLC (including without limitation filing further security interest releases executed by Bank of America, N.A. or Deutsche Bank Trust Company Americas with the United States Patent and Trademark Office); and (ii) change the record owner for Intellectual Property held by Deltak, LLC from Deltak, LLC to Deltak, L.L.C. and the record owner for Intellectual property held by Braden Manufacturing, LLC from Braden Manufacturing, LLC to Braden Manufacturing, L.L.C.;

(d) On or before February 1, 2008, file appropriate documentation (including a form UCC-3) terminating that certain UCC Financing Statement filed by Mitel Corporation against Braden Manufacturing, L.L.C. with the Delaware Department of State (initial filing number 5083108);

(e) On or before February 8, 2008, deliver to the Collateral Agent the following stock certificates:

(i) a stock certificate (and related stock power) representing 65% of the Capital Stock held by Braden Manufacturing, L.L.C. in Braden Manufacturing S.A. de C.V.;

(ii) a stock certificate (and related stock power) representing 65% of the Capital Stock held by Deltak, L.L.C. of Deltak B.V.;

(iii) a stock certificate (and related stock power) representing 65% of the Capital Stock held by Global Power Equipment Group Inc. in Braden Power Equipment (Shanghai) Co., Ltd. (or, in the alternative, deliver such documentation or take such action as the Collateral Agent may reasonable require to perfect its Lien in the Capital Stock of Braden Power Equipment (Shanghai) Co. Ltd.)); and

(iv) a stock certificate (and related stock power) representing 65% of the Capital Stock held by Braden Manufacturing, L.L.C. in Braden-Europe B.V.;

(f) On or before February 11, 2008, deliver to the Administrative Agent an opinion in form and substance reasonably satisfactory to the Administrative Agent from Wisconsin counsel with respect to Deltak Construction Services, Inc.;

(g) On or before February 11, 2008, (i) execute all such documents and make, at their sole expense, all filings with the appropriate authorities, necessary to clean up all gaps and inconsistencies in the chain of title and all other imperfections of title with regard to the Registered Company Intellectual Property (as defined in the Security Agreement) owned by the Credit Parties and each Subsidiary of a Credit Party including without limitation, filings of appropriate name change certificates and merger certificates and making corrective filings to erroneously identified transactions, (ii) file such releases and such filings in non-U.S. jurisdictions with regard to the Collateral as are requested by the Agents in their sole discretion and (iii) provide an updated Schedule 5.01(u) to the Credit Agreement, Schedule 4.7 to the Security Agreement and Schedule 9(a) to the Perfection Certificate with respect to non-U.S. jurisdictions as required by the Loan Documents, certified as true and correct;


(h) On or before February 19, 2008, comply with each of their obligations to put into place Control Agreements pursuant to Section 7.15 of the Credit Agreement together with an opinion of counsel to the Credit Parties regarding the perfection and enforceability of the security interests related thereto;

(i) On or before February 22, 2008, dissolve WSServices LP, a California entity;

(j) On or before February 28, 2008, deliver to the Agents and the Documentation Agent a list of all jurisdictions from which any Credit Party or any Subsidiary of a Credit Party derives revenue or has customers, as of the Closing Date;

(k) On or before March 31, 2008, deliver to the Agents and the Documentation Agent copies of the audited financial statements for the Borrower and its Subsidiaries on a consolidated basis for the Fiscal Year ended December 31, 2006;

(l) On or before April 30, 2008, obtain ratings of the Borrower and the Loans from either of the Ratings Agencies; and

(m) On or before September 15, 2008, file and cause each Subsidiary of a Credit Party, to file all the Applicable Tax Returns.

2. Event of Default; Remedies . Should the Borrower or any Credit Party default on any obligation hereunder, such default shall be deemed an immediate “Event of Default” under the Credit Agreement and the other Loan Documents and, immediately after the passage of the applicable date set forth herein (taking into account any extended date to which the Administrative Agent may have agreed pursuant to the terms herein) and without any rights to cure provided for in the Credit Agreement and in the Loan Documents, the Agents, on behalf of the Lenders, shall be entitled to exercise all of their remedies under the Credit Agreement and the other Loan Documents.

3. Each date specified with respect to each obligation hereunder may be extended to such later date as may be agreed to by the Administrative Agent and the Revolving Agent in each of their sole discretion.

4. All conditions precedent, representations and covenants contained in the Credit Agreement and the other Loan Documents shall be deemed modified to the extent necessary to effect the foregoing (and to permit the taking of the actions described above within the time period required above, rather than as elsewhere provided in the Loan Documents), provided that to the extent any representation and warranty would not be true because the foregoing actions were not taken on the Closing Date, the respective representation and warranty shall be required to be true and correct in all material respects at the time the respective action is taken (or was required to be taken) in accordance with this Agreement.

5. Capitalized terms used herein and not otherwise defined shall have the meaning given to them in the Credit Agreement to which this Agreement is scheduled.


6. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

7. Binding Effect . Unless expressly modified herein, the Credit Agreement and each of the Loan Documents shall remain in full force and effect.


Schedule 5.01(e)

Subsidiaries and Other Equity Investments

 

Credit Parties and Subsidiaries    Authorized Capital
Stock
  

Issued and

Outstanding

  

Issuance

Global Power Equipment Group Inc.    170,000,000    To be determined in accordance with the Plan of Reorganization    Common
Braden Manufacturing, L.L.C.    1,000    100    Common Units
Braden Construction Services, Inc.    10,000    1,000    Common
Deltak, L.L.C.    1,000    100    Common Units
Deltak Construction Services, Inc.    9,000    1,000    Common
Braden Power Equipment (Shanghai) Co., Ltd.    200,000    Not certificated    N/A
Global Power Professional Services, L.L.C.    N/A    100%    Partnership Interest
Williams Industrial Services Group, L.L.C.    N/A    100%    Partnership Interest
Braden-Europe B.V.    NLG200,000    Not certificated    N/A
Braden Manufacturing, S.A. DE C.V.    N/A    63,600,000 Pesos    N/A
Deltak B.V.    EUR90,760    Not certificated    N/A
Deltak Israel Ltd.    29,400 Shekels    Not certificated    N/A
Williams Industrial Services, LLC    10    10    Units
Williams Specialty Services, LLC    10    10    Units
Williams Plant Services, LLC    10    10    Units
WSServices, LP    N/A    100%    Partnership Interest
Williams Specialty Services Limited    GBP 1.00    GBP 1.00    Common


Schedule 5.01(f)

Subsidiaries and Other Equity Investments

 

Subsidiary   

Jurisdiction of
Organization

  

Classes of Equity
Interests

   Percentage of
Shares Owned
   

Direct Owner

Braden Manufacturing, L.L.C.

   Delaware    Common    100   Global Power Equipment Group Inc.

Braden Construction Services, Inc.

   Delaware    Common    100   Global Power Equipment Group Inc.

Deltak, L.L.C.

   Delaware    Common    100   Global Power Equipment Group Inc.

Deltak Construction Services, Inc.

   Wisconsin    Common    100   Global Power Equipment Group Inc.

Braden Power Equipment (Shanghai) Co., Ltd.

   People’s Republic of China    Partnership Investment    100   Global Power Equipment Group Inc.

Global Power Professional Services, L.L.C.

   Delaware    Common    100   Global Power Equipment Group Inc.

Williams Industrial Services Group, L.L.C.

   Delaware    Common    100   Global Power Equipment Group Inc.

Braden-Europe B.V.

   Netherlands    Common    100   Braden Manufacturing, L.L.C.

Braden Manufacturing, S.A. DE C.V.

   Mexico    Common    1) 98

 

2)  2

 

 

1) Braden Manufacturing, L.L.C.

 

2) Deltak, L.L.C.                          

Deltak B.V.

   Netherlands    Common    100   Deltak, L.L.C.

Deltak Israel Ltd.

   Israel    Common    99   Deltak, L.L.C. 1

 

1

1 share of Deltak Israel Ltd. is owned by Larry Edwards


Williams Industrial Services, LLC

   Georgia    Common    100   Williams Industrial Services Group, L.L.C.

Williams Specialty Services, LLC

   Georgia    Common    100   Williams Industrial Services Group, L.L.C.

Williams Plant Services, LLC

   Georgia    Common    100   Williams Industrial Services Group, L.L.C.

WSServices, LP

   California    Partnership Investment    1)  99

 

2)    1

 

 

1) Williams Specialty Services, LLC

 

2) Williams Plant Services, LLC       

Williams Specialty Services Limited

   England and Wales    Common    100   Williams Specialty Services, LLC


Schedule 5.01(j)

ERISA Matters

None.


Schedule 5.01(k)

Secured Tax Claims

 

1. Claim #651 Hennepin County Treasurer for $36,956.98 in property taxes against Deltak, L.L.C.


Schedule 5.01(o)

 

Real Estate Matters

Owned Real Estate

  

Mortgages to be Recorded in:

Braden Manufacturing, L.L.C.

17 St. Mark Street

Auburn, MA 01501

   Worcester County, Massachusetts

Deltak, L.L.C.

13330 12th Avenue North

Plymouth, MN 55441

   Hennepin County, Minnesota
Leased Real Estate   

Lessor

   Lessee
Parmenter Two Warren L.P.   

Global Power Equipment Group Inc.

6120 S. Yale, Suite 1480

Tulsa, OK 74136

HQ Global Workplaces, Inc.   

Deltak, L.L.C.

601 Carlson Parkway

Suite 1050

Plymouth, MN 55305

Braden Investors, L.L.C.   

Braden Manufacturing, L.L.C.

5199 North Mingo Road

Tulsa, OK 74117

Williams Group International, LLC   

Williams Industrial Services Group, L.L.C.

2076 West Park Place Blvd., Suite B

Stone Mountain, GA 30087

GDY, LLC   

Williams Plant Services, LLC

600 Corporate Center Drive

Suite 525

Scott Depot, WV 25560

Gentilly Corporation   

Williams Specialty Services, LLC

2225 East Edgewood Drive

Suite 7

Lakeland, FL 33803


Schedule 5.01(q)

Existing Environmental Matters/Actions/Liabilities

None.


Schedule 5.01(r)

Insurance

 

Carrier  

Policy Number

 

Expiration

Date

   Type    Amount
(USD)

 

*** (two pages omitted)

*** T EXT O MITTED AND F ILED S EPARATELY

C ONFIDENTIAL T REATMENT R EQUESTED


Schedule 5.01(t)

Cash Management Banks / Location of Existing Bank Accounts

Schedule 5.01(t)(i)

Global Power Equipment Group Inc.:

 

Bank

  

Account Description

  

Account Number

Wells Fargo

   Master account    ***

Wells Fargo

   A/P account    ***
Braden Manufacturing, L.L.C.:      

Bank

  

Account Description

  

Account Number

Wells Fargo

   Master account    ***

Wells Fargo

   A/P account    ***

Wells Fargo

   Payroll    ***
Deltak, L.L.C.:      

Bank

  

Account Description

  

Account Number

Wells Fargo

   Master account    ***

Wells Fargo

   A/P account    ***

Wells Fargo

   Payroll    ***

Deltak Construction Services, Inc.

     

Bank

  

Account Description

  

Account Number

Wells Fargo

   A/P account    ***

Wells Fargo

   Payroll    ***
Williams Industrial Services Group, L.L.C.:      

Bank

  

Account Description

  

Account Number

Bank of America

   Escrow Account    ***

Bank of America

   Concentration Account    ***

Bank of America

   Disbursement    ***

Bank of America

   Depository    ***
Williams Industrial Services, LLC      

Bank

  

Account Description

  

Account Number

Bank of America

   Disbursement    ***
Williams Specialty Services, LLC      

Bank

  

Account Description

  

Account Number

Bank of America

   Disbursement    ***

Bank of America

   Disbursement    ***
Williams Plant Services, LLC      

Bank

  

Account Description

  

Account Number

Bank of America

   Disbursement    ***

Bank of America

   Disbursement    ***


Schedule 5.01(t)(ii)

Braden Power Equipment (Shanghai) Co., Ltd.

Bank

  

Account Description

  

Account Number

ICBC

   Basic    ***

ICBC

   Capital    ***

ICBC

   C/A    ***

China Merchants Bank

   C/A    ***

Bank of Shanghai

   Tax    ***

Bank of America

   Loan    ***

Braden Manufacturing S.A. DE C.V.

     

Bank

  

Account Description

  

Account Number

HSBC Pesos

   General    ***

Bancomer Pesos

   General    ***

Banorte Pesos

   Payroll    ***

Banca Afirme

   Vendor payments, payroll & taxes    ***

Banca Afirme

   Vendor payments    ***

Braden-Europe B.V.

     

Bank

  

Account Description

  

Account Number

ABN AMRO Bank

N.V. (ABNHEERLEN)

   General    ***

ABN AMRO Bank N.V. (ABNHEERLEN)

   General    ***

Deltak B.V.

     

Bank

  

Account Description

  

Account Number

ABN AMRO Bank

N.V. (ABNHEERLEN)

   General    ***

ABN AMRO Bank N.V. (ABNHEERLEN)

   General    ***

*** T EXT O MITTED AND F ILED S EPARATELY

C ONFIDENTIAL T REATMENT R EQUESTED


Schedule 5.01(u)

Current Intellectual Property

Patents

Issued Patents

 

Grantor

  

Country

  

Patent No.

  

Issue Date

  

Inventor(s)

  

Title

Deltak, L.L.C.    US    5131459    7/21/1992    Thompson et al    Heat Exchanger with Movable Tube Assemblies
Deltak, L.L.C.    US    5219150    6/15/1993    Denysenko et al    Fluid Jack for a Heat Exchanger
Deltak, L.L.C.    US    5765510    6/16/1998    Krowech et al    Retractable, Sealed Sootblower for High Pressure, High Temperature Applications
Braden Manufacturing, L.L.C.    US    5669812    9/23/1997    Schockemoehl et al   

Exhaust

Gas Diffuser Interface

Braden Manufacturing, L.L.C.    US    5715672    2/10/1998    Schockemoehl et al   

Exhaust Silencer Panel for Gas

Turbine

Braden Manufacturing, L.L.C.    US    5957768    9/28/1999    Schockemoehl et al   

Exhaust

Gas Interface

Braden Manufacturing, L.L.C.    US    6056084    5/2/2000    Schockemoehl et al    Exhaust Silencer Panel
Braden Manufacturing, L.L.C.    US    6263998    7/24/2001    Schockemoehl et al    Exhaust Silencer Panel


Pending Patent Applications

 

Grantor

   Country    Serial No.    Filing Date    Inventor(s)   

Title

Braden Manufacturing, L.L.C.

   US    11/475,610    6/27/2006    Gilstrap    Apparatus for Clipping Filter and Coalescer Elements on a Frame

 

COUNTRY

  APPLICATION NO.    FILING DATE   

PATENT TITLE

Belgium

  9230905/85    10-02-92    Heat Exchanger with Moveable Tube Assemblies

Europe

  9230905/85    10-02-92    Heat Exchanger with Moveable Tube Assemblies

France

  9230905/85    10-02-92    Heat Exchanger with Moveable Tube Assemblies

Italy

  9230905/85    10-02-92    Heat Exchanger with Moveable Tube Assemblies

UK

  9230905/85    10-02-92    Heat Exchanger with Moveable Tube Assemblies

Trademarks

Registered Trademarks

 

Grantor

  

Country

  

Trademark

   Registration No.    Registration Date

Deltak, L.L.C.

   Australia    DELTAK & DESIGN    325720    1/12/1979

Deltak, L.L.C.

   Austria    DELTAK    90826    4/4/1979

Deltak, L.L.C.

   Austria    DESIGN ONLY (Stylized ‘x’ with vertical line)    90541    2/27/1979

Deltak, L.L.C.

   Benelux    DC DELTAK    355509    10/12/1978

Deltak, L.L.C.

   Canada    DELTAK & DESIGN    TMA247616    7/4/1980


Deltak, L.L.C.

   China    DC & DESIGN    780765    10/7/1995

Deltak, L.L.C.

   China    DELTAK    780772    10/7/1995

Deltak, L.L.C.

   Columbia    DC & DESIGN    158969    4/26/1994

Deltak, L.L.C.

   Denmark    DC DELTAK & DESIGN    36580    1/18/1980

Deltak, L.L.C.

   France    DC DELTAK CORPORATION    1529617    12/21/1988

Deltak, L.L.C.

   Germany    DC (Stylized)    993153    11/13/1979

Deltak, L.L.C.

   Germany    DELTAK & DESIGN    991624    10/11/1979

Deltak, L.L.C.

   Ireland    DELTAK    95328    10/12/1978

Deltak, L.L.C.

   Italy    DELTAK & DESIGN    869040    07/23/1985

Deltak, L.L.C.

   New Zealand    DELTAK & DESIGN    125723    11/3/1978

Deltak, L.L.C.

   Norway    DC DELTAK CORPORATION & DESIGN    113235    2/24/1983

Deltak, L.L.C.

   Spain    DC DELTAK & DESIGN    889102 M    7/5/1979

Deltak Corporation

   Switzerland    DC DELTAK & DESIGN    P296978    10/16/1978

Deltak, L.L.C.

   United Kingdom    DELTAK    1102709    02/01/1984

Deltak, L.L.C.

   US    DC DELTAK CORPORATION    1026140    12/2/1975

Deltak, L.L.C.

   US    DC & Design    1017375    8/5/1975

Deltak, L.L.C.

   Vietnam    DELTAK    10011    12/14/1993

Braden Manufacturing, L.L.C.

   US    BRADEN & DESIGN    1785232    8/3/1993

Braden Manufacturing, L.L.C.

   US    EXCEL    2107670    10/21/1997

Braden Manufacturing, L.L.C.

   US    TRICEL    2118311    12/2/1997

Braden Manufacturing, L.L.C.

   US    PFS    2186188    9/1/1998

Braden Manufacturing, L.L.C.

   US    CLS    2494051    10/2/2001

Braden Manufacturing, L.L.C.

   US    BRADENFILTERS    3035321    12/27/2005

Williams Specialty Services, LLC

   US    WILLIAMS INSIGHT    2029223    1/7/1997


Braden Manufacturing, L.L.C.

   Benelux    BRADEN    531486    2/1/2003

Braden Manufacturing, L.L.C.

   Germany    BRADEN    2051884    12/13/1993

Braden Manufacturing, L.L.C.

   Finland    BRADEN    135462    12/20/1994

Braden Manufacturing, L.L.C.

   Sweden    BRADEN    261649    11/11/1994

Braden Manufacturing, L.L.C.

   Norway    BRADEN    162104    4/7/1994

Braden Manufacturing, L.L.C.

   Japan    BRADEN & DESIGN    3221412    11/29/1996

Braden Manufacturing, L.L.C.

   Singapore    BRADEN & DESIGN    T9300972E    9/4/1992

Braden Manufacturing, L.L.C.

   Taiwan    BRADEN & DESIGN    619434    11/1/1993

Braden Manufacturing, L.L.C.

   United Kingdom    BRADEN & DESIGN    1526888    9/4/1999

Braden Manufacturing, L.L.C.

   Denmark    BRADEN & DESIGN    VR199307445    10/22/1993

Braden Manufacturing, L.L.C.

   Egypt    BRADEN & DESIGN    85902    4/2/1997

Braden Manufacturing, L.L.C.

   France    BRADEN & DESIGN    93454672    2/10/1993

Braden Manufacturing, L.L.C.

   India    BRADEN & DESIGN    591267    2/22/1993

Braden Manufacturing, L.L.C.

   Indonesia    BRADEN & DESIGN    541970    7/7/2003

Global Power Equipment Group Inc.

   Community Trademark    GLOBAL POWER EQUIPMENT GROUP    3342292    12/17/2007

Braden Manufacturing, L.L.C.

   US    BRADEN    3,250,835    6/12/2007

Braden Manufacturing, L.L.C.

   US    CFI    3,250,836    6/12/2007

Internet Domain Names

Global Power Equipment Group Inc.

globalpower.com

Braden Manufacturing, L.L.C.

braden.com

Deltak, L.L.C.

deltak.com

Consolidated Fabricators, Inc.

consolidatedfabricators.com


Material Unregistered Trademarks

None.

Pending Trademark Applications

None.

Copyrights

Registered Copyrights

None.

Copyrights Pending Registration Applications

None.

Material Unregistered Copyrights

None.


Schedule 5.01(v)

Existing Material Contracts

Braden Manufacturing, L.L.C. and Braden- Europe B.V.:

 

      

Customer Name

       

Contract Number

  

Amount

($MM)

  

***

      ***    ***
  

***

      ***    ***
  

***

      ***    ***
  

***

      ***    ***
  

***

      ***    ***
  

***

      ***    ***

Deltak, L.L.C.:

        
      

Customer Name

       

Contract Number

  

Amount

($MM)

  

***

      ***    ***
  

***

      ***    ***
  

***

      ***    ***
  

***

      ***    ***
  

***

      ***    ***

Williams Plant Services, LLC:

        
      

Customer Name

       

Contract Number

  

Amount

($MM)

  

***

      ***    ***
  

***

      ***    ***
  

***

      ***    ***
  

***

      ***    ***

Williams Specialty Services, LLC:

        
      

Customer Name

       

Contract Number

  

Amount

($MM)

Williams Industrial Services, LLC:

        
      

Customer Name

       

Contract Number

  

Amount

($MM)

  

***

      ***    ***

*** T EXT O MITTED AND F ILED S EPARATELY

C ONFIDENTIAL T REATMENT R EQUESTED


Schedule 5.01(z)

Existing Commercial Tort Claims

None.


Schedule 8.01

Existing Liens

 

Entity

 

Lienholder

 

Initial Filing Number

 

Filing Date

 

Nature of Lien

Deltak, L.L.C.

  U.S. Bancorp   21561954   5/28/2002   Equipment

Deltak, L.L.C.

  U.S. Bancorp   21666282   6/06/2002   Equipment

Deltak, L.L.C.

  U.S. Bancorp   41754565   6/14/2004   Lease

Deltak, L.L.C.

  U.S. Bancorp   42496497   9/03/2004   Lease

Deltak, L.L.C.

  U.S. Bancorp   51166959   4/15/2005   Lease

Deltak, L.L.C.

  U.S. Bancorp   52839133   9/14/2005   Lease

Braden Manufacturing, L.L.C.

  Mitel Capital   50831082   3/16/2005   Equipment 2

Braden Manufacturing, L.L.C.

  CIT Bank   52772045   9/07/2005   Equipment

Braden Manufacturing, L.L.C.

  CIT Bank   53447290   11/04/2005   Equipment

Braden Manufacturing, L.L.C.

  CIT Bank   53887792   12/15/2005   Equipment

Contingent right of set-off of Air Liquide (if any) against a refund to the Borrower or any of its Subsidiaries of VAT taxes paid to the Netherlands prior to the date of, and pursuant to, that certain Conditions of Contract dated December 10, 2004 and Completion Agreement dated December 22, 2006 by Maasvlakte Energie BV and Deltak, L.L.C. .

Customer Liens on Equipment owned by Deltak, L.L.C. and not extending to the assets of a Credit Party other than Deltak, L.L.C. to any Subsidiary of a Credit Party or to any other assets of Deltak, L.L.C.

 

2

To be released in accordance with Schedule 4.03 .


Schedule 8.02

Existing Investments

 

Investor

   Investee   Amount
(USD)

Global Power Equipment Group Inc.

   Braden Power Equipment (Shanghai) Co., Ltd.   200,000

Global Power Equipment Group Inc.

   Braden Manufacturing, L.L.C.   14,809,334

Global Power Equipment Group Inc.

   Deltak, L.L.C.   29,836,668

Global Power Equipment Group Inc.

   Deltak Construction Services, Inc.   231,000

Global Power Equipment Group Inc.

   Braden Construction Services, Inc.   804,000

Global Power Equipment Group Inc.

   Braden-Europe B.V.   1,741,000

Global Power Equipment Group Inc.

   Williams Industrial Services Group, L.L.C.   72,380,000

Braden Manufacturing, L.L.C.

   Braden Manufacturing S.A. DE C.V.   6,568,680

Deltak, L.L.C.

   Deltak B.V.   66,505

Deltak, L.L.C.

   Deltak Israel Ltd.   2,977

These amounts represent cash capital contributions by the Investor in the Investee following the initial acquisition thereof. The amounts permitted above will be permanently reduced by the write-down of any such Investment.

The following L/Cs are outstanding as of the Closing Date:

*** (half of the page omitted)

The “GPEG Indemnity” in favor of Deltak, L.L.C. as defined in the Plan of Reorganization, liability under which shall not exceed $5,000,000.

***T EXT O MITTED AND F ILED S EPARATELY

C ONFIDENTIAL T REATMENT R EQUESTED


Schedule 8.03

Existing Indebtedness

Braden-Europe B.V. Loan Facility with ABN AMRO Bank N.V. (ABNHEERLEN) in the Netherlands, dated February 14, 2005 and amended June 5, 2007.

 

Balance due:

  EURO 2,000,000 - overdraft facility
  EURO 8,000,000 - LC facility

Expiration date:

  Various

The “GPEG Indemnity” in favor of Deltak, L.L.C. as defined in the Plan of Reorganization, liability under which shall not exceed $5,000,000.

The following synthetic letters of credit (which are backstopped by a Letter of Credit issued under the Agreement)

 

       

Bank Ref Expire Date

   Beneficiary    Amount

(USD)

       

*** (one and a half of the page omitted)

*** T EXT O MITTED AND F ILED S EPARATELY

C ONFIDENTIAL T REATMENT R EQUESTED


The following performance/surety bonds have been issued as of the Closing Date:

 

BOND NO.

   PRINCIPAL    OBLIGEE    DESCRIPTION    TYPE    BOND AMOUNT    PREMIUM    EFF.    EXP.
                       

*** (Three pages omitted)

*** T EXT O MITTED AND F ILED S EPARATELY

C ONFIDENTIAL T REATMENT R EQUESTED


Schedule 8.15

Sale of Subsidiaries Capital Stock or Securities

The Management Incentive Plan as approved in the Plan of Reorganization.


Schedule 14

Mortgaged Real Property

 

Owned Real Estate

   Mortgages to be Recorded in:

Braden Manufacturing, L.L.C.

17 St. Mark Street

Auburn, MA 01501

   Worcester County, Massachusetts

Deltak, L.L.C.

13330 12th Avenue North

Plymouth, MN 55441

   Hennepin County, Minnesota


Schedule C-1

Consolidated EBITDA for certain months prior to November 2007

[See separate Schedule]


Schedule C1

 

Global Power Equipment Group

North America Monthly 2007 P&I.

($ in thousands)

   CONFIDENTIAL
FOR DISCUSSION PURPOSES ONLY
 
   Month of  
   Jan-07     Feb-07     Mar-07     Apr-07     May-07     Jun-07     Jul-07     Aug-07     Sep-07     Oct-07     Nov-07  

Revenue

                      

Heat Recovery Equipment

   $ 2,238      $ 2,169      $ 2,404      $ 3,277      $ 3,398      $ 4,486      $ 4,962      $ 8,618      $ 7,235      $ 9,106      $ 6,496   

Auxiliary Power Equipment

     5,618        7,096        6,854        5,988        7,138        8,628        6,657        9,642        6,470        16,817        11,569   

Industrial Services

     9,835        17,748        20,859        22,145        29,083        18,445        8,713        10,707        13,065        19,012        14,809   
                                                                                        

Total Revenue

     17,691        27,013        30,117        31,410        39,619        31,559        20,332        28,967        26,770        44,935        32,874   

Total Gross Profit

                      

Heat Recovery Equipment

     1,101        597        601        873        906        1,143        982        1,011        1,628        1,901        1,484   

Auxiliary Power Equipment

     1,105        823        1,260        1,699        2,091        1,404        1,041        3,257        1,460        4,791        4,029   

Industrial Services

     1,185        2,298        3,315        3,141        2,472        1,774        1,066        1,309        2,376        2,027        2,181   
                                                                                        

Total Gross Profit

     3,391        3,718        5,176        5,713        5,469        4,321        3,089        5,577        5,464        8,719        7,694   

Operating Expense

                      

General  & Administrative

     3,934        4,381        4,148        3,769        3,764        3,515        9,560        6,047        5,333        5,434        7,054   

Selling & Marketing

     265        238        349        236        279        305        394        280        166        229        382   

Commissions

     57        29        36        36        37        33        36        91        74        80        90   

Profit Sharing / MIC

     —          —          —          —          —          —          —          —          —          —          —     

Amortization

     147        146        147        147        146        147        147        146        147        147        146   

Other (Income) Expense - including LC Fees

     1        —          —          (1     (39     —          —          (2     (12     (4     (4
                                                                                        

Total Operating Expenses

     4,404        4,794        4,680        4,187        4,187        4,000        10,137        6,562        5,708        5,886        7,668   

Operating Profit (Loss)

   $ (1,013   $ (1,076   $ 496      $ 1,526      $ 1,282      $ 321      $ (7,048   $ (985   $ (244   $ 2,833      $ 26   

Restructuring Fees

     —          —          —          —          —          —          —          —          —          —          —     

Financing Fees

     —          —          —          —          —          —          —          —          —          —          —     

Discontinued Operations

     —          —          —          —          —          —          —          —          —          —          —     

Interest Income

     —          —          —          —          —          —          —          —          —          —          —     

Net Interest Expense

     439        295        1,005        1,290        823        1,181        1,559        (189     854        876        957   
                                                                                        

Income (Loss) Before Taxes and Minority Interest

     (1,452     (1,371     (509     236        459        (860     (8,607     (796     (1,098     1,957        (931

Income Tax Provision (benefit)

     50        28        47        58        (717     50        14        52        30        44        57   
                                                                                        

Income (Loss) Before Minority Interest

     (1,502     (1,399     (556     178        1,176        (910     (8,621     (848     (1,128     1,913        (988

Minority Interest Income/(Loss)

     —          —          —          —          —          —          —          —          —          —          —     

Net Income (Loss)

   $ (1,502   $ (1,399   $ (556   $ 178      $ 1,176      $ (910   $ (8,621   $ (848   $ (1,128   $ 1,913      $ (988

Add Back:

                      

Income Tax Provision (Benefit)

     50        28        47        58        (717     50        14        52        30        44        57   

Depreciation & Amortization Included Above

     181        172        266        180        179        178        179        161        134        153        150   

Net Interest Included Above

     439        295        1,005        1,290        823        1,181        1,559        (189     854        877        957   

Amortization Included Above

     147        146        148        147        146        147        147        146        147        147        146   
                                                                                        

EBITDA

     (685     (758     910        1,853        1,607        646        (6,722     (678     37        3,134        322   

Non-cash FX loss (gain)

     —          —          —          —          —          —          —          —          —          —          —     

Consol Interest - LC fees not included above

     —          —          —          —          —          —          —          —          —          —          —     

Restructuring Fees

     —          —          —          —          —          —          —          —          —          —          —     

Empower/Consulting/Bankruptcy professionals

     1,645        1,954        1,631        1,563        1,267        1,264        7,021        2,426        3,212        2,797        3,702   

Loss (gain) from sale of Global Power Asia Ltd

     —          —          —          —          —          —          —          —          —          —          —     

Stock Based Compensation

     49        49        133        49        49        132        49        49        132        49        49   
                                                                                        

Adjusted EBITDA

   $ 1,009      $ 1,245      $ 2,674      $ 3,465      $ 2,923      $ 2,042      $ 348      $ 1,797      $ 3,381      $ 5,980      $ 4,073   


Schedule I

Immaterial Foreign Subsidiaries

 

1. Williams Specialty Services Limited.

 

2. Deltak Israel Ltd.


CREDIT AGREEMENT

Exhibit A

[Form of] Notice of Borrowing

Reference is made to the Credit Agreement, to be dated as of January [ ] , 2008 (as it may be amended, supplemented or otherwise modified, the “ Credit Agreement ”), by and among GLOBAL POWER EQUIPMENT GROUP INC. (the “ Borrower ”), and the other Credit Parties party thereto from time to time, as Guarantors, the Lenders party thereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger, Bookrunner and Administrative Agent, (in such capacity, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent, THE CIT GROUP/BUSINESS CREDIT INC., as Syndication Agent and Revolving Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent. Capitalized terms used but not defined herein shall have the meaning set forth in the Credit Agreement.

Pursuant to Section 1.01 (Revolving Loans) and Section 1.02 (Term Loans) of the Credit Agreement, as applicable, the Borrower desires that Lenders make the following Loan to the Borrower in accordance with the applicable terms and conditions of the Credit Agreement on [mm/dd/yy], (the “ Funding Date ”):

 

  Revolving Loans      
 

¨

 

LIBOR Rate Loans, with a LIBOR

Period of              Month(s):

   $[      ,      ,      ]   
 

¨

 

Alternate Base Rate Loans:

   $[      ,      ,      ]   
 

Term Loans

     
 

¨

 

LIBOR Rate Loans, with a LIBOR

Period of              Month(s):

   $[      ,      ,      ]   
 

¨

 

Alternate Base Rate Loans:

   $[      ,      ,      ]   

The Borrower hereby certifies that:

(i) as of the Funding Date, the representations and warranties contained in each of the Loan Documents are true and complete in all material respects on and as of such Funding Date to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties are true and complete in all material respects on and as of such earlier date;

 

A-1


(ii) as of the Funding Date, no event has occurred and is continuing or would result from the consummation of the borrowing contemplated hereby that would constitute an Event of Default or a Default; and

(iii) the proceeds of each Loan shall be used only as permitted under the Credit Agreement.

Borrower hereby instruct the Administrative Agent to apply the proceeds of Loans available to the Borrower on the Funding Date to make transfers in the amounts and to the accounts specified in Schedule A hereto and agrees that (i) such Loans will be fully disbursed and borrowed for purposes of the Credit Agreement as of the Funding Date upon the initiation of such transfers by the Administrative Agent (whether or not such transfers are completed or value is received therefor by the Borrower), (ii) such transfers are being made at the instruction and risk of the Borrower and (iii) the provisions of this Notice of Borrowing and Schedule A hereto may be changed only by a written agreement signed by the Borrower and the Administrative Agent.

Pursuant to Section 3.03 of the Credit Agreement, in the event of the failure to borrow any LIBOR Rate Loan on the Funding Date, the Borrower shall compensate each applicable Lender for the loss, cost and expense (excluding in any event any Applicable Margin or other lost profit) attributable to such event.

The Borrower acknowledges that MORGAN STANLEY SENIOR FUNDING, INC., as the Initial Lender, has entered or is entering into agreements to assign Loans pursuant to Section 13.09 of the Credit Agreement in connection with syndication. The list of potential assignees has been provided by the Administrative Agent to the Borrower and is attached as Annex I hereto. The Borrower hereby consents for purposes of Section 13.09 of the Credit Agreement to any assignment in any amount and at any time by MORGAN STANLEY SENIOR FUNDING, INC. to any of the institutions set forth in the definition of Eligible Assignee in the Credit Agreement.

 

Date: [mm/dd/yy]     GLOBAL POWER EQUIPMENT GROUP INC.
    By:  

 

    Title:  

 

A-2


CREDIT AGREEMENT

Exhibit B

[Form of] Revolving Note

$ [      ,      ,      ]

 

[mm/dd/yy]    [place]

For value received , GLOBAL POWER EQUIPMENT GROUP INC. a corporation formed under the laws of the State of Delaware (the “ Borrower ”), promises to pay [NAME OF LENDER] ( Payee ) or its registered assigns the principal amount of DOLLARS                      ($ [      ,      ,      ] ), or, if less, the aggregate unpaid amount of all Revolving Loans made to the undersigned under the Credit Agreement (as defined below).

The Borrower also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Credit Agreement, dated as of January [ ], 2008 (as it may be amended, supplemented or otherwise modified, the “ Credit Agreement ”), by and among the Borrower, and the other Credit Parties party thereto from time to time, as Guarantors, the Lenders party thereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger, Bookrunner and Administrative Agent, (in such capacity, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent, THE CIT GROUP/BUSINESS CREDIT INC., as Syndication Agent and Revolving Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent. Capitalized terms used but not defined herein shall have the meaning set forth in the Credit Agreement.

All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the payment office identified the Administrative Agent or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Unless and until an Assignment and Acceptance effecting the assignment or transfer of the obligations evidenced hereby shall have been accepted by Administrative Agent and recorded in the Revolving Register, Borrower, each Agent and Lenders shall be entitled to deem and treat Payee as the owner and holder of this Note and the obligations evidenced hereby. Payee hereby agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided , the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of the Borrower hereunder with respect to payments of principal of or interest on this Note.

This Note is subject to mandatory prepayment and to prepayment at the option of the Borrower, each as provided in the Credit Agreement.

 

B-1


THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE BORROWER AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.

The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement.

The Borrower promises to pay all costs and expenses, including reasonable attorneys’ fees, all as provided in and subject to the terms of the Credit Agreement, incurred in the collection and enforcement of this Note.

IN WITNESS WHEREOF , the Borrower have caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above.

 

GLOBAL POWER EQUIPMENT GROUP INC.
By:    
Title:  

 

B-2


CREDIT AGREEMENT

Exhibit C

[Form of] Term Note

$ [      ,      ,      ]

 

[mm/dd/yy]    [place]

For value received , GLOBAL POWER EQUIPMENT GROUP INC. a corporation formed under the laws of the State of Delaware (the “ Borrower ”), promises to pay [NAME OF LENDER] ( Payee ) or its registered assigns the principal amount of DOLLARS                      ($ [      ,      ,      ] ) in the installments referred to below.

The Borrower also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Credit Agreement, dated as of January [ ], 2008 (as it may be amended, supplemented or otherwise modified, the “ Credit Agreement ”), by and among the Borrower, and the other Credit Parties party thereto from time to time, as Guarantors, the Lenders party thereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger, Bookrunner and Administrative Agent, (in such capacity, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent, THE CIT GROUP/BUSINESS CREDIT INC., as Syndication Agent and Revolving Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent. Capitalized terms used but not defined herein shall have the meaning set forth in the Credit Agreement.

The Borrower shall make scheduled installments of principal payments on this Note as set forth in Section 1.02(e) of the Credit Agreement.

All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the payment office identified the Administrative Agent or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Unless and until an Assignment and Acceptance effecting the assignment or transfer of the obligations evidenced hereby shall have been accepted by Administrative Agent and recorded in the Term Register, Borrower, each Agent and Lenders shall be entitled to deem and treat Payee as the owner and holder of this Note and the obligations evidenced hereby. Payee hereby agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided , the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of the Borrower hereunder with respect to payments of principal of or interest on this Note.

This Note is subject to mandatory prepayment and to prepayment at the option of the Borrower, each as provided in the Credit Agreement.

 

C-1


THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE BORROWER AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.

The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement.

The Borrower promises to pay all costs and expenses, including reasonable attorneys’ fees, all as provided in and subject to the terms of the Credit Agreement, incurred in the collection and enforcement of this Note.

IN WITNESS WHEREOF , the Borrower have caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above.

 

GLOBAL POWER EQUIPMENT GROUP INC.
By:    
Title:  

 

C-2


CREDIT AGREEMENT

Exhibit D

[Form of] Letter of Credit Application

 


 

Application and Agreement for Irrevocable

Standby Letter of Credit

  

 

LOGO

 

 

WHEN TRANSMITTING THIS APPLICATION BY FACSIMILE ALL PAGES MUST BE TRANSMITTED.

To: JPMorgan Chase Bank, N.A. and/or its subsidiaries and/or affiliates.                                              Date:

I. Pursuant to the Terms and Conditions contained herein, please issue an IRREVOCABLE STANDBY Letter of Credit (together with any replacements, extensions or modifications, the “Credit”) and transmit it by:

 

¨   Teletransmission   ¨   Courier   ¨   Air Mail (Domestic addresses only)    

If completing in Microsoft Word, please enter data by ‘clicking’ on the gray boxes.

 

 

Applicant/Obligor (Full name and address- jointly and severally if more than one, individually and collectively, “Applicant/Obligor”):

The CIT Group / Business Credit, Inc.

301 South Tryon Street

23 rd Floor

Charlotte, North Carolina 28202

 

[Signature lines are on last page].

  

 

Beneficiary (Full name and address):

   
Account Party (Full name and address of entity to be named in Letter of Credit if different than the above Applicant/Obligor):   

Advising Bank-Optional (If blank, Issuer will select its branch or affiliate or correspondent in the domicile of the beneficiary):

 

   

Amount:

Up to an aggregate amount of

If not USD, indicate currency

  

Expiry Date: Demands/claims must be presented to the counters of the Nominated bank not later than

 

 

Complete only if Automatic Extension of the expiry date is required.

 

Credit to contain Automatic Extension clause with extension period of ¨ one year/ ¨ other                                     (please specify).

 

No less than                                         calendar days non-extension notice to the beneficiary.

 

Automatic Extension final expiration date:                 (the date after which the Credit will no longer be subject to Automatic Extension).

 

 

AVAILABLE BY (indicate A, B or C)

 

¨   A. Beneficiary’s dated statement referencing JPMorgan Chase Bank, N.A. Letter of Credit Number indicating amount of demand/claim and purportedly signed by an authorized person reading as follows (Please state within the quotation marks the wording to appear on the statement to be presented):

 

      “ (insert appropriate reason for drawing )’’

 

¨   Demands received by authenticated teletransmission are acceptable in lieu of the beneficiary’s signed and dated statement provided that such authenticated teletransmission contains the beneficiary’s statement as provided for in the Credit.

 

 

1


 

¨     B. See attached sheet(s) for continuation of other documents and/or special instructions, which form an integral part of this Application and such specimen should be approved and signed by the applicant/obligor.

¨     C. Other:

 

 

Complete only when the Beneficiary’s bank or Correspondent is to issue its guarantee or undertaking based on the issued Standby Letter of Credit.

 

We understand and agree that by making this request, we shall remain liable under this Credit until Issuer is fully released in writing by such entity.

 

¨   Request Beneficiary’s bank to issue and deliver its:

      (Specify type of bid or performance bond, guarantee, undertaking or other)

 

In favor of:     Name(s)

 

Attention Party Name

 

Address

 

City/State/Zip/Country

 

Telephone

 

Fax

 

For an amount not exceeding that specified above, effective immediately and expiring at their office on

(at least 30 days prior to Expiry Date above) covering (brief description):            .

 

 

¨   Multiple drawings prohibited (if blank, multiple drawings will be permitted).

 

¨   Credit is transferable only in its entirety (Issuer is authorized to include its standard transfer conditions and is authorized to nominate a transferring bank, if applicable).

 

The Credit, or any Credit issued shall be subject to the International Standby Practices 1998, International Chamber of Commerce Publication 590 (“ISP”) or, ¨ if box is checked, it shall be subject to the Uniform Customs and Practice for Documentary Credits 2007 Revision, International Chamber of Commerce Publication No. 600 (“UCP”).

 

 

Please include a brief description of the purpose of the Standby Letter of Credit including goods description, pricing, country of origin of the goods, shipment from and shipment to countries, as applicable:

 

Unless otherwise stated herein, the nominated bank (if any) is authorized to send all documents to you in one airmail or courier service, if available.

 

2


II: To induce JPMorgan Chase Bank, N.A. and/or any of its domestic or foreign subsidiaries or affiliates (individually and collectively, “Bank” ), in its sole discretion, to issue for the account of the Applicant or for the account of the Account Party named in the Application, a standby letter of credit, or other independent undertaking at the request of the undersigned (individually and collectively, “Applicant” ; jointly and severally, if more than one), Applicant agrees as to the letter of credit or undertaking (together with any replacements, extensions or modifications, a “Credit” , collectively, “Credits” ) as follows.

1. Applications/Instructions. The request to issue a Credit (an “Application”) shall be irrevocable and in such form as Bank shall from time to time require or agree to accept (including any type of electronic form or means of communication). Inquiries, communications and instructions (whether oral, telephonic, written, telegraphic, facsimile, electronic or other) regarding a Credit, each Application and this Agreement are each referred to herein as “Instructions” (and the term “Application” is subsumed within the term “Instruction”). Bank’s records of the content of any Instruction shall be conclusive. Applicant shall be responsible for the final text of a Credit notwithstanding Bank’s recommendation, assistance or drafting or Bank’s use, non-use or refusal to use text submitted by Applicant. Bank may transmit a Credit and any amendment thereto by S.W.I.F.T. message and thereby bind Applicant directly and as indemnitor to the S.W.I.F.T. rules, including rules obligating Applicant or Bank to pay charges.

2. Payment Terms; Obligations Absolute. (a) For each Credit, Applicant shall pay Bank: (i) the amount of each drawing paid by Bank under the Credit on demand, if under a sight draft and at least one Business Day prior to the date when payment is to be made under a time draft (or acceptance relating thereto) or deferred payment obligation; (ii) commissions, fees and charges in respect of the Credit (including, commissions and fees for issuance, transfer, assignment of proceeds, amendments and drawings and of any adviser, confirming institution or entity or other nominated person), at such rates, amounts and times as Bank and Applicant shall mutually agree (or if no agreement, the rate then customarily charged by Bank); (iii) interest on each amount under this Agreement for each day from and including the date such payment is due through the date of payment, on demand, at a rate per annum (calculated on the basis of a 360 day year for the actual number of days elapsed) equal to the lesser of (A) Prime plus 3% and (B) the highest rate permitted by applicable law; (iv) Bank’s charges, costs and expenses (including reasonable internal and outside counsel fees, expenses and charges) incurred in connection with the protection or enforcement of Bank’s rights under this Agreement and any correspondent’s charges, with interest from the date paid or incurred by Bank through the date of payment by Applicant, on demand, at a rate per annum equal to Prime plus 3%; and (v) if as a result of any Regulatory Change, the Bank determines that the cost to the Bank of issuing or maintaining any Credit is increased, or any amount received or receivable by the Bank hereunder is reduced, or the Bank is required to make any payment in connection with any transaction contemplated hereby, then the Applicant shall pay to the Bank on demand such additional amount or amounts as the Bank determines will compensate the Bank for such increased cost, reduction or payment. “Regulatory Change” means any change after the date hereof in United States federal, state or foreign laws or regulations (including Regulation D of the Board of Governors of the Federal Reserve System as amended or supplemented from time to time) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including the Bank or under any United States federal or state, or any foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. “Business Day” means any day on which commercial banks in New York City, New York are not authorized or required to be closed for business. “Prime” shall mean the rate of interest per annum announced by the Bank from time to time as its Prime Rate; each change in the Prime Rate shall be effective from and including the date such change is announced as being effective.

(b) If the amount drawn under any Credit is in non-United States currency ( foreign currency” ), Applicant shall pay under paragraph 2(a)(i) above the United States dollar equivalent of the amount computed at Bank’s selling rate, as of the date of Applicant’s payment, for cable transfers of such foreign currency to the place of payment; provided , further , that if, for any reason, Bank has no selling rate for cable transfers of that currency to such place on the payment date, Applicant shall pay Bank an amount in United States currency equivalent to Bank’s actual cost of settlement of its obligation.

(c) All payments shall be made in immediately available funds, free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges, withholdings, set-off or other liabilities. Applicant shall pay all withholding, stamp and other taxes or duties imposed by any taxing authority on payment under any Credit and this Agreement and shall indemnify Bank against all liabilities, costs, claims, and expenses resulting from Bank having to pay or from any omission to pay or delay in paying any duty or tax.

(d) Bank may (but shall not be required to), without demand for payment or notice to the Applicant, and in addition to any other right of set-off which Bank may have, (i) debit any account or accounts maintained by Applicant with any office of Bank (now or in the future) and set-off and apply (X) any balance or deposits (general, special, time, demand, provisional, final, matured, unmatured, contingent or absolute) in the account(s) and (Y) any sums due or payable from Bank, to the payment of any and all amounts owed by Applicant to Bank and/or (ii) advance funds to Applicant under any line of credit (committed or uncommitted) made available to Applicant by Bank and apply such funds to said payment obligations.

 

3


(e) Applicant’s payment obligations under this paragraph 2 are absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever, including, without limitation: (i) any lack of validity, enforceability or legal effect of any Credit or this Agreement, or any term or provision therein or herein; (ii) payment against presentation of any draft, demand or claim for payment under any Credit or other document presented for purposes of drawing under any Credit ( “Drawing Document” ) that does not comply in whole or in part with the terms of the applicable Credit or which proves to be fraudulent, forged or invalid in any respect or any statement therein being untrue or inaccurate in any respect, or which is signed, issued or presented by a Person (or a transferee of such Person) purporting to be a successor or transferee of the beneficiary of such Credit; (iii) Bank or any of its branches or affiliates being the beneficiary of any Credit; (iv) Bank or any correspondent honoring a drawing against a Drawing Document up to the amount available under any Credit even if such Drawing Document claims an amount in excess of the amount available under the Credit; (v) the existence of any claim, set-off, defense or other right that Applicant or any other Person may have at any time against any beneficiary, any assignee of proceeds, Bank or any other Person; (vi) Bank or any correspondent having previously paid against fraudulently signed or presented Drawing Documents (whether or not Applicant reimbursed Bank for such drawing); and (vii) any other event, circumstance or conduct whatsoever, whether or not similar to any of the foregoing, that might, but for this paragraph, constitute a legal or equitable defense to or discharge of, or provide a right of set-off against, Applicant’s obligations hereunder (whether against Bank, the beneficiary or any other Person); provided , however , that subject to paragraph 4 hereof, the foregoing shall not exculpate Bank from such liability to Applicant as may, be finally, judicially determined in an independent action or proceeding brought by Applicant against Bank following payment of Applicant’s obligations under this Agreement. “Person” means any natural Person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity.

3. Amendment; Waiver. Bank shall not be deemed to have amended or modified any term hereof, or waived any of its rights unless Bank consents in writing to such amendment, modification or waiver. No such waiver, unless expressly stated therein, shall be effective as to any transaction which occurs subsequent to such waiver, nor as to any continuance of a breach after such waiver. Bank’s consent to any amendment, waiver, or modification does not mean that Bank shall consent or has consented to any other or subsequent Instruction to amend, modify, or waive a term of this Agreement or any Credit.

4. Indemnification; Limitation of Liability. (a) Applicant shall indemnify and hold harmless Bank, its parent, and correspondents and each of their respective directors, officers, employees and agents (each, including Bank, an “Indemnified Person” ) from and against any and all claims, suits, judgments, costs, losses, fines, penalties, damages, liabilities, and expenses, including expert witness fees and legal fees, charges and disbursements of any counsel (including in-house counsel fees and allocated costs) for any Indemnified Person (“Costs”), arising out of, in connection with, or as a result of: (i) any Credit or any pre-advice of its issuance; (ii) any transfer, sale, delivery, surrender, or endorsement of any Drawing Document at any time(s) held by any Indemnified Person in connection with any Credit; (iii) any action or proceeding arising out of or in connection with any Credit or this Agreement (whether administrative, judicial or in connection with arbitration), including any action or proceeding to compel or restrain any presentation or payment under any Credit, or for the wrongful dishonor of or honoring a presentation under any Credit; (iv) any independent undertakings issued by the beneficiary of any Credit; (v) any unauthorized Instruction or error in computer transmission; (vi) an adviser, confirmer or other nominated person seeking to be reimbursed, indemnified or compensated; (vii) any third party seeking to enforce the rights of an applicant, beneficiary, nominated person, transferee, assignee of letter of credit proceeds or holder of an instrument or document; (viii) the fraud, forgery or illegal action of parties other than the Indemnified Person; (ix) the enforcement of this Agreement or any rights or remedies under or in connection with this Agreement or any Credit; (x) the Bank’s performance of the obligations of a confirming institution or entity that wrongfully dishonors a confirmation; (xi) Bank dishonoring any presentation upon or during the continuance of any Event of Default or for which Applicant is unable or unwilling to make any payment to Bank required under paragraph 2 above; (xii) the acts or omissions, whether rightful or wrongful, of any present or future de jure or de facto governmental or regulatory authority or cause or event beyond the control of such Indemnified Person; in each case, including that resulting from Bank’s own negligence, provided , however , that such indemnity shall not be available to any Person claiming indemnification under (i) through (xii) above to the extent that such Costs are found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted directly from the gross negligence or willful misconduct of the Indemnified Person claiming indemnity. If and to the extent that the obligations of Applicant under this paragraph are unenforceable for any reason, Applicant shall make the maximum contribution to the Costs permissible under applicable law.

(b) The liability of Bank (or any other Indemnified Person) under, in connection with and/or arising out of this Agreement or any Credit (or any pre-advice), regardless of the form or legal grounds of the action or proceeding, shall be limited to any direct damages suffered by Applicant that are caused directly by Bank’s gross negligence or willful misconduct in (i) honoring a presentation that does not at least substantially comply with a Credit, (ii) failing to honor a presentation that strictly complies with a Credit or (iii) retaining Drawing Documents presented under a Credit. In no event shall Bank be deemed to have failed to act with due diligence or reasonable care if Bank’s conduct is in accordance with Standard Letter of Credit Practice or in accordance with this Agreement, including paragraph 4(d) below. Applicant’s aggregate remedies against Bank and any Indemnified Person for wrongfully honoring a presentation under any Credit or wrongfully retaining honored Drawing Documents shall in no event exceed the aggregate amount paid by Applicant to Bank in respect of the honored presentation in respect of such Credit under paragraph 2 above, plus interest. Notwithstanding anything to the contrary herein, Bank and the other Indemnified Persons shall not, under any circumstances

 

4


whatsoever, be liable for any punitive, consequential, indirect or special damages or losses regardless of whether Bank or any Indemnified Person shall have been advised of the possibility thereof or of the form of action in which such damages or losses may be claimed. Applicant shall take action to avoid and mitigate the amount of any damages claimed against Bank or any Indemnified Person, including by enforcing its rights in the underlying transaction. Any claim by Applicant for damages under or in connection with this Agreement or any Credit shall be reduced by an amount equal to the sum of (i) the amount saved by Applicant as a result of the breach or alleged wrongful conduct and (ii) the amount of the loss that would have been avoided had Applicant mitigated damages. If a Credit is to be governed by a law other than that of the State of New York, Bank shall not be liable for any Costs resulting from any act or omission by Bank in accord with the UCP or the ISP, as applicable, and Applicant shall indemnify Bank for all such Costs. “Standard Letter of Credit Practice” means, for Bank, any domestic or foreign law or letter of credit practices applicable in the city in which Bank issued the applicable Credit or for its branch or correspondent, such laws and practices applicable in the city in which it has advised, confirmed or negotiated such Credit, as the case may be. Such practices shall be (i) of banks that regularly issue Credits in the particular city and (ii) required or permitted under the UCP or the ISP, as chosen in the applicable Credit. “ISP” means, International Standby Practices 1998 (International Chamber of Commerce Publication No. 590) and any subsequent revision thereof adhered to by Bank on the date such Credit is issued. “UCP” means, Uniform Customs and Practice for Documentary Credits 2007 Revision, International Chamber of Commerce Publication No. 600 and any subsequent revision thereof adhered to by Bank on the date such Credit is issued.

(c) Without limiting any other provision of this Agreement, Bank and each other Indemnified Person (if applicable), shall not be responsible to Applicant for, and Bank’s rights and remedies against Applicant and Applicant’s obligation to reimburse the Bank shall not be impaired by: (i) honor of a presentation under any Credit which on its face substantially complies with the terms of such Credit; (ii) honor of a presentation of any Drawing Documents which appear on their face to have been signed, presented or issued (X) by any purported successor or transferee of any beneficiary or other party required to sign, present or issue the Drawing Documents or (Y) under a new name of the beneficiary; (iii) acceptance as a draft of any written or electronic demand or request for payment under a Credit, even if nonnegotiable or not in the form of a draft, and may disregard any requirement that such draft, demand or request bear any or adequate reference to the Credit; (iv) the identity or authority of any presenter or signer of any Drawing Document or the form, accuracy, genuineness, or legal effect of any presentation under any Credit or of any Drawing Documents; (v) disregard of any non-documentary conditions stated in any Credit; (vi) acting upon any Instruction which it, in Good Faith, believes to have been given by a Person or entity authorized to give such Instruction; (vii) any errors, omissions, interruptions or delays in transmission or delivery of any message, advice or document (regardless of how sent or transmitted) or for errors in interpretation of technical terms or in translation; (viii) any delay in giving or failing to give any notice; (ix) any acts, omissions or fraud by, or the solvency of, any beneficiary, any nominated Person or any other Person; (x) any breach of contract between the beneficiary and Applicant or any of the parties to the underlying transaction; (xi) assertion or waiver of any provision of the UCP or ISP which primarily benefits an issuer of a letter of credit, including, any requirement that any Drawing Document be presented to it at a particular hour or place; (xii) payment to any paying or negotiating bank (designated or permitted by the terms of the applicable Credit) claiming that it rightfully honored or is entitled to reimbursement or indemnity under the Standard Letter of Credit Practice applicable to it; (xiii) dishonor of any presentation upon or during any Event of Default or for which Applicant is unable or unwilling to reimburse or indemnify Bank ( provided that Applicant acknowledges that if Bank shall later be required to honor the presentation, Applicant shall be liable therefore in accordance with paragraph 2 hereof); and (xiv) acting or failing to act as required or permitted under Standard Letter of Credit Practice (or in the case of other independent undertakings or guarantees, the UN Convention) applicable to where it has issued, confirmed, advised or negotiated such Credit, as the case may be. “Good Faith” means honesty in fact in the conduct of the transaction concerned. “UN Convention” means the United Nations Convention on Independent Guarantees and Standby Letters of Credit.

(d) Applicant shall notify Bank of (i) any noncompliance with any Instruction, any other irregularity with respect to the text of any Credit or any amendment thereto or any claim of an unauthorized, fraudulent or otherwise improper Instruction, within one (1) Business Day of Applicant’s receipt of a copy of such Credit or amendment and (ii) any objection Applicant may have to Bank’s honor or dishonor of any presentation under any Credit or any other action or inaction taken or proposed to be taken by Bank under or in connection with this Agreement or any Credit, within three (3) Business Days after Applicant receives notice of the objectionable action or inaction. The failure to so notify the Bank within said times shall discharge Bank from any loss or liability that Bank could have avoided or mitigated had it received such notice, to the extent that Bank could be held liable for damages hereunder; provided , that, if Applicant shall not provide such notice to Bank within three (3) Business Days of the date of receipt in the case of clause (i) or ten (10) Business Days from the date of receipt in the case of clause (ii), Bank shall have no liability whatsoever for such noncompliance, irregularity, action or inaction and Applicant shall be precluded from raising such noncompliance, irregularity or objection as a defense or claim against Bank. Applicant’s acceptance or retention of a Drawing Document presented under or in connection with any Credit (whether or not the document is genuine) or of any Released Merchandise shall ratify Bank’s honor of the presentation and preclude Applicant from raising a defense, set-off or claim with respect to Bank’s honor of such Credit. Bank shall not be required to seek any waiver of discrepancies from Applicant or to grant any waiver of discrepancies which Applicant approves or requests. “Released Merchandise” means all Property referred to in or relating to the applicable Credit, released (including pursuant to a forwarders cargo receipt or by any other means whatsoever) or consigned to Applicant or any Person designated by Applicant in connection with such Credit. “Property” means all property of any kind whatsoever (now existing or hereafter acquired)

 

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including, without limitation, any and all right, title and interest of Applicant in any goods, equipment, inventory, money, documents, letters of credit, warehouse receipts, instruments, securities, security entitlements, financial assets, investment property, precious and base metals, chattel paper, electronic chattel paper, accounts, commercial tort claims, deposit accounts, general intangibles (including any claims for breach of contract, breach of warranty claims and any insurance policies and proceeds), letter of credit rights, choses in action and the proceeds of any and all thereof (including any and all of the aforesaid referred to in any Credit or the Drawing Documents relating thereto).

(e) Applicant will (i) comply with all foreign and domestic laws, rules and regulations (including the USA Patriot Act, foreign exchange control regulations, foreign asset control regulations and other trade-related regulations) now or hereafter applicable to each Credit, the transactions underlying such Credit or Applicant’s execution, delivery and performance of this Agreement, (ii) cause all Released Merchandise to be insured against theft, fire and such other risks usually insured against in connection with the underlying transaction; (iii) permit Bank (or its representatives) to inspect and audit any Property and Applicant’s books and records with respect thereto upon reasonable notice; and (iv) to the extent not provided to Bank under other agreements, upon request, furnish Bank with Applicant’s most recent year-end, quarterly and monthly (if any), financial statements (as audited) and such other information as Bank shall reasonably request regarding the financial condition, business or operations of Applicant. Further, the undersigned acknowledges and agrees to provide the Bank additional information, records, and documentation as requested by Bank, pursuant to the Bank’s programs enacted to comply with Section 326 of the USA Patriot Act, the applicable regulations promulgated thereunder, and the Bank’s Customer Identification Program and authorizes Bank to verify information as per the USA Patriot Act Regulation.

(f) Applicant acknowledges that this Agreement and each Credit is entered into (or will be entered into) for commercial purposes. To the extent that Applicant may now or hereafter be entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement or any Credit, to claim for itself or its revenues or properties any immunity from the jurisdiction of any court or from legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and to the extent that in any such jurisdiction there may be attributed to the Applicant any such immunity (whether or not claimed), Applicant hereby irrevocably agrees not to claim, and hereby waives, such immunity in respect of its obligations under this Agreement or any Credit.

5. Representations and Warranties. Applicant hereby represents and warrants as of the date of this Agreement (and with each Instruction for the issuance of a Credit represents and warrants as of the date of the Instruction) that: (a) it has all necessary power and authority to enter into and perform this Agreement; (b) it has obtained all authorizations, consents and approvals required for it to enter into and perform this Agreement in accordance with its terms; (c) this Agreement constitutes the legal, valid and binding obligation of Applicant, enforceable against it in accordance with its terms; (d) the execution, delivery and performance of this Agreement by Applicant does not and will not contravene (i) its charter, by-laws or other organizational documents, (ii) any order or writ binding on or affecting Applicant or its properties, or (iii) any agreement or arrangement to which Applicant is a party or by which it or its properties may otherwise be bound, the contravention of which agreement or arrangement would have a material adverse effect on Applicant; (e) the financial statements most recently furnished to Bank by Applicant fairly present the financial condition of Applicant in accordance with generally accepted accounting principles, and there has been no material adverse change in Applicant’s business, condition (financial or otherwise) or results of operation since the date of Applicant’s most recent annual financial statements; (f) no information now or hereafter furnished by Applicant to Bank in connection with this Agreement or any Credit is or shall be materially false or misleading when furnished; (g) there is no pending or threatened action which may materially adversely affect its financial condition or business or which purports to affect the validity or enforceability of this Agreement, any Credit or any transaction related to any Credit; and (h) Applicant is acting for itself and for no other Person or entity in requesting issuance of each Credit.

6. Pledge and Assignment of Security. (a) As security for the payment and performance of all obligations and liabilities of Applicant to Bank in respect of any and all Credits issued hereunder (if any) and under this Agreement, whether matured or unmatured, absolute or contingent, now existing or hereafter incurred ( “Obligations” ), Applicant hereby grants to Bank a continuing lien and security interest in, and pledges and assigns to Bank all of Applicant’s present and future right, title and interest in, to and under all of the following property (whether now existing or hereafter created or acquired): (i) the balance of all deposit accounts and all securities accounts with any office of Bank wherever located, (“Deposit Accounts” and “Securities Accounts”, as the case may be), and any other claims of Applicant against Bank; (ii) all Property which has been or at any time shall be delivered to or otherwise come into the possession, custody or control of any office of Bank or any correspondent (which shall be deemed a collateral agent or a bailee of Bank for the purpose of perfecting a security interest in the Property) for any purpose, whether or not for the express purpose of being used by any such entity as collateral security or for safekeeping, custody, pledge, transmission or otherwise; (iii) all Property received or receivable by Bank or its correspondents under or in connection with each Credit; (iv) all Property received or receivable by Applicant in connection with the transaction underlying each Credit; (v) all present and future claims and rights of Applicant against any beneficiary of any Credit arising in connection with such Credit or the transaction underlying such Credit; and (vi) all products and proceeds of the foregoing (collectively, the “Collateral” ) .

 

6


(b) Applicant shall hold all payments of the Obligations and all proceeds of Collateral in trust for Bank. Bank shall be deemed to have possession, custody or control of all Collateral actually in transit to or set apart for it (or any of its agents, correspondents or others acting in its behalf), it being understood that the receipt at any time by Applicant (or any of its agents, correspondents, or others acting in its behalf), of Collateral of whatever nature, including cash, shall not be deemed a waiver of any of Bank’s rights or powers.

(c) If at any time there shall occur and be continuing (i) any Event of Default, (ii) any material adverse change in the condition (financial or otherwise), business, operations or prospects of Applicant or any Person that has guaranteed or provided credit support for all or part of the Obligations ( “Guarantor” ), (iii) any action for a temporary restraining order, preliminary or permanent injunction, beneficiary wrongful dishonor action or the issuance or commencement of any similar order, action or event in connection with any Credit or any Drawing Document or this Agreement, which order, action or event may apply, directly or indirectly, to Bank or which otherwise threatens to extend or increase Bank’s contingent liability beyond the time, amount or other limit provided in such Credit or this Agreement; or (iv) any other event or condition which provides a basis for Bank in good faith to deem itself insecure, then, Applicant shall, upon Bank’s demand, deliver to Bank, as additional security for the Obligations, cash in an amount required by Bank.

(d) Bank is authorized to file financing statements, naming Applicant as debtor and Bank as secured party, with respect to any or all of the Collateral hereunder. Bank is authorized to take any action necessary to protect its rights in the Collateral. Applicant will, at its own expense upon request by Bank from time to time, sign any other instrument or document (including any security agreement, or control agreement) and take any other action Bank may reasonably deem necessary or desirable to preserve, perfect, protect or maintain the Collateral and the priority of Bank’s security interest therein and to realize upon Bank’s rights and remedies as a secured party. For the avoidance of doubt and not in limitation of the rights of Bank under Sections 9-104(a)(1), 9-106(a) and 8-106(e) of the Code as adopted by the State of New York, Applicant and Bank (acting as a bank with respect to all Deposit Accounts and as a securities intermediary with respect to all Securities Accounts) agree that Bank may direct disposition of the funds in any Deposit Account and may issue and follow its own entitlement orders with respect to any Securities Account, in either case without the consent of Applicant.

(e) To the extent Bank honors a presentation for which Bank remains unpaid, Bank may assert rights of Applicant and Applicant shall cooperate with Bank in its assertion of Applicant’s rights against the beneficiary, the beneficiary’s rights against Applicant and any other rights that Bank may have by subordination, subrogation, reimbursement, indemnity or assignment.

(f) If Bank shall agree to honor (accept) Drawing Documents under a Credit on a time draft or deferred payment basis, Applicant shall not take possession of the Drawing Documents or the underlying Property except for the purpose of loading, unloading, storing, shipping, transshipping, manufacturing, processing or otherwise dealing with such Property in a manner preliminary to its sale or exchange. An Instruction to release any such Drawing Document or Property shall be deemed a representation by Applicant to Bank that Applicant seeks such release for one of said purposes. In each such case, Applicant immediately shall apply the sale proceeds of such Property to the Obligations relating to the applicable Credit.

7. Events of Default; Obligations Due; Remedies. (a) Each of the following shall be an “Event of Default” under this Agreement: (i) Applicant shall fail to pay any sum payable upon or in respect of any of the Obligations when due; (ii) Applicant shall fail to perform any agreement contained herein; (iii) Applicant or any Guarantor shall fail to pay any taxes when due and such taxes shall not be contested in good faith or the amount thereof reserved for in accordance with GAAP; (iv) there shall be commenced against Applicant or any Guarantor any proceeding for enforcement of a money judgment, which proceeding shall not have been stayed within ten (10) Business Days; (v) any statement made, or any information, report or Instruction furnished by or for Applicant to Bank contains any misstatement of a material fact or omits to state a material fact or any fact necessary to make any statement contained therein not materially misleading; (vi) the dissolution, termination or, if an individual, death of Applicant or a Guarantor; (vii) any indebtedness, obligation and/or liability of Applicant or a Guarantor to any Person, including but not limited to Bank, shall not be paid or performed when due or any event or condition shall occur that shall result in any indebtedness, obligation or liability becoming due prior to its scheduled maturity or settlement date or permits (with or without the giving of notice, the lapse of time or both) the holder of such indebtedness or obligee to cause such indebtedness, obligation or liability to become due, or to require the prepayment, repurchase, redemption or defeasance thereof prior to its scheduled maturity or settlement date; (viii) any Person shall contest the validity or enforceability of any guaranty supporting the Obligations; (ix) Applicant or any Guarantor shall become insolvent (however such insolvency may be evidenced or defined) or generally not be able to pay its debts as they become due, shall make a general assignment for the benefit of creditors, or shall suspend the transaction of its usual business or be expelled or suspended from any exchange, or if an application is made by any judgment creditor of Applicant or a Guarantor for any order directing Bank to pay over money or to deliver other property, or a petition in bankruptcy shall be filed by or against Applicant or a Guarantor or any proceeding shall be instituted by or against Applicant or a Guarantor for any relief under any bankruptcy or insolvency laws or any law relating to the relief of debtors, readjustment of indebtedness, reorganization, composition or extensions or if any governmental authority or any court at the instance of any governmental authority shall take possession of any substantial part of the property of Applicant or any Guarantor or shall assume control over the affairs or operations of Applicant or any Guarantor, or if a receiver or

 

7


custodian shall be appointed for, or a writ or order of attachment or garnishment shall be issued or made against, any of the property or assets of Applicant or a Guarantor or Applicant or a Guarantor shall indicate that any of the foregoing has occurred or will occur; or (x) there shall occur in one or a series of transactions (A) the sale or transfer of, or the creation or assertion of a lien over, a substantial portion of the assets of Applicant or of any Guarantor, (B) any transaction or event which results in the reduction in shareholder’s equity (or partnership capital, net worth or similar equivalent term) of the Applicant or any Guarantor of 50% or more (measured against such equity as of the date hereof), (C) an acquisition, directly or indirectly, of the power to direct or cause the direction of the management or policies of Applicant (or any Guarantor), whether by means of contract, voting power or otherwise, or (D) the merger or consolidation of Applicant or any Guarantor.

(b) Upon an Event of Default, all of the Obligations shall be immediately due and payable without notice or demand (whether or not a drawing or claim had in fact been made or paid) and Bank may, in addition to all other rights and remedies it may have at law or in equity, (i) exercise any remedies of a secured party under applicable law, including under the Code, (ii) charge, debit and/or set-off against any general or special account of Applicant maintained at any office of Bank (whether matured or unmatured) for the amount of the Obligations, (iii) amend or terminate, or transfer drawing rights or cure one or more discrepancies under, any Credit, and/or (iv) make payment in satisfaction of the Obligations or hold all amounts, proceeds and Collateral as security for each Credit. Upon an Event of Default, Applicant shall assemble all Collateral and make it available to Bank at a place designated by Bank which is reasonably convenient to Bank and Applicant, and Bank shall be authorized to liquidate or sell immediately, without demand for payment, advertisement or notice to Applicant, all of which are hereby expressly waived (except such notice as is required by applicable law and cannot be waived, in which event such notice shall be deemed proper if mailed at least five Business Days before disposition or other action) any and all Collateral (whether received pursuant to paragraph 6(c) hereof or otherwise) at private sale or at public auction or at brokers’ board or upon any exchange or otherwise, at Bank’s option, in such parcels and at such time and at such place and at such price and upon such terms and conditions as Bank may deem proper, and to apply the net proceeds of such sale or sales, together with any balance of deposits and any sums credited by or due from Bank to Applicant in general account or otherwise, to the payment of any and all of the Obligations, all without prejudice to the rights of Bank against Applicant with respect to any and all amounts which may be or remain unpaid and if any such sale be at broker’s board or public auction or upon any exchange Bank may itself be a purchaser at such sale, free from any right of redemption, which Applicant hereby expressly waives and releases.

8. Continuing Rights and Obligations. Bank’s rights and liens hereunder shall continue unimpaired, and Applicant shall be and remain obligated in accordance with the terms and provisions hereof, notwithstanding the release and/or substitution of any Property which may be held as security hereunder at any time, or of any rights or interest therein. Applicant waives any defense whatsoever which might constitute a defense available to, or discharge of, a surety or a guarantor. If more than one Person signs this Agreement or an Application hereunder, each of them shall be jointly and severally liable hereunder and thereunder and all the terms and provisions regarding liabilities, obligations and Property of such Persons shall apply to any liabilities, obligations and Property of any and all of them.

9. Electronic Transmissions. Bank is authorized to accept and process any Application and any amendments, transfers, assignments of proceeds, Instructions, consents, waivers and all documents relating to the Credit or the Application which are sent to Bank by electronic transmission, including SWIFT, electronic mail, telex, telecopy, telefax, courier, mail or other computer generated telecommunications and such electronic communication shall have the same legal effect as if written and shall be binding upon and enforceable against the Applicant. Bank may, but shall not be obligated to, require authentication of such electronic transmission or that Bank receives original documents prior to acting on such electronic transmission. If it is a condition of the Credit that payment may be made upon receipt by Bank of an electronic transmission advising negotiation, Applicant hereby agrees to reimburse Bank on demand for the amount indicated in such electronic transmission advice, and further agrees to hold Bank harmless if the documents fail to arrive, or if, upon the arrival of the documents, Bank should determine that the documents do not comply with the terms and conditions of the Credit.

10. Jurisdiction; Waiver of Jury Trial. (a) Applicant submits to the nonexclusive jurisdiction of any state or federal court located in the Borough of Manhattan, City of New York, State of New York, for itself and its Property and agrees that any such court shall be a proper forum for any action or suit brought by Bank. Service of process in any legal action or proceeding arising out of or in connection with this Agreement, any Instruction or any Credit may be made upon Applicant by mailing a copy of the summons to Applicant either at the address set forth in the applicable Application or at Applicant’s last address appearing in Bank’s records. In addition, if Applicant is organized or incorporated in a jurisdiction outside the United States of America, Applicant designates the CT Corporation located at 111 8th Avenue, New York, New York 10011 as the true and lawful agent and attorney-in-fact of Applicant for receipt of the summons, writs and notices in connection with any such action or suit.

(b) No legal action or proceeding arising out of or in connection with this Agreement, any Instruction or any Credit may be brought by Applicant against Bank (i) except in a state or federal court located in the Borough of Manhattan, City of New York, State of New York and (ii) unless commenced within one (1) year after (X) the expiration date of the applicable Credit or (Y) the alleged breach shall have purportedly occurred, whichever is earlier.

 

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(c) APPLICANT WAIVES (I) THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION OR PROCEEDING IN WHICH BANK AND APPLICANT ARE PARTIES (WHETHER OR NOT THE ONLY PARTIES) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY INSTRUCTION OR ANY CREDIT AND (II) THE RIGHT TO INTERPOSE ANY CLAIM, SETOFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION.

11. Applicable Law; Severability. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflict of laws. The UCP and the ISP are incorporated by reference into this Agreement and are evidence of Standard Letter of Credit Practice with respect to matters covered therein provided , however , that to the extent permitted by applicable law, this Agreement shall prevail in case of a conflict between this Agreement, the Uniform Commercial Code (the “Code”), and/or Standard Letter of Credit Practice and the UCP shall prevail in case of conflict between the UCP and the Code or other Standard Letter of Credit Practice if the Credit is a standby Credit governed by the UCP, and the ISP shall prevail in case of a conflict between the ISP and the Code and other Standard Letter of Credit Practice if the Credit is a standby Credit governed by the ISP. Any provisions of this Agreement which may be determined by competent authority to be 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. To the extent permitted by applicable law, Applicant hereby waives any provision of law, which prohibits or renders unenforceable any provision of this Agreement.

12. No Third Party Benefits; Successor; Assignment; Integration; Delivery by Facsimile; Notices. This Agreement shall be binding upon and inure to the benefit of Bank and Applicant and their respective successors and permitted assigns. This Agreement shall not confer any right or benefit upon any Person other than the parties to this Agreement, the Indemnified Persons and their respective successors and permitted assigns. Bank may assign or sell participations in all or any part of any Credit or this Agreement to another entity and Bank may disseminate credit information relating to the Applicant in connection with any proposed participation. Applicant may not assign this Agreement without the prior written consent of Bank. This Agreement may be signed and delivered by facsimile transmission. Notices to Bank shall be sent to the address of Bank as set forth on the Credit and shall be delivered by hand, overnight courier or certified mail, return receipt requested. Notices to Applicant shall be sent to the address set forth below the signature line hereto. THIS AGREEMENT CONSTITUTES THE ENTIRE CONTRACT AND FINAL AGREEMENT AMONG THE PARTIES RELATING TO THE SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

13. Continuing Agreement. This Agreement is a continuing agreement and may not be terminated by Applicant except upon (i) thirty (30) days’ prior written notice of such termination by Applicant to Bank at the address of Bank set forth on the most recent Credit issued hereunder, (ii) payment of all Obligations and (iii) the expiration or cancellation of all Credits issued hereunder. Notwithstanding the foregoing sentence, if a Credit is issued in favor of a sovereign or commercial entity, which is to issue a guarantee or undertaking on Applicant’s behalf in connection therewith, or is issued as support for such a guarantee, the Applicant shall remain liable with respect to such Credit until Bank is fully released in writing by such entity.

14. Limitation of Interest and Other Charges. Applicant and Bank intend to conform strictly to the applicable usury laws, if any, now or hereafter in force with respect to this Agreement. To such end: the aggregate of all interest and other charges constituting interest under such applicable usury laws and contracted for, chargeable or receivable under this Agreement shall never exceed the maximum amount of interest, nor produce a rate in excess of the maximum contract rate of interest, that Bank is authorized to charge Applicant under such applicable usury laws.

15. MISCELLANEOUS.

Installments. If the Credit is issued subject to UCP 500 or 600, unless otherwise agreed, in the event that any installment of the Credit is not drawn within the period allowed for that installment, the Credit may continue to be available for any subsequent installments in the sole discretion of the Bank, notwithstanding Article 41 of UCP 500 or Article 32 of UCP 600.

Auto Extend Notice. If the Credit provides for automatic extension without amendment, Applicant agrees that it will notify Bank in writing at least sixty (60) days prior to the last day specified in the Credit by which Bank must give notice of nonextension as to whether or not it wishes the Credit to be extended. Any decision to extend or not extend the Credit shall be in Bank’s sole discretion and judgment. Applicant hereby acknowledges that in the event Bank notifies the beneficiary of the Credit that it has elected not to extend the Credit and the beneficiary draws on the Credit after receiving the notice of non-extension, Applicant acknowledges and agrees that Applicant shall have no claim or cause of action against Bank or defense against payment under the agreement for Bank’s discretionary decision to extend or not extend the Credit.

Pending Expiry Notice. If a Credit’s terms and conditions provide that Bank give beneficiary a notice of pending expiration, Applicant agrees that it will notify Bank in writing at least sixty (60) days prior to the last day specified in the Credit by which Bank must give such notice of the pending expiration date. In the event Applicant fails to so notify Bank and the Credit is extended, Applicant’s Obligations under this Agreement shall continue in effect and be binding on Applicant with regard to the Credit as so extended.

 

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THE UNDERSIGNED HEREBY AGREES TO ALL THE TERMS AND CONDITIONS SET FORTH HEREIN, ALL OF WHICH HAVE BEEN READ AND UNDERSTOOD BY THE UNDERSIGNED.

 

 

 

(Applicant/Obligor)

 

 

(Authorized Signature/Title)

 

 

(Phone)

 

 

(Fax)

 

 

(Date)

 

Without limiting the terms above, you are authorized to debit our account no.

with JPMorgan Chase Bank, N.A. for the amount of each drawing and/or your commissions and charges.

THE FOLLOWING IS TO BE EXECUTED IF THE CREDIT IS TO BE ISSUED FOR THE ACCOUNT OF A PERSON OTHER THAN THE PERSON SIGNING ABOVE:

AUTHORIZATION AND AGREEMENT OF ADDITIONAL PARTY NAMED AS ACCOUNT PARTY

To: THE ISSUER OF THE CREDIT

We join in the above Agreement, naming us as Account Party, for the issuance of the Credit and, in consideration thereof, we irrevocably agree (i) that the above Applicant has sole right to give instructions and make agreements with respect to this Application, the Agreement, the Credit and the disposition of documents, and we have no right or claim against you, any of your affiliates or subsidiaries, or any correspondent in respect of any matter arising in connection with any of the foregoing and (ii) to be bound by the Agreement and all obligations of the Applicant thereunder as if we were a party thereto. The Applicant is authorized to assign or transfer to you all or any part of any security held by the Applicant for our obligations arising in connection with this transaction and, upon any such assignment or transfer, you shall be vested with all powers and rights in respect of the security transferred or assigned to you and you may enforce your rights under this Agreement against us or our Property in accordance with the terms hereof.

 

 

 

(Account Party)

 

 

(Authorized Signature/Title)

 

 

(Phone)

 

 

(Fax)

 

 

(Date)

 

 

10


CREDIT AGREEMENT

Exhibit E

[Form of] Notice of Conversion/Continuation

Reference is made to the Credit Agreement, dated as of January [ ], 2008 (as it may be amended, supplemented or otherwise modified, the “ Credit Agreement ), by and among GLOBAL POWER EQUIPMENT GROUP INC. (the “ Borrower ”), and the other Credit Parties party thereto from time to time, as Guarantors, the Lenders party thereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger, Bookrunner and Administrative Agent, (in such capacity, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent, THE CIT GROUP/BUSINESS CREDIT INC., as Syndication Agent and Revolving Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent. Capitalized terms used but not defined herein shall have the meaning set forth in the Credit Agreement.

Pursuant to Section 3.02 of the Credit Agreement, the Borrower desires to convert or to continue the following Loans, each such conversion and/or continuation to be effective as of [mm/dd/yy] :

 

Revolving Loans   

$[      ,      ,      ]

   LIBOR Rate Loans to be continued with LIBOR Period of      month(s)

$ [      ,      ,      ]

   Alternate Base Rate Loans to be converted to LIBOR Rate Loans with LIBOR Period of      month(s)

$ [      ,      ,      ]

   LIBOR Rate Loans to be converted to Alternate Base Rate Loans
Term Loans   

$[      ,      ,      ]

   LIBOR Rate Loans to be continued with LIBOR Period of      month(s)

$ [      ,      ,      ]

   Alternate Base Rate Loans to be converted to LIBOR Rate Loans with LIBOR Period of      month(s)

$ [      ,      ,      ]

   LIBOR Rate Loans to be converted to Alternate Base Rate Loans

Borrower hereby certifies that as of the date hereof, no event has occurred and is continuing that would constitute an Event of Default or a Default.

 

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Date: [mm/dd/yy]     GLOBAL POWER EQUIPMENT GROUP INC.
    By:  

 

    Title:  

 

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CREDIT AGREEMENT

Exhibit F-1

[Form of] Opinion of Counsel to the Borrower

 


January      , 2008

 

  To: The Administrative Agent and the Lenders each as defined in that certain Credit Agreement, dated as of January 22, 2008, among Global Power Equipment Group Inc., a Delaware corporation (the “ Company ”), certain Subsidiaries of the Company, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as Administrative Agent and Syndication Agent, Morgan Stanley & Co. Incorporated, as Collateral Agent, The CIT Group/Business Credit Inc. as Revolving Agent and General Electric Capital Corporation as Documentation Agent (the “ Credit Agreement ”) and each of their respective successors, assigns and transferees.

Ladies and Gentlemen:

We have acted as special New York counsel to each of the Company, Deltak, L.L.C., a Delaware limited liability company (“ Deltak ”), Braden Manufacturing, L.L.C., a Delaware limited liability company (“ Braden ”), Global Power Professional Services, L.L.C., a Delaware limited liability company (“ Professional Services ”), Williams Industrial Services Group, L.L.C., a Delaware limited liability company (“ Williams ”), Braden Construction Services, Inc., a Delaware corporation (“ Braden Construction ” and, together with the Company, Deltak, Braden, Professional Services and Williams, the “ Delaware Opinion Parties ”), and Deltak Construction Services, Inc., a Wisconsin corporation (“ Deltak Construction ”), Williams Specialty Services, LLC, a Georgia limited liability company (“ Specialty ”), Williams Plant Services, LLC, a Georgia limited liability company (“ Plant ”), WSServices, LP, a California limited partnership (“ WS ”), Williams Industrial Services, LLC, a Georgia limited liability company (“ WIS ”, and, together with Deltak Construction, Specialty, Plant, WS and the Delaware Opinion Parties, the “ Opinion Parties ” and each an “ Opinion Party ”) in connection with the Credit Agreement. This opinion is furnished to you pursuant to Section 4.01(j)(i) of the Credit Agreement. Capitalized terms used in this opinion that are defined in the Credit Agreement are used herein as defined therein (but without regard to any amendment of any


document entered into after the date hereof). References to the “ New York UCC ” are to the Uniform Commercial Code in effect on the date hereof in the State of New York, references to the “ Delaware UCC ” are to the Uniform Commercial Code in effect on the date hereof in the State of Delaware, and the New York UCC and Delaware UCC are collectively referred to as the “ UCC ”.

In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of each document listed on Schedule A hereto (collectively, the “ Documents ” and, each a “ Document ”) and such other agreements, documents, certificates and other statements of government officials, authorized representatives of the Opinion Parties and such other documents and papers as we have deemed necessary as a basis for such opinion. For the purposes hereof, the documents listed in items 2 and 5 through 9 on Schedule A are referred to as the “ Collateral Documents ”, and the Documents listed in items 1 and 2 and 5 through 9 inclusive on Schedule A are collectively referred to as the “ New York Documents ”.

We have assumed the genuineness of all signatures, the authority of persons (other than the Delaware Opinion Parties) signing the Documents on behalf of the parties thereto, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies. We have also assumed, for purposes of the opinions expressed herein, that (a) each party (other than the Delaware Opinion Parties) to each Document has the power and authority to enter into and perform its obligations under each Document, (b) each Document has been duly authorized, executed and delivered by each party (other than the Delaware Opinion Parties) to such Document, (c) in so far as may be necessary to establish mutuality of obligation, each Document constitutes the valid and binding obligation of each party (other than, in the case of the New York Documents, the Opinion Parties) thereto, enforceable against such party in accordance with its terms, (d) the execution, delivery and performance of the Documents by the parties thereto does not violate any laws or any agreement by which any party to such Documents is bound (except that this assumption is not made with respect to the Opinion Parties as to the Applicable Laws (as defined below)), and (e) there are no other arrangements between any of the parties to the Documents that modify or supersede any of the terms of the Documents (other than the letter agreement entered into between the Company and General Electric Capital Corporation as of the Closing Date).

We have also assumed that the construction and interpretation of the terms of, and the enforceability of, each such limited liability company agreement under Delaware contract law is the same as it would be under New York law in all respects material to legal conclusions expressed herein.

Based upon the foregoing, and subject to the conditions, assumptions and qualifications set forth herein, we are of the opinion that:

1. Each of the Delaware Opinion Parties is a corporation or limited liability company, as applicable, validly existing and in good standing under the laws of the State of Delaware and has the requisite power to perform its obligations under each Document to which it is a party.

 

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2. The execution, delivery and performance by each Delaware Opinion Party of the Documents to which it is party, and the granting of the security interest provided for in the Collateral Documents to which it is a party, have been duly authorized and approved by all necessary corporate or limited liability company, as applicable, action on the part of such Delaware Opinion Party, and the Documents have been duly executed and delivered by each such Delaware Opinion Party.

3. None of the execution, delivery or performance by any of the Opinion Parties of the Documents to which such Opinion Party is party, nor the granting of the security interest provided for in the Collateral Documents to which such Opinion Party is a party, contravenes any provision of (x) any New York State or Federal law, statute, rule or regulation (including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System) which in our experience are normally applicable to transactions of the type contemplated by the Documents or (y) in the case of the Delaware Opinion Parties only, the Delaware General Corporation Law (the “ DGCL ”) or the Delaware Limited Liability Company Act (the “ DLLCA ”), as applicable, (collectively, the laws referred to in clauses (x) and (y) above, the “ Applicable Laws ”).

4. The execution, delivery and performance by each Delaware Opinion Party of the Documents to which such Delaware Opinion Party is a party, and the granting of the security interest provided for in the Collateral Documents to which such Delaware Opinion Party is a party, does not and will not violate any provision of the certificate of incorporation, articles of organization, by-laws, certificate of formation or limited liability company agreement, as applicable, of such Delaware Opinion Party.

5. No order, consent, approval, license, authorization or validation of or filing, recording or registration with, or exemption by, any New York, Delaware or Federal governmental or public body or authority under any Applicable Law, is required to authorize, or is required in connection with, (i) the execution, delivery and performance by any Opinion Party of any Document or the granting of any security interest provided for in the Collateral Documents to which it is a party or (ii) the legality, validity, binding effect or enforceability against any Opinion Party of any such Document, except as have been obtained or made on or prior to the date hereof and for such filings as may be required for the perfection of security interests granted pursuant to the Collateral Documents.

6. Each New York Document is the valid and binding obligation of each Opinion Party party thereto, enforceable against such Opinion Party in accordance with its respective terms.

7. Each of the Collateral Documents creates a valid security interest in favor of the Collateral Agent for the benefit of the Secured Parties, in that portion of the collateral described in such Collateral Document which is subject to Article 9 of the New York UCC (“ Article 9 Collateral ”), as security, to the extent set forth in such Collateral Document, for the payment and performance of the Obligations described in the Credit Agreement.

8. To the extent any of the Article 9 Collateral constitutes “certificated securities” (as defined in Article 8 of the New York UCC or the Delaware UCC) or “instruments” (as defined in Article 9 of the New York UCC or the Delaware UCC), the Agent

 

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will have a perfected security interest in such certificated securities or instruments under the New York UCC, in favor of the Agent for the benefit of the Secured Parties upon delivery in the State of New York to the Agent (and for so long as such certificated securities or instruments are held in the State of New York by the Agent), for the benefit of the Secured Parties, of the certificates representing such certificated securities or instruments, in each case endorsed by an effective endorsement or accompanied by undated stock powers duly endorsed in blank. The portion of the Collateral consisting of limited liability interests in an Opinion Party are “general intangibles” as defined in the Delaware UCC and may be perfected by the filing of a financing statement in Delaware so long as the member that owns such interest is organized in Delaware.

9. We have reviewed the financing statements attached hereto as Exhibit A (the “ Financing Statements ”) which will be filed with the Secretary of State of the State of Delaware (the “ Filing Office ”) against the Delaware Opinion Parties party to the Collateral Documents and, upon the due filing of such Financing Statements in the Filing Office, the security interest created by each such Delaware Opinion Party pursuant to each such Collateral Document in the collateral described therein that is subject to Article 9 of the New York UCC will constitute a perfected security interest in such collateral to the extent that such collateral consists of the type of property in which a security interest may be perfected by filing a financing statement under Article 9 of the Delaware UCC and such security interest has attached.

10. Assuming the truth and accuracy of the factual representations of the Opinion Parties in the Collateral Documents we are aware of no additional actions to be taken in order to create and perfect a security interest in favor of the Collateral Agent for the benefit of the secured creditors under the respective Collateral Documents, to the extent that the Federal laws of the United States of America are applicable to the creation or perfection of such interest, in (a) those Trademarks (as defined in the Security Agreement and described in Schedule A of the Trademark Security Agreement) which have been registered by, or for which an application for registration has been filed with the United States Patent and Trademark Office (the “ USPTO ”), and (b) those Patents (as defined in the Security Agreement and described on Schedule A of the Patent Security Agreement) which have been issued by, or for which an application has been filed with the USPTO, such Trademarks and Patents upon proper recordation of the Trademark Security Agreement and the Patent Security Agreement (including the Schedules thereto) within three months of the date hereof in the USPTO. However, we express no opinion as to the sufficiency of the foregoing actions to create and perfect security interests in such Trademarks and Patents, to the extent Federal law is inapplicable to the creation or perfection of security interests therein. In addition, we express no opinion as to whether Federal law or the laws of the state in which the Filing Office is located govern the validity or perfection of such security interests.

11. No Opinion Party is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

The opinions contained herein are subject to the following additional limitations, qualifications, exceptions and assumptions:

(a) Our opinions expressed in paragraph 6 herein are subject to (i) all applicable bankruptcy, insolvency, conservatorship, receivership, fraudulent transfer, moratorium and other laws affecting the enforcement of creditors’ rights generally and

 

F-4


(ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), including, without limitation, (x) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (y) concepts of materiality, reasonableness, good faith and fair dealing.

(b) We wish to point out that there may be limitations upon the exercise of remedial or procedural provisions contained in the Documents, but we believe that such limitations do not (subject to the other qualifications set forth herein) make the rights and remedies provided in or contemplated by each Document inadequate for the practical realization of the principle rights and remedies afforded thereby.

(c) With regard to our opinion set forth in paragraph 6 hereof (i) such opinion is limited to the extent that a U.S. Federal court may not give effect to (x) the waiver of any objection to the laying of venue and of any claim of forum non conveniens, (y) the forum selection provisions contained in each Document and (z) the choice of New York law to govern the New York Documents, (ii) no opinion is being expressed with respect to the subject matter jurisdiction of any United States Federal court and (iii) no opinion is being expressed as to the effectiveness of (x) any waiver (whether or not stated as such) under any New York Document of, or any consent thereunder relating to, unknown future rights or the rights of any party thereto existing, or duties owing to it, as a matter of law, to the extent that such rights cannot be waived under applicable law and (y) any waivers or variations of rights of a debtor, including a guarantor, or duties of a secured party under provisions referred to in Sections 1-102 and 9-602 of the UCC to the extent prohibited thereunder.

(d) We express no opinion as to the enforceability of (i) any indemnification, exculpation or contribution provisions in the New York Documents to the extent the rights to indemnification or contribution provided for therein are violative of any law, rule or regulation or public policy relating thereto, (ii) any requirement in the New York Documents that the provisions thereof may only be waived or amended in writing, (iii) any provisions that limit assignment or constitute a waiver of illegality or of rights and duties which cannot, as a matter of law, be effectively waived, and (iv) any provisions in the nature of liquidated damages or providing for forfeiture or recovery of, or securing, amounts deemed penalties.

(e) We wish to point out that the laws of the State of New York generally impose an obligation of good faith and reasonableness in the performance and enforcement of contracts.

(f) Except for purposes of paragraph 4 above, we express no opinion as to the enforceability of the security interest under the Collateral Documents in any item of collateral subject to any restriction on or prohibition against transfer contained in or otherwise applicable to such item or any agreement, license, permit, security, instrument or document constituting, evidencing or relating to such item, except to the extent that any such restriction or prohibition is rendered ineffective pursuant to any of Sections 9-406 through 9-409, inclusive, of the UCC.

 

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(g) Insofar as our opinion in paragraph 6 hereof relates to the choice of New York law to govern the New York Documents or the submission to the jurisdiction of the courts of the State of New York contained in the New York Documents, such opinion is limited to the laws of the State of New York and is rendered in reliance upon the Act of July 19, 1984, ch. 421, 1984 McKinney’s Sess. Law of N.Y. 1406 (codified as N.Y. Gen. Oblig. Law §§ 5-1401, 5-1402 (McKinney 2001) and N.Y. C.P.L.R. 327(b) (McKinney (2001)) (the “ Act ”) and is subject to the qualifications that the enforceability of such choice of law provisions may be limited by public policy considerations of any jurisdiction, other than the courts of the State of New York, in which enforcement of such provisions, or of a judgment upon an agreement containing such provisions, is sought as specified in the Act. The choice of New York law does not apply to the extent provided to the contrary in subsection two of Section 1-105 of the New York UCC, and the application of New York law, pursuant to the Act, to a transaction that has no contact or only insignificant contact with New York State may raise constitutional issues, although the federal courts have to date declined to rule on such issues.

(h) We express no opinion as to (1) federal or state securities laws or banking or regulations (other than to the extent provided in paragraph 6 above); (2) federal or state antitrust or unfair competition laws or regulations; (3) federal or state environmental laws or regulations; (4) federal or state tax laws or regulations; (5) federal or state public utility laws or regulations; (6) pension or employee benefit laws or regulations; (7) federal patent, copyright or trademark, state trademark, or other federal or state intellectual property laws or regulations (other than the creation and perfection of a security interest in patents, trademarks and copyrights under the UCC as set forth in paragraph 8, 9 and 10 above and under the Federal laws as set forth in paragraph 10 above); (8) federal or state health and safety laws or regulations; (9) federal or state labor laws or regulations; (10) federal or state laws, regulations or policies relating to national or local emergencies; (11) statutes, ordinances, administrative decisions, rules or regulations of counties, towns, municipalities or special political subdivisions (whether created or enabled through legislative action at the federal, state or regional level); (12) federal or state usury laws (other than New York usury laws); (13) ERISA; (14) the USA Patriot Act (Title III of Public L. 107-56) or other anti-money laundering laws and regulations; or (15) any other laws to the extent not customarily applicable to transactions of the type contemplated by the Documents.

(i) Our opinion with respect to good standing of the Delaware Opinion Parties set forth in paragraph 1 is based solely upon our review of certificates of good standing of recent date received from the Secretary of State of the State of Delaware and attached hereto as Exhibit B.

(j) We express no opinion as to the title of any Opinion Party to any property, (y) as to the validity or perfection of any security interest created under the Collateral Documents except as expressly provided in paragraphs 8 through 10 hereof or (z) the priority of any such security interest. We have assumed that each Delaware Opinion Party has rights in the portion of the collateral applicable to it and described in the Collateral Documents to which it is a party.

 

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(k) In the case of a case commenced under the Bankruptcy Code after the date hereof and collateral acquired by the Opinion Parties after the date of the commencement of such a case, Section 552 of the Bankruptcy Code limits the extent to which property acquired by a debtor after the commencement of a case under the Bankruptcy Code may be subject to a security interest arising from a security agreement entered into by the debtor before the commencement of such case.

(l) Our opinion with respect to any proceeds of collateral is subject to the limitations and requirements of Section 9-315 of the New York UCC.

(m) We express no opinion with respect to the effect of any provision of the New York Documents that is intended to establish any standard other than a standard set forth in the New York UCC as the measure of performance by any party thereto of such party’s obligations of good faith, due diligence, reasonableness or care or the fulfillment of the duties imposed on any secured party with respect to the maintenance, disposition or redemption of collateral, accounting for surplus proceeds of collateral or accepting collateral in discharge of liabilities.

(n) We express no opinion as to any security interest in securities or obligations issued by or claims against the United States government or any agency or instrumentality thereof except to the extent the UCC is applicable thereto.

(o) We further call to your attention that under the UCC, events occurring subsequent to the creation or perfection of a security interest subject to the UCC may affect such security interest or perfection, including, but not limited to factors of the type identified in Section 9-315 of the UCC with respect to proceeds; Sections 9-507 and 9-508 of the UCC with respect to the name and identity of the debtor; Section 9-339 of the UCC with respect to subordination agreements; Section 9-316 of the UCC with respect to changes in the governing law or the location of the debtor; and Sections 9-320, 9-330 and 9-331 of the UCC with respect to subsequent purchases of the collateral. In addition, actions taken by a secured party (e.g., releasing or assigning the security interest, delivery of possession of the collateral to the debtor or another person and voluntarily subordinating a security interest) may affect the validity, perfection or priority of a security interest. We assume that none of the Article 9 Collateral constitutes fixtures, timber to be cut, as-extracted collateral or a cooperative interest (as such terms are or may be defined in the UCC) and we express no opinion as to the creation or perfection of a security interest in commercial tort claims. We also call to your attention that under the UCC, with certain limited exceptions, the effectiveness of a financing statement will lapse five years after the date of filing thereof and the security interest therein will at that time become unperfected, unless a continuation statement is filed within six months prior to the end of such five-year period and within six months prior to the last day of each five year period thereafter.

(p) Our opinions in paragraphs 7, 8 and 9 hereof are limited to Articles 8 and 9 of the New York UCC (in the case of paragraphs 7, 8 and 9) or the Delaware UCC (in the case of paragraph 9 hereof), and therefore those opinion paragraphs do not address (i) laws of jurisdictions other than New York and Delaware, (ii) laws of Delaware other than Article 9 of the Delaware UCC, (iii) collateral of a type not subject to Article 9 of the

 

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New York UCC or the Delaware UCC, as the case may be, and (iv) under Article 9 of the New York UCC or the Delaware UCC, what law governs perfection of the security interests granted in the collateral covered by this opinion letter. Our opinion set forth in paragraph 9 above, to the extent pertaining to matters governed by the Delaware UCC, is based solely on our review of Article 9 of the Uniform Commercial Code of such state as set forth in the Delaware UCC Annotated 2006-2007 Edition published by Lexis Publishing, and without regard to the case law decided under the Delaware UCC or any other judicial or administrative interpretations thereof.

The opinions expressed above are limited to questions arising under the DGCL, DLLCA, Article 9 of the Delaware UCC (in each case without regard to the case law decided thereunder or any other judicial or administrative interpretation thereof), Federal law of the United States and the law of the State of New York. Insofar as Delaware contract law is relevant to an opinion set forth herein, we have assumed that such law is substantially similar to the laws of the State of New York as set forth in the fourth paragraph of this opinion. This opinion does not cover the law of any jurisdiction other than that specified in the immediately preceding sentence (collectively, the “ Other Jurisdictions ”), nor did we review codifications of the laws of Other Jurisdictions, and specifically does not cover any aspects of any Delaware contracts law. Furthermore, we express no opinion as to, and assume no responsibility for, the effect of any fact or circumstance occurring subsequent to the date of this letter, including, without limitation, legislative and other changes in the law or changes in circumstances affecting the Opinion Parties. We assume no responsibility to advise you of any such facts or circumstances of which we become aware, regardless of whether or not they affect the opinions herein. This opinion letter shall be interpreted in accordance with the customary practice of lawyers who regularly give and lawyers who on behalf of their clients regularly advise opinion recipients regarding opinions in transactions of this type.

This opinion is being delivered to you in connection with the transactions contemplated by the Documents and may not be relied on by you for any other purpose. This opinion may not be used or relied upon or published or communicated to any other person or entity for any purpose whatsoever without our prior written consent in each instance; provided that you may furnish copies of this opinion (but such recipients may not rely on this opinion) to your accountants and to bank auditors and examiners, in each case in connection with their audit and review activities, and to any person that becomes a Lender in accordance with the provisions of the Credit Agreement.

 

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CREDIT AGREEMENT

Exhibit F-2

[Form of] Opinion of Counsel to the Borrower (Georgia)

 


January      , 2008

 

To:

   The Administrative Agent and the Lenders each as defined in that certain Credit Agreement, dated as of January 18, 2008, among Global Power Equipment Group Inc., a Delaware corporation (the “ Company ”), certain Subsidiaries of the Company, the other Credit Parties from time to time thereto, the lenders from time to time party thereto, Morgan Stanley Senior Funding, Inc., as Lead Arranger, Bookrunner and Administrative Agent, Morgan Stanley & Co. Incorporated, as Collateral Agent, The CIT Group/Business Credit Inc. as Syndication Agent and Revolving Agent, and General Electric Capital Corporation as Documentation Agent (the “ Credit Agreement ”) and each of their respective successors, assigns and transferees.

Ladies and Gentlemen:

I am special counsel for Williams Specialty Services, LLC, a Georgia limited liability company (“ Specialty ”), Williams Plant Services, LLC, a Georgia limited liability company (“ Plant ”), Williams Industrial Services, LLC, a Georgia limited liability company (“ WIS ” and, together with Specialty and Plant, the “ Opinion Parties ” and, each an “ Opinion Party ”) in connection with the execution and delivery of each document listed on Schedule A hereto (collectively, the “ Documents ” and, each a “ Document ”). This opinion is delivered to you pursuant to Section 4.01(j) of the Credit Agreement. Unless otherwise defined herein, capitalized terms used herein (including Schedule A hereto) shall have the meanings set forth in the Credit Agreement.

In connection with this opinion, I have examined executed originals or copies certified to my satisfaction of each Document and such other agreements, documents, certificates and other statements of government officials and corporate officers of each Opinion Party, and such other documents and papers as I have deemed necessary or appropriate as a basis for this opinion. As to questions of fact relevant to this opinion, I have relied upon certificates of officers and representatives of each Opinion Party or of public officials and on the representations and warranties made by the Opinion Parties in the Documents to which they are a party.


In addition, I have assumed the genuineness of all signatures (other than as to the Opinion Parties), the authenticity of all documents submitted to me as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies. I have also assumed, for purposes of the opinions expressed herein, that (x) each Document constitutes the valid and binding obligation of each party thereto, enforceable against such party in accordance with its terms and (y) the execution, delivery and performance of the Documents by the Opinion Parties does not violate any laws.

Based upon the foregoing, and subject to the limitations, qualifications, exceptions and assumptions set forth herein, I am of the opinion that:

1. Each Opinion Party is a limited liability company validly existing and in good standing under the laws of the State of Georgia and has all requisite limited liability company power and authority, as applicable, to own its business and assets and to transact the business in which it is engaged.

2. Each Opinion Party has the limited liability company power and authority to enter into, and perform its obligations and to incur liabilities under, each of the Documents to which it is a party. The execution, delivery and performance by each Opinion Party of the Documents to which each is a party have been duly authorized and approved by all necessary limited liability company action on the part of such Opinion Party and have been duly executed and delivered by such Opinion Party. Each Opinion Party has duly executed and delivered each Document to which it is a party.

3. The execution, delivery and performance by each Opinion Party of the Documents to which each is a party will not violate any provision of the Organization Documents of the respective Opinion Party.

The opinions contained herein are subject to the following additional limitations, qualifications, exceptions and assumptions:

(a) I wish to point out that there may be limitations upon the exercise of remedial or procedural provisions contained in the Documents, but I believe that such limitations do not make the rights and remedies provided in or contemplated by each Document inadequate for the practical realization of the rights and remedies afforded thereby.

(b) My opinion with respect to good standing set forth in (i) paragraph 1 is based solely upon our review of certificates of good standing of recent date received from the Secretary of State of the State of Georgia.

The opinions expressed above are limited to questions arising under the Georgia Limited Liability Company Act, Code of Georgia § 14-11-100, and Federal law of the United States. This opinion does not cover the law of any jurisdiction other than that specified in the immediately preceding sentence (collectively, the “ Other Jurisdictions ”), nor did I review codifications of the laws of Other Jurisdictions. Furthermore, I express no opinion as to, and assume no responsibility for, the effect of any fact or circumstance occurring subsequent to the date of this letter, including, without limitation, legislative and other changes in the law or changes in circumstances affecting the Opinion Parties. I assume no responsibility to advise you of any such facts or circumstances of which I become aware, regardless of whether or not they affect the opinions herein.

* * *


This opinion may not be used or relied upon or published or communicated to any person or entity other than the addressees hereof for any purpose whatsoever without our prior written consent in each instance; provided that you may furnish copies of this opinion to your accountants and to bank auditors and examiners, in each case in connection with their audit and review activities.


CREDIT AGREEMENT

Exhibit G

[Form of] Monthly Officer’s Certificate

THE UNDERSIGNED HEREBY CERTIFIES SOLELY IN HIS CAPACITY AS AN AUTHORIZED OFFICER OF GLOBAL POWER EQUIPMENT GROUP INC. AS FOLLOWS:

1. I am the [Chief Financial Officer]/[Treasurer] of GLOBAL POWER EQUIPMENT GROUP INC.

2. I have reviewed the terms of that certain Credit Agreement, dated as of January [ ], 2008 (as it may be amended, supplemented or otherwise modified, the “ Credit Agreement ”), by and among GLOBAL POWER EQUIPMENT GROUP INC. (the “ Borrower ”), and the other Credit Parties party thereto from time to time, as Guarantors, the Lenders party thereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger, Bookrunner and Administrative Agent, (in such capacity, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent, THE CIT GROUP/BUSINESS CREDIT INC., as Syndication Agent and Revolving Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent, and the other Loan Documents thereunder, and I have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and consolidated financial condition of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements. Capitalized terms used but not defined herein shall have the meaning set forth in the Credit Agreement.

3. The financial statements for the Fiscal Month ended [ mm/dd/yy ] attached hereto as Annex I are prepared in accordance with GAAP and fairly present in all material respects the results of operations and financial condition of the Borrower and its Subsidiaries as of the dates of such financial statements subject to normal year end adjustments and the absence of footnotes.

4. The examination described in paragraph 2 above did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes, during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, an Event of Default or Default as of the date of such Certificate, except as set forth in a separate attachment, if any, to this Certificate, describing in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower and its Subsidiaries have taken, are taking, and propose to take with respect to each such condition or event.

 

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The foregoing certifications, together with the financial statements delivered with this Certificate in support hereof, are made and delivered [mm/dd/yy] pursuant to Sections 6.01(a) and (b)  of the Credit Agreement.

 

GLOBAL POWER EQUIPMENT GROUP INC.

as Borrower

By:

 

 

Title:

 

 

G-2


ANNEX I

Financial Statements


CREDIT AGREEMENT

Exhibit H

[Form of] Quarterly Compliance Certificate

THE UNDERSIGNED HEREBY CERTIFIES SOLELY IN HIS CAPACITY AS THE [CHIEF FINANCIAL OFFICER]/[CHIEF EXECUTIVE OFFICER]/[CONTROLLER] OF GLOBAL POWER EQUIPMENT GROUP INC. AS FOLLOWS:

1. I am the [Chief Financial Officer]/[Chief Executive Officer]/[Controller] of GLOBAL POWER EQUIPMENT GROUP INC .

2. I have reviewed the terms of that certain Credit Agreement, dated as of January [ ] , 2008 (as it may be amended, supplemented or otherwise modified, the “ Credit Agreement ”), by and among GLOBAL POWER EQUIPMENT GROUP INC. (the “ Borrower ”), and the other Credit Parties party thereto from time to time, as Guarantors, the Lenders party thereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger, Bookrunner and Administrative Agent, (in such capacity, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent, THE CIT GROUP/BUSINESS CREDIT INC., as Syndication Agent and Revolving Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent, and the other Loan Documents thereunder, and I have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and consolidated financial condition of the Borrower and its Subsidiaries during the accounting period covered by the financial statements attached hereto as Annex I. Capitalized terms used but not defined herein shall have the meaning set forth in the Credit Agreement.

3. Attached as Annex II is a calculation of compliance with Sections 2.02 , 8.01(m) , 8.02(c), (d)(i), (d)(iii), (i), (j) , 8.03(e), (i), (j), (k), (l) , 8.05(c), (d), (f) , 9.01 , 9.02 and 9.03 of the Credit Agreement including a reconciliation of the applicable items to the financial statements being delivered herewith. Except as set forth on Annex II hereto, Borrower is in compliance with the covenants contained in Sections 2.02 , 8.01 , 8.02 , 8.03 , 8.05 , 9.01 , 9.02 and 9.03 of the Credit Agreement.

4. Attached as Annex III hereto is a statement showing the balance of the Excluded Account, as of [ mm/dd/yy ], of $[              ]. The statement represents cash deposits of no more than $3,000,000 plus accrued and unpaid interest thereon.

The foregoing certifications, together with the financial statements delivered with this Certificate in support hereof, are made and delivered [ mm/dd/yy ] pursuant to Section 6.01(b) of the Credit Agreement.

 

GLOBAL POWER EQUIPMENT GROUP INC.

By:

 

 

Title:

 

 

H-1


ANNEX I

Financial Statements


ANNEX II

Prepayments from Asset Dispositions ( Section 2.02(a) )

 

Net Cash Proceeds from applicable Asset Sales or Net Casualty/Condemnation Proceeds during this period:    $             
Net Cash Proceeds from applicable Asset Sales or Net Casualty/Condemnation Proceeds from prior periods:    $             
Less :    amount of Net Cash Proceeds that were the subject of a notice of reinvestment within five Business Days of the receipt thereof      ______
Plus :    amount of Net Cash Proceeds from prior periods not reinvested within 270 days of the receipt thereof      ______
   Prepayment Fee      ______
Amount Required to be Prepaid:    $             
Amount Prepaid:    $             
In Compliance      Yes/No


Prepayments from Incurrence of Indebtedness ( Section 2.02(b) )

 

Cash proceeds from the issuance or incurrence of any Indebtedness:

   $             

Less :

  

cash proceeds from Permitted Indebtedness

     ______

Plus :

  

Prepayment Fee

     ______

Subtotal:

      $             

Amount Required to be Prepaid (equal to 100% of amount set forth above):

   $             

Amount Prepaid:

   $             

In Compliance

     Yes/No


Prepayments from Equity Issuances ( Section 2.02(c) )

 

Net Cash Proceeds from any Equity Issuance:    $             
Less :   

Net Cash Proceeds from any Equity Issuance described in Section 4.01(t) of the Credit Agreement

     ______

Plus :

   Prepayment Fee      ______
Subtotal:       $             
Amount Required to be Prepaid (equal to 50% of amount set forth above):    $             
Amount Prepaid:    $             
In Compliance      Yes/No


Liens ( Section 8.01 )

 

Lien in favor of Bank of America N.A. upon the Excluded Account:

   Actual in the aggregate    $             
   Permitted in the aggregate    $  3,000,000
   In Compliance      Yes/No


Investments ( Section 8.02 )

 

Advances or loans to directors, officers and employees of any Credit Party in the ordinary course of business as presently conducted:
   Actual in the aggregate    $             
   Permitted in the aggregate    $ 100,000
   In Compliance      Yes/No
Investments by a Credit Party in and to any Foreign Subsidiary in the form of contributions to capital, loans, advances, guarantees or other forms of credit support:   
   Actual in the aggregate    $             
   Permitted in the aggregate    $ 250,000
   In Compliance      Yes/No
Investments by Foreign Subsidiaries in and to any other Foreign Subsidiary:   
   Actual in the aggregate    $             
   Permitted in the aggregate    $  1,000,000
   In Compliance      Yes/No
Investments by Foreign Subsidiaries:   
   Actual in the aggregate    $             
   Permitted in the aggregate    $ 250,000
   In Compliance      Yes/No
Investments consisting of the entry into joint venture agreements for unincorporated joint ventures by any Credit Party for the limited purpose of negotiating, signing and performing construction, engineering, procurement, construction management and similar services:   
   Actual in the aggregate    $             
   Permitted in the aggregate    $ 500,000
   In Compliance      Yes/No


Indebtedness ( Section 8.03 )

 

Indebtedness of the Company and its Subsidiaries in respect of performance, surety or appeal bonds provided in the ordinary course of business or unsecured Indebtedness of the Company and its Subsidiaries in respect of performance or completion guarantees provided in the ordinary course of business:
   Actual in the aggregate    $             
   Permitted in the aggregate    $  60,000,000
   In Compliance      Yes/No
Indebtedness of the Borrower and its Subsidiaries evidenced by Capitalized Lease Obligations and purchase money Indebtedness:
   Actual in the aggregate    $             
   Permitted in the aggregate    $ 2,000,000
   In Compliance      Yes/No
Indebtedness of Braden Europe under a revolving credit facility and a letter of credit facility:
   Indebtedness outstanding at any one time    $             
   Permitted in the aggregate    $ 500,000
   Outstanding under a letter of credit facility    $             
   Total of Indebtedness outstanding at any one time and under a letter of credit facility    $             
   Permitted in the aggregate    $             
   In Compliance      Yes/No
Indebtedness of Braden Shanghai:
   Actual in the aggregate    $             
   Permitted in the aggregate    $ 2,000,000
   In Compliance      Yes/No
Additional Indebtedness:
   Actual in the aggregate    $             
   Permitted in the aggregate    $ 1,000,000
   In Compliance      Yes/No


Dispositions ( Section 8.05 )

 

Dispositions of equipment or real property in the ordinary course of business:
   Actual in the aggregate    $             
   Permitted in the aggregate    $  500,000 per annum
   In Compliance      Yes/No
Dispositions of Property of any Credit Party to another Credit Party and Dispositions by any Credit Party of equipment not used in the business of such Credit Party to a Foreign Subsidiary:
   Actual in the aggregate    $             
   Permitted in the aggregate    $             
   In Compliance      Yes/No
Other Dispositions:   
   Actual in the aggregate    $             
   Permitted in the aggregate    $ 2,500,000
   In Compliance      Yes/No


Total Leverage Ratio ( Section 9.01 )

 

Total Leverage Ratio is defined as the ratio of:

  

Consolidated Total Debt on the date of determination

   $             

Minus :

  

the aggregate amount of Letter of Credit Obligations outstanding on such date

     ______
   cash of the Credit Parties deposited in accounts subject to Control Agreements on such date      ______
  

Cash Equivalents of the Credit Parties on such date

     ______

To: Consolidated EBITDA for the four Fiscal Quarters most recently ended on such date

   $             

Total Leverage Ratio:

  
         

Required Total Leverage Ratio:

  
         

In Compliance

     Yes/No


Fixed Charge Coverage Ratio (Section 9.02)

 

Fixed Charge Coverage Ratio is defined as the ratio of:

  

Consolidated EBITDA for the four consecutive Fiscal Quarters most recently ended

   $             

Minus :

 

Consolidated Capital Expenditures for such period

     ______
 

provisions for Federal, state, local and foreign taxes of the Credit Parties for such period

     ______

To: Consolidated Fixed Charges for such period

   $             

Fixed Charge Coverage Ratio:

  
        

Required Fixed Charge Coverage Ratio:

  
        

In Compliance

     Yes/No


Minimum Liquidity (Section 9.03)

 

Liquidity is defined as the sum of:

  

The amount available to be borrowed as Revolving Loans under Section 1.01(a) of the Credit Agreement

   $             

Plus :

  

Cash of the Credit Parties on deposit and subject to Control Agreements

     ______
  

Cash Equivalents of the Credit Parties

     ______

Liquidity:

  
         

Required Minimum Liquidity:

  
         

In Compliance

     Yes/No


ANNEX III

Statement of Excluded Account


CREDIT AGREEMENT

Exhibit I

[Form of] Assignment and Acceptance

This Assignment and Acceptance (the “ Assignment ”) is dated as of the Effective Date set forth below and is entered into by and between [ Insert name of Assignor ] (the “ Assignor ”) and [ Insert name of Assignee ] (the “ Assignee ”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below, receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex I attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below, the interest in and to all of the Assignor’s rights and obligations under the Credit Agreement and any other documents or instruments delivered pursuant thereto that represents the amount and percentage interest identified below of all of the Assignor’s outstanding rights and obligations under the respective facilities identified below (including, to the extent included in any such facilities, letters of credit) (the “ Assigned Interest ”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and the Credit Agreement, without representation or warranty by the Assignor.

 

1.      Assignor:    __________________________

2.      Assignee:

   __________________________

3.      Borrower:

   GLOBAL POWER EQUIPMENT GROUP INC.

4.      Administrative Agent:

   MORGAN STANLEY SENIOR FUNDING, INC., as Administrative Agent under the Credit Agreement

5.      Credit Agreement:

   The Credit Agreement, dated as of January [ ] , 2008 (as it may be amended, supplemented or otherwise modified, the “ Credit Agreement ”), by and among GLOBAL POWER EQUIPMENT GROUP INC. (the “ Borrower ”), and the other Credit Parties party thereto from time to time, as Guarantors, the Lenders party thereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger, Bookrunner and Administrative Agent, (in such capacity, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent, THE CIT GROUP/BUSINESS CREDIT INC., as Syndication Agent and Revolving Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent.

 

I-1


6. Assigned Interest:

 

Facility

   Percentage
Assigned[ 1 ]
   Aggregate Amount of
Commitment/Loans
for all Lenders
   Amount of
Commitment/Loans
Assigned
   Percentage
Assigned of
Commitment/Loans [ 1 ]
 

_________

   _________    $ ______________    $ ______________    ____________

Effective Date:              , 20      [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

7. Notice and Wire Instructions:

 

[NAME OF ASSIGNOR]

   [NAME OF ASSIGNEE]

Notices:

   Notices :

                    _______________________

  

              _______________________

                    _______________________

  

              _______________________

                    _______________________

  

              _______________________

Attention:

  

Attention:

Telecopy:

  

Telecopy:

with a copy to:

   with a copy to:

                    _______________________

  

              _______________________

                    _______________________

  

              _______________________

                    _______________________

  

              _______________________

Attention:

  

Attention:

Telecopy:

  

Telecopy:

Wire Instructions:

   Wire Instructions :

 

 

[ 1 ]

Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

 

I-2


The terms set forth in this Assignment are hereby agreed to:

 

ASSIGNOR
[NAME OF ASSIGNOR]
By:  

 

Title:  
ASSIGNEE
[NAME OF ASSIGNEE]
By:  

 

Title:  

Consented to and Accepted:

 

MORGAN STANLEY SENIOR FUNDING, INC., as

Administrative Agent

By:  

 

Title:  

 

I-3


ANNEX I

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ACCEPTANCE

Representations and Warranties .

 

  1.1 Assignor . The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with any Credit Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document delivered pursuant thereto, other than this Assignment (herein collectively the “ Loan Documents ”), or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

 

  1.2 Assignee . The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and to purchase the Assigned Interest on the basis of which it has made such analysis and decision, and (v) if it is a Non-US Lender, attached to the Assignment is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at that time, continue to make its own credit decisions in taking or not taking action under the Credit Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

Payments .

From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal,

 

I-4


interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.[ 2 ]

General Provisions .

This Assignment shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment. This Assignment shall be governed by, and construed in accordance with, the internal laws of the State of New York.

 

 

[ 2 ]

Or, if agreed among Administrative Agent, Assignor and Assignee: “From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to or on or after the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the effective Date or with respect to the making of this assignment directly between themselves.”

 

I-5


CREDIT AGREEMENT

Exhibit J

Perfection Certificate

 


PERFECTION CERTIFICATE

January      , 2008

Reference is hereby made to the Credit Agreement, dated as of January [    ], 2008 (as it may be amended, restated, modified, supplemented or extended from time to time, including all schedules thereto, or otherwise modified, the “ Credit Agreement ”), by and among Global Power Equipment Group Inc., certain Subsidiaries of the Company identified on the signature pages thereof, as borrowers, the other Credit Parties thereto from time to time, as Guarantors, the Lenders party thereto from time to time, Morgan Stanley Senior Funding, Inc., as lead arranger, bookrunner and administrative agent, Morgan Stanley & Co. Incorporated, as collateral agent for the Secured Parties, and The CIT Group/Business Credit Inc., as syndication agent and revolving agent for the Revolving Lenders. Capitalized terms used but not defined shall have the meanings assigned in the Credit Agreement.

As used herein, the term “ Companies ” means the Credit Parties.

The undersigned hereby certify to the Administrative Agent as follows:

1. Names . (a) The name of each Company and each of its Subsidiaries together with its organization identification number, if any, the Federal Taxpayer Identification Number of each Company, if any, and the jurisdiction of formation of each Company are set forth on Schedule 1(a) .

(b) Except as set forth in Schedule 1(b) , no Company has changed its name or jurisdiction of organization or acquired all or any portion of another person or business at any time since December 6, 2006.

2. Current Locations . (a) The chief executive office of each Company is located at the address set forth in Schedule 2(a) hereto.

(b) Set forth in Schedule 2(b) are all locations where each Company maintains material books or records relating to any Collateral.

(c) Set forth in Schedule 2(c) hereto are all other locations not identified above where each Company maintains Collateral consisting of inventory or equipment.

(d) Set forth in Schedule 2(d) hereto are the names and addresses of all persons or entities other than each Company, such as lessees, consignees, warehousemen or purchasers of chattel paper, which have possession of Collateral consisting of instruments, chattel paper, inventory or equipment.

3. UCC Filings . The financing statements (duly authorized by each Company constituting the debtor therein), including the description of the Collateral, attached as Schedule 3 relating to the Security Agreement or any Mortgage are in the appropriate forms for filing in the filing offices in the jurisdictions identified in Schedule 4 hereof.


4. Schedule of Filings . Attached hereto as Schedule 4 is a schedule of appropriate filing offices for the financing statements attached hereto as Schedule 3 . No other filings or actions are required to perfect the security interests in the Collateral.

5. Real Property . Attached hereto as Schedule 5(a) is a list of all real property owned or leased by each Company that constitutes Real Property Assets, noting Mortgaged Property as of the Closing Date and filing offices for Mortgages as of the Closing Date. Except as described on Schedule 5(b) attached hereto, no Company has entered into any Leases, subleases, tenancies, franchise agreements, licenses or other occupancy arrangements as owner, lessor, sublessor, licensor, franchisor or grantor with respect to any of the real property described on Schedule 5(a) and no Company has any Leases which require the consent of the landlord, tenant or other party thereto to the Transactions.

6. Termination Statements . Attached hereto as Schedule 6(a) are the duly authorized termination statements in the appropriate form for filing in each applicable jurisdiction identified in Schedule 6(b) hereto with respect to each Lien described therein.

7. Stock Ownership and Other Equity Interests . Attached hereto as Schedule 7(a) is a true and correct list of each of all of the authorized, and the issued and outstanding, stock, partnership interests, limited liability company membership interests or other equity interests of each Company and its Subsidiaries and the record and beneficial owners of the stock, partnership interests, membership interests or other equity interests. Set forth on Schedule 7(b) is each equity investment of each Company that represents 50% or less of the equity of the entity in which such investment was made.

8. Instruments and Tangible Chattel Paper . Attached hereto as Schedule 8 is a true and correct list of all promissory notes, instruments (other than checks to be deposited in the ordinary course of business), tangible chattel paper, electronic chattel paper and other evidence of indebtedness held by each Company as of the date hereof, and all other notes, instruments, chattel paper or other evidence of indebtedness, including all intercompany notes between or among any two or more Companies.

9. Intellectual Property . (a) Attached hereto as Schedule 9(a) is a schedule setting forth all of each Company’s Patents, Patent Licenses, Trademarks and Trademark Licenses (each as defined in the Security Agreement) registered with the United States Patent and Trademark Office, and all other Patents, Patent Licenses, Trademarks and Trademark Licenses, including the name of the registered owner and the registration number of each Patent, Patent License, Trademark and Trademark License owned by each Company. Attached hereto as Schedule 9(b) is a schedule setting forth all of each Company’s United States Copyrights and Copyright Licenses (each as defined in the Security Agreement), and all other Copyrights and Copyright Licenses, including the name of the registered owner and the registration number of each Copyright or Copyright License owned by each Company.

 

-2-


(a) Attached hereto as Schedule 9(c) in proper form for filing with the United States Patent and Trademark Office, United States Copyright Office and the Canadian Intellectual Property Office are the filings necessary to perfect the security interests in the Trademarks, Trademark Licenses, Patents, Patent Licenses, Copyrights and Copyright Licenses set forth on Schedule 9(a) and Schedule 9(b) , including duly signed copies of each of the Patent Security Agreement, Trademark Security Agreement and the Copyright Security Interest Agreement, as applicable.

10. Commercial Tort Claims . Attached hereto as Schedule 10 is a true and correct list of all Commercial Tort Claims (as defined in the Security Agreement) asserted by each Company, including a brief description thereof.

11. Deposit Accounts, Securities Accounts and Commodity Accounts . Attached hereto as Schedule 11 is a true and complete list of all Deposit Accounts, Securities Accounts and Commodity Accounts (each as defined in the UCC) maintained by each Company, including the name of each institution where each such account is held, the name of each such account and the name of each entity that holds each account.

12. Letter-of-Credit Rights . Attached hereto as Schedule 12 is a true and correct list of all letters of credit issued and outstanding in favor of each Company, as beneficiary thereunder.

13. Material Contracts . Attached hereto as Schedule 13 is a true and correct list of all Material Contracts in which each Company has any right or interest.

14. Organizational Charts . Set forth on Schedule 14 is an organizational chart of each Company and its Subsidiaries.

[The Remainder of this Page has been intentionally left blank]

 

-3-


IN WITNESS WHEREOF, we have hereunto signed this Perfection Certificate as of the date first set forth above.

 

GLOBAL POWER EQUIPMENT GROUP INC.

By:

 

 

Name:

 

Title:

 

 

-4-


CREDIT AGREEMENT

Exhibit K-1

[Form of] Hedging Agreement Provider Joinder Agreement

HEDGING AGREEMENT PROVIDER JOINDER AGREEMENT, dated as of [              , 200_] (this “ Agreement ”), to the Security and Pledge Agreement dated as of January [ ] , 2008 (as amended, restated, supplemented or otherwise modified from time to time, the “ Security Agreement ”) between MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent (in such capacity, the “ Collateral Agent ”), GLOBAL POWER EQUIPMENT GROUP INC. (the “ Borrower ”), the Lenders (as defined in the Credit Agreement) and the Hedging Agreement Providers (as hereinafter defined) and the other Grantors specified therein.

RECITALS:

WHEREAS, the Borrower has entered into the Credit Agreement, dated as of January [ ] , 2008 (as it may be amended, supplemented or otherwise modified, the “ Credit Agreement ”), by and among the Borrower, and the other Credit Parties party thereto from time to time, as Guarantors, the Lenders party thereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger, Bookrunner and Administrative Agent, (in such capacity, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent, THE CIT GROUP/BUSINESS CREDIT INC., as Syndication Agent and Revolving Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent;

WHEREAS, the Borrower may from time to time enter, or may from time to time have entered, into one or more Hedging Agreements (collectively, “ Hedging Agreements ”) with one or more Lenders or their Affiliates (in such capacity, the “ Hedging Agreement Providers ”);

WHEREAS, to induce the Lenders to enter into the Credit Agreement and the Hedging Agreement Providers to enter into the Hedging Agreements, each of the Credit Parties have granted security interests in its assets under the Security Agreement;

WHEREAS, each of the Hedging Agreement Providers signatory hereto desires to designate and appoint the Collateral Agent to act as its agent and representative;

WHEREAS, capitalized terms used herein not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement.

NOW, THEREFORE, in consideration of the agreements and covenants herein contained, the parties hereto agree as follows:

Section 1. Acknowledgment . Each of the Hedging Agreement Providers signatory hereto hereby acknowledges, agrees and confirms that, by its execution of this Agreement, each such Hedging Agreement Providers will be deemed to be a party to the Security Agreement and, with respect to the obligations of the Credit Parties under the Security Agreement, shall be a secured party for all purposes of the Security Agreement and shall have all of the rights and obligations of a secured party thereunder as if it had executed the Security

 

K-1-1


Agreement. Each of the Hedging Agreement Providers signatory hereto hereby ratifies, as of the date hereof, and agrees to be bound by all of the terms, provisions and conditions contained in the Security Agreement.

Section 2. Appointment . (a) Each of the Hedging Agreement Providers signatory hereto, by its acceptance of the benefits of this Agreement and of the Security Agreement, hereby designates and appoints the Collateral Agent as its agent and representative to act as specified in the Security Agreement and authorizes the Collateral Agent to take such action on its behalf under the provisions of this Agreement and of the Security Agreement and any other instruments and agreements referred to herein and therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Collateral Agent by the terms hereof or thereof and such other powers as are reasonably incidental thereto.

(b) The Collateral Agent, for itself and its successors, hereby accepts its appointment as agent and representative of each of the Hedging Agreement Providers signatory hereto hereunder and under the Security Agreement upon and subject to the terms and conditions hereof and thereof.

Section 3. Notice . Each of the Hedging Agreement Providers signatory hereto hereby designates the address indicated below its signature hereto as its address for notices and other communications under the Security Agreement (unless and until a Hedging Agreement Provider shall have designated in writing to the Collateral Agent another address or telex, telecopy or other number).

Section 4. Miscellaneous . This Agreement may be executed in one or more counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same contract.

Section 5. Governing Law . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

K-1-2


IN WITNESS WHEREOF, the parties hereto have caused this Joinder Agreement to be duly executed and delivered as of the date first written above by their respective officers thereunto duly authorized.

 

[Name of Hedging Agreement Provider]
By:  

 

Name:  
Title:  
[Address]
[Name of Hedging Agreement Provider]
By:  

 

Name:  
Title:  
[Address]
[Name of Hedging Agreement Provider]
By:  

 

Name:  
Title:  
[Address]

Agreed to and Acknowledged by:

 

MORGAN STANLEY & CO. INCORPORATED,
as Collateral Agent

By:

 

 

Name:

 

Title:

 

 

K-1-3


CREDIT AGREEMENT

Exhibit K-2

[Form of] Guarantor Joinder Agreement

GUARANTOR JOINDER AGREEMENT (this “ Agreement ”), dated as of              , 20      , is by and between                      , a                      (the “Joining Guarantor”) and MORGAN STANLEY SENIOR FUNDING, INC., in its capacity as administrative agent and MORGAN STANLEY & CO. INCORPORATED, in its capacity as collateral agent (together the “ Agents ” and individually each an “Agent”) under the Credit Agreement, dated as of January [ ] , 2008 (as it may be amended, supplemented or otherwise modified, the “ Credit Agreement ”), by and among GLOBAL POWER EQUIPMENT GROUP INC., (the “ Borrower ”), and the other Credit Parties party thereto from time to time, as Guarantors, the Lenders party thereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger, Bookrunner and Administrative Agent, (in such capacity, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent, THE CIT GROUP/BUSINESS CREDIT INC., as Syndication Agent and Revolving Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent. Capitalized terms used but not defined herein shall have the meaning set forth in the Credit Agreement.

RECITALS:

WHEREAS, the Joining Guarantor is required to become a Guarantor pursuant to Section 7.14 of the Credit Agreement.

NOW, THEREFORE, in consideration of the agreements and covenants herein contained, the parties hereto agree as follows:

Section 1. The Joining Guarantor hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Joining Guarantor will be deemed to be a party to the Credit Agreement and shall have all of the obligations of a Guarantor thereunder as if it has executed the Credit Agreement and the other Loan Documents, as applicable. The Joining Guarantor hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Credit Agreement and in the Loans Documents applicable to a Guarantor as a Credit Party, including without limitation (a) all of the representations and warranties of the Credit Parties set forth in Article V of the Credit Agreement and (b) all of the affirmative and negative covenants set forth in Articles VI, VII, VIII and IX of the Credit Agreement.

Section 2. The Joining Guarantor hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Joining Guarantor will be deemed to be a party to the Security and Pledge Agreement dated as of January [ ] , 2008 (as amended, restated, supplemented or otherwise modified from time to time, the “ Security Agreement ”) between the Borrower and certain of its Subsidiaries in favor of MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent (in such capacity, the “ Collateral Agent ”) and the other

 

K-2-1


Grantors specified therein, and a “Guarantor” for all purposes of the Security Agreement and the other Loan Documents, and shall have all of the obligations of a Guarantor thereunder as if it has executed the Security Agreement and the other Loan Documents, as applicable. The Joining Guarantor hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Security Agreement. Without limiting generality of the foregoing terms of this Section 2 , the Joining Guarantor hereby grants to the Agents, for the benefit of the Lenders, a continuing security interest in, and a right of set off against any and all right, title and interest of the Joining Guarantor in and to the Collateral (as such term is defined in Section 2.1 of the Security Agreement) of the Joining Guarantor.

Section 3. The Joining Guarantor acknowledges and confirms that it has received a copy of the Credit Agreement and the schedules and exhibits thereto and the Security Agreement and the schedules and exhibits relating thereto. The schedules to the Credit Agreement and the Security Agreement are amended to provide the information shown on the attached Schedule A .

Section 4. The Joining Guarantor agrees that at any time and from time to time, upon the written request of either of the Agents, it will execute and deliver such further documents and do such further acts and things as the requesting Agent may reasonably request in order to effect the purposes of this Certificate.

Section 5. This Agreement may be executed in one or more counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same contract.

Section 6. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

K-2-2


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above by their respective officers thereunto duly authorized.

 

[Name of Joining Guarantor]
By:  

 

Name:  
Title:  

 

[Address]  

 

Agreed to and Acknowledged by:

MORGAN STANLEY SENIOR FUNDING, INC.

as Administrative Agent

By:  

 

Name:  
Title:  

MORGAN STANLEY & CO. INCORPORATED,

as Collateral Agent

By:  

 

Name:  
Title:  

 

K-2-3


CREDIT AGREEMENT

Exhibit L

[Form of] Security and Pledge Agreement

 


 

 

 

SECURITY AND PLEDGE AGREEMENT

made by

GLOBAL POWER EQUIPMENT GROUP INC.

and certain of its Subsidiaries in favor of

MORGAN STANLEY & CO. INCORPORATED, as Collateral Agent

Dated as of January       , 2008

 

 

 


TABLE OF CONTENTS

 

         Page

SECTION 1.

  DEFINED TERMS    2

1.1.

  Definitions    2

1.2.

  Other Definitions; Interpretation    9

SECTION 2.

  GRANT OF SECURITY INTEREST IN REAL AND PERSONAL PROPERTY; CONTINUING LIABILITY UNDER COLLATERAL    10

2.1.

  Collateral    10

2.2.

  Liability    11

2.3.

  Authorization    12
SECTION 3.   PLEDGE OF EQUITY INTERESTS; DEBT SECURITIES; CHATTEL PAPER; INSTRUMENTS    12

3.1.

  Pledge    12

3.2.

  Delivery of the Pledged Securities    13

3.3.

  Representations, Warranties and Covenants Related to Equity   
  Interests    13

3.4.

  Certification of Limited Liability Company and Limited   
  Partnership Interests    16

3.5.

  Registration in Nominee Name; Denominations    16

3.6.

  Voting Rights; Dividends and Interest    16
SECTION 4.   REPRESENTATIONS AND WARRANTIES    18

4.1.

  Representations in Credit Agreement    18

4.2.

  Title; No Other Liens    18

4.3.

  Name; Jurisdiction of Organization, etc    18

4.4.

  Inventory and Equipment    19

4.5.

  Certain Investment Property and Deposit Accounts    19

4.7.

  Intellectual Property    19

4.8.

  Letters of Credit and Letter of Credit Rights    21

4.9.

  Commercial Tort Claims    21

4.10.

  Contracts    21
SECTION 5.   COVENANTS    22

5.1.

  Covenants in Credit Agreement    22

5.2.

  Payment of Obligations    22

5.3.

  Maintenance of Perfected Security Interest; Further   
  Documentation    22

5.4.

  Notices    23

5.5.

  Intellectual Property    23

5.6.

  Contracts    26

5.7.

  Letter of Credit Rights    26

 

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5.8.

  Commercial Tort Claims .    26

5.9.

  Bailee Letters    26

SECTION 6.

  REMEDIAL PROVISIONS    27

6.1.

  Certain Matters Relating to Accounts    27

6.2.

  Communications with Obligors; Grantors Remain Liable    27

6.3.

  Pledged Equity Interests    28

6.4.

  Control Agreements    28

6.5.

  Application of Proceeds    28

6.6.

  Code and Other Remedies    29

6.7.

  Grant of License to Use Intellectual Property    31

6.8.

  Deficiency    31

SECTION 7.

  THE COLLATERAL AGENT    31

7.1.

  Collateral Agent’s Appointment as Attorney-in-Fact, etc    31

7.2.

  Duty of Collateral Agent    33

7.3.

  Execution of Financing Statements and Mortgages    33

7.4.

  Authority of Collateral Agent    33

7.5.

  Appointment of Co-Collateral Agents    34

SECTION 8.

  CONTINUING SECURITY INTEREST; TRANSFER OF LOANS; TERMINATION AND RELEASES    34

8.1.

  Continuing Security Interest    34

8.2.

  Termination of Security Interest    34

8.3.

  Reinstatement    35

SECTION 9.

  MISCELLANEOUS    35

9.1.

  Amendments in Writing    35

9.2.

  Notices    35

9.3.

  No Waiver by Course of Conduct; Cumulative Remedies    35

9.4.

  Enforcement Expenses; Indemnification    35

9.5.

  Successors and Assigns    36

9.6.

  Set-Off    36

9.7.

  Counterparts    36

9.8.

  Severability    37

9.9.

  Section Headings    37

9.10.

  Integration    37

9.11.

  APPLICABLE LAW    37

9.12.

  Submission to Jurisdiction; Waivers    37

9.13.

  Acknowledgments    38

9.14.

  Additional Grantors    38

9.15.

  WAIVEROFJURYTRIAL    38

 

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SCHEDULES

 

Schedule A

  Pledged Equity Interests
Schedule TS-1   Trade Secrets
Schedule 4.3   Organization
Schedule 4.4(a)   Location of Inventory and Equipment
Schedule 4.5(b)   Accounts
Schedule 4.7   Intellectual Property
Schedule 4.8   Letters of Credit
Schedule 4.9   Commercial Tort Claims
Schedule 4. 10   Material Contracts

 

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This SECURITY AND PLEDGE AGREEMENT dated as of January       , 2008 (as it may be amended, restated, modified, supplemented or extended from time to time, including all schedules hereto, or otherwise modified, this “ Agreement ”), by and among GLOBAL POWER EQUIPMENT GROUP INC., a corporation formed under the laws of Delaware (the “ Company ” or the “ Borrower ”) (together with any other person that may become a party hereto as provided herein the “ Grantors ”) and MORGAN STANLEY & CO. INCORPORATED, a corporation formed under the laws of Delaware, as collateral agent for the Secured Parties (in such capacity, together with its successors and assigns, if any, the “ Collateral Agent ”).

W I T N E S S E T H :

WHEREAS, pursuant to the credit agreement, dated as of January 22, 2008, by and among the Borrower, the other Credit Parties signatory thereto from time to time, as Guarantors, the Lenders party hereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., a corporation formed under the laws of Delaware, as lead arranger and bookrunner (in such capacity, the “ Lead Arranger ”) and as administrative agent for the Lenders (in such capacity, together with its successors and assigns, if any, the “ Administrative Agent ”), the Collateral Agent, THE CIT GROUP/BUSINESS CREDIT, INC. a corporation formed under the laws of Delaware, as syndication agent (in such capacity, the “ Syndication Agent ”) and as revolving agent for the Revolving Lenders (in such capacity, together with its successors and assigns, if any, the “ Revolving Agent ”) and GENERAL ELECTRIC CAPITAL CORPORATION, a corporation formed under the laws of Delaware, as documentation agent (the “ Credit Agreement ”), the Lenders have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein;

WHEREAS, each Grantor other than the Borrower is a direct or indirect subsidiary of the Borrower;

WHEREAS, on December 21, 2007, the Bankruptcy Court entered an order (the “ Confirmation Order ”) confirming the First Amended Joint Chapter 11 Plan of Reorganization for Global Power Equipment Group Inc. and its Affiliated Debtors (the “ Plan of Reorganization ”);

WHEREAS, pursuant to the Confirmation Order, the Borrower and certain of its Subsidiaries will exit from the Chapter 11 Cases and all claims and liabilities against the Borrower that arose prior to the date of the Confirmation Order will be satisfied, discharged and released in full, except as set forth therein or in the Plan of Reorganization;

WHEREAS, in accordance with the Confirmation Order, the Borrower has requested that the Lenders make available to them the Commitments, on the terms and conditions set forth herein, to, among other things, pay in full all obligations under the Post-Petition Loan Agreement, fund payments required under the Plan of Reorganization and fund working capital requirements and other general corporate purposes of the Borrower;

WHEREAS, the Administrative Agent and the Lenders are willing to make the Loans to the Borrower upon the terms and conditions set forth in the Credit Agreement;


NOW THEREFORE, in consideration of the premises and the covenants and agreements contained herein and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

SECTION 1. DEFINED TERMS

 

  1.1. Definitions .

(a) Unless otherwise defined herein, capitalized terms defined in the Credit Agreement and used but not defined herein have the meanings given to them in the Credit Agreement.

(b) The following terms shall have the following meanings:

Account ” means an “ account ” as defined in Article 9 of the UCC and any other right to payment of license fees, royalties, milestone payments or other amounts for goods, technology, Intellectual Property or other property sold, leased, licensed or otherwise disposed of or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper or classified as a Payment Intangible and whether or not it has been earned by performance or satisfaction of milestones. References herein to Accounts shall include any Collateral securing such Account.

Account Debtor ” means each Person who is obligated on an Account, Chattel Paper or General Intangible related thereto.

Administrative Agent ” has the meaning assigned to such term in the preamble.

After-Acquired Intellectual Property ” has the meaning assigned to such term in Section 5.5(k) .

Agents ” means, collectively, the Collateral Agent and the Administrative Agent.

Agreement ” means this Security Agreement and Pledge Agreement, together with all Schedules hereto, as the same may be amended, amended and restated, supplemented, replaced or otherwise modified from time to time.

Bailee Letter ” means a letter in form and substance reasonably satisfactory to the Administrative Agent and executed by any Person (other than a Credit Party) that is in possession of Inventory on behalf of a Credit Party pursuant to which such Person acknowledges, among other things, the Collateral Agent’s Lien, for the benefit of the Lenders, with respect to such Inventory.

Borrower ” has the meaning assigned to such term in the preamble.

Chattel Paper ” means “ chattel paper ” as defined in Article 9 of the UCC, including “ electronic chattel paper ” or “ tangible chattel paper ”, as each term is defined in Article 9 of the UCC.

 

2


Collateral ” has the meaning assigned to such term in Section 2.1 .

Collateral Account ” means any collateral account established by the Collateral Agent as provided in Section 6.1 .

Collateral Account Funds ” means each of the following: all funds (including all trust monies), investments (including all cash equivalents) credited to, or purchased with funds from, any Collateral Account and all certificates and instruments from time to time representing or evidencing such investments; all notes, certificates of deposit, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Collateral Agent for or on behalf of any Grantor in substitution for, or in addition to, any or all of the Collateral; and all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the items constituting Collateral.

Collateral Agent ” has the meaning assigned to such term in the preamble.

Commercial Tort Claims ” means all “ commercial tort claims ” as defined in Article 9 of the UCC, including all commercial tort claims listed on Schedule 4.9 (as such schedule may be amended or supplemented from time to time).

Commodity Accounts ” (a) means all “ commodity accounts ” as defined in Article 9 of the UCC and (b) includes all of the accounts listed on Schedule 4.5(b) under the heading “Commodities Accounts” (as such schedule may be amended or supplemented from time to time).

Commodity Contract ” means all “ commodity contracts ” as defined in Article 9 of the UCC.

Commodity Intermediary ” means “ commodity intermediary ” as defined in Article 9 of the UCC.

Contracts ” means all contracts, licenses, sublicenses, co-existence agreements, covenants not to sue, consents to use, and any other agreements and arrangements between any Grantor and any other person or by which such Grantor or any property or asset of such Grantor is subject (in each case, whether written, implied or oral, or third party or intercompany) as the same may be amended, assigned, extended, restated, supplemented, replaced or otherwise modified from time to time including (a) all rights of any Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of any Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect thereto, (c) all rights of any Grantor to damages arising thereunder and (d) all rights of any Grantor to terminate and to perform and compel performance of, such Contracts and to exercise all remedies thereunder.

Control Agreements ” means each of the Deposit Account Control Agreement(s) and the Securities Account Control Agreement(s).

 

3


Copyright Licenses ” means any Contract, providing directly or indirectly for the grant of any right in, to or under any Copyright, including any of the foregoing listed on Schedule 4.7 hereto.

Copyrights ” means (a) all current and future copyrights, copyrightable works and mask works arising under the laws of the United States, any other country, or union of countries, or any political subdivision of any of the foregoing (including without limitation; customer lists, software, source code, databases and other compilations of information), whether registered or unregistered and whether published or unpublished (including those listed on Schedule 4.7 hereto), all registrations and recordings thereof, and all applications in connection therewith, all extensions, reversions, restorations and renewals thereof and all rights corresponding thereto throughout the world, including all registrations, recordings and applications in the United States Copyright Office, and (b) all other rights of any kind whatsoever accruing thereunder or pertaining thereto.

Copyright Security Interest Agreement ” means a copyright security interest agreement in form and substance reasonably satisfactory to the Agents.

Credit Agreement ” has the meaning assigned to such term in the preamble.

Deposit Accounts ” (a) means all “ deposit accounts ” as defined in Article 9 of the UCC and (b) includes all of the accounts listed on Schedule 4.5(b) under the heading “Deposit Accounts” (as such schedule may be amended or supplemented from time to time), in each case, with all funds held therein and all certificates or instruments representing any of the foregoing.

Deposit Account Control Agreement ” means an agreement in form and substance reasonably satisfactory to the Agents, the Grantor and the depository institution where such Deposit Account is maintained, establishing the Collateral Agent’s control within the meaning of Section 9-104 of the UCC with respect to any Deposit Account.

Documents ” means all “ documents ” as defined in Article 9 of the UCC.

Dollars ” or “ $ ” each means lawful money of the United States of America.

Electronic Chattel Paper ” means all “ electronic chattel paper ” as defined in Article 9 of the UCC.

Equipment ” means, with respect to any Person, all of such Person’s now owned or hereafter acquired right, title, and interest with respect to equipment (including, without limitation, “ equipment ” as such term is defined in Article 9 of the UCC), data processing equipment, computers, machinery, machine tools, appliances, motors, furniture, furnishings, fixtures, vehicles, tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, and all accessions or additions thereto, all parts thereof, whether or not at any time of determination incorporated or installed therein or attached thereto, and all replacements therefor, wherever located, now or hereafter existing, including any fixtures.

 

4


Equity Interests ” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, whether preferred or common and whether voting or nonvoting, and securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust units or interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

Excluded Asset ” means the “Deltak Plan Assets”, the “Deltak Avoidance Actions” and the “Deltak Warranty Claim” as each of those terms is defined in the Plan of Reorganization.

Fixtures ” means all “fixtures” as defined in Article 9 of the UCC.

General Intangibles ” means all “ general intangibles ” as such term is defined in Section 9-102(a)(42) of the UCC and, in any event, including with respect to any Grantor, all rights of such Grantor to receive any tax refunds, indemnification rights and other rights to payment, all Hedging Agreements and all Contracts and all licenses, permits, concessions, franchises and authorizations issued by Governmental Authorities to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property or asset of such Grantor is subject, as the same may from time to time be amended, supplemented, replaced or otherwise modified.

Goods ” (a) means all “ goods ” as defined in Article 9 of the UCC and (b) includes all Inventory and Equipment (in each case, regardless of whether characterized as goods under the UCC).

Grantors ” has the meaning assigned to such term in the preamble.

Grantor Obligations ” means with respect to any Grantor, all obligations and liabilities of such Grantor whether direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured which may arise by contract, operation of law or otherwise under or in connection with this Agreement or any other Loan Document to which such Grantor is a party and includes the guaranty of the Obligations under the Loan Documents.

Instruments ” means all “ instruments ” as defined in Article 9 of the UCC.

Insurance ” means (a) all insurance policies covering any or all of the Collateral and (b) any key man life insurance policies.

 

5


Intellectual Property ” means the collective reference to all rights, priorities and privileges relating to intellectual property now or hereafter existing whether arising under United States, multinational or foreign laws or otherwise, including without limitation the (a) Trademarks; (b) Patents; (c) Trade Secrets; (d) Copyrights; and (e) all rights to sue at law or in equity for any past, present and future infringement, dilution, impairment, misappropriation or other violation of any of the foregoing (including the right to sue for any injury to goodwill), including the right to receive all income, distributions, proceeds, royalties, damages and other payments now or hereafter due or payable with respect to any and all of the foregoing.

Intellectual Property Licenses ” means the Copyright Licenses, Patent Licenses, Trademark Licenses and Trade Secret Licenses.

Intellectual Property Security Agreements ” means the Trademark Security Agreement, the Patent Security Agreement and the Copyright Security Agreement.

Inventory ” means all “ inventory ” as defined in Article 9 of the UCC.

Investment Property ” means (a) all “ investment property ” as such term is defined in Section 9- 102(a)(49) of the UCC including all Certificated Securities and Uncertificated Securities, all Security Entitlements, all Securities Accounts, all Commodity Contracts and all Commodity Accounts, (b) security entitlements, in the case of any United States Treasury book-entry securities, as defined in 31 C.F.R. section 357.2, or, in the case of any United States federal agency book-entry securities, as defined in the corresponding United States federal regulations governing such book-entry securities, and (c) whether or not otherwise constituting “investment property” as so defined, all Pledged Equity Interests and Pledged Debt Securities.

Lease ” means any lease, tenancy, subtenancy, license, franchise, concession or other use or occupancy agreement, whether written or oral, and any and all extensions, renewals or other modifications thereof, including all oil, gas and other minerals leases, surface leases or easements, subleases, licenses, concessions, operating rights or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to explore, use, lease, license, possess, produce, process, store or transport oil, gas, coal or other minerals from, operate from, or otherwise enjoy, any property or any interest therein, together with all amendments, modifications, extensions and renewals thereof (and “ landlord ” means the landlord, sublandlord, lessor, sublessor, franchisor or other grantor of a right of use or occupancy under a Lease and any guarantor of its obligations thereunder; and “ tenant ” means the tenant, subtenant, lessee, sublessee, licensee, franchisee, concessionaire or other occupant under a Lease and any guarantor of its obligations thereunder).

Lenders ” has the meaning assigned to such term in the preamble.

Letter of Credit ” means “ letter of credit ” as defined in Article 9 of the UCC.

Letter of Credit Right ” means “ letter-of-credit right ” as defined in Article 9 of the UCC.

 

6


Money ” means “ money ” as defined in the UCC.

Organizational Documents ” means, with respect to any person, (a) in the case of any corporation, the certificate or articles of incorporation and by-laws (or similar documents) of such person, (b) in the case of any limited liability company, the certificate of formation and operating agreement (or similar documents) of such person, (c) in the case of any limited partnership, the certificate of formation and limited partnership agreement (or similar documents) of such person, (d) in the case of any general partnership, the partnership agreement (or similar document) of such person and (e) in any other case, the functional equivalent of the foregoing.

Patent License ” means all Contracts providing for the grant of any right to, directly or indirectly, manufacture, use, import, export, distribute, offer for sale or sell any invention covered in whole or in part by a Patent, including any of the foregoing listed in Schedule 4.7.

Patents ” means all current and future inventions and discoveries (whether patentable or not) and letters of patent of the United States, any other country, union of countries or any political subdivision of any of the foregoing, and all reissues and extensions, divisions, renewals, continuations and continuations-in-part thereof, all amendments and supplements thereto, all improvements thereon, all invention disclosures, registrations and any and all applications for any of the foregoing including any of the foregoing listed in Schedule 4.7 .

Patent Security Agreement ” means a patent security agreement in form and substance reasonably satisfactory to the Agents.

Payment Intangible ” means “ payment intangible ” as defined in Article 9 of the UCC.

Plan of Reorganization ” has the meaning assigned to such term in the preamble.

Pledged Collateral ” has the meaning assigned to such term in Section 3.1 .

Pledged Debt Securities ” has the meaning assigned to such term in Section 3.1 .

Pledged Equity Interests ” has the meaning assigned to such term in Section 3.1 .

Pledged Securities ” means any promissory notes, stock certificates or other securities now or hereafter included in the Pledged Collateral, including all certificates, instruments or other documents representing or evidencing any Pledged Collateral.

Proceeds ” means all “ proceeds ” as such term is defined in Section 9-102(a)(64) of the UCC of Collateral and, in any event, shall include all dividends or other income from the Investment Property and Intellectual Property constituting Collateral, collections thereon or distributions or payments with respect thereto.

 

7


Real Estate ” means all real property, whether owned or leased, of a Grantor, and all ownership, leasehold or other possessory or use rights therein, including without limitation the Leases and Real Estate Assets set forth on Schedule 5.01(o) to the Credit Agreement.

Registered ” means issued by, registered with, renewed by or the subject of a pending application before any Governmental Authority or Internet domain name registrar.

Secured Parties ” means each of the Administrative Agent, the Collateral Agent, the Lenders and the Hedging Agreement Providers.

Securities Account ” means (a) all “ securities accounts ” as defined in Article 8 of the UCC, and (b) shall include the securities accounts listed on Schedule 4.5(b) hereto, together, in each case, with all funds held therein and all certificates or instruments representing any of the foregoing.

Securities Account Control Agreement ” means an agreement in form and substance reasonably satisfactory to the Agents, the Grantor and the financial intermediary where such Securities Account is maintained, establishing the Collateral Agent’s control within the meaning of Section 9-106 of the UCC with respect to any Securities Account.

Securities Act ” means the Securities Act of 1933, as amended.

Securities Collateral ” means Collateral that are Securities.

Security ” means “ security ” as defined in Article 9 of the UCC.

Tangible Chattel Paper ” means “ tangible chatter paper ” as defined in Article 9 of the UCC.

Trademark License ” means any Contract providing directly or indirectly for the grant of any right in, to or under any Trademark, including any of the foregoing referred to in Schedule 4.7 hereto.

Trademarks ” means all current and future United States, state and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, internet domain names, trade dress, service marks, certification marks, collective marks, logos, all other indicators of the source of goods or services, designs and general intangibles of a like nature, whether registered or unregistered and all common law rights related thereto, all registrations, recordings and applications for any of the foregoing including, but not limited to, the registrations and applications referred to in Schedule 4.7 (as such schedule may be amended or supplemented from time to time), all extensions or renewals of any of the foregoing all of the goodwill of the business connected with the use of and symbolized by the foregoing.

 

8


Trademark Security Agreement ” means a trademark security agreement in form and substance reasonably satisfactory to the Agents.

Trade Secret License ” means any Contract, providing directly or indirectly for the grant of any right in, to or under any Trade Secret, including any of the foregoing listed in Schedule TS-1 hereto.

Trade Secrets ” means all trade secrets and all other confidential or proprietary information, technology and know-how including drawings, formulae, schematics, designs, plans, processes, supplier lists, business plans, business methods and prototypes now or hereafter owned or used in the business of an entity throughout the world (all of the foregoing being collectively called a “ Trade Secret ”), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating, or referring in any way to such Trade Secret.

UCC ” means the Uniform Commercial Code enacted in the State of New York, as amended from time to time; provided that if by reason of mandatory provisions of law, the perfection, the effect of perfection or non-perfection or priority is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, “ UCC ” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

Uncertificated Security ” means “ uncertificated security ” as defined in Article 9 of the UCC.

1.2. Other Definitions: Interpretation . All capitalized terms used herein (including in the preamble, the recitals and Section 1.1) and not otherwise defined have the meanings ascribed to them in the Credit Agreement, or, if not defined therein, in the UCC. References to “Sections” and “Schedules” are references to Sections and Schedules, as the case may be, of this Agreement unless otherwise expressly provided. The words “hereof’, “herein”, “hereto” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Any of the terms defined herein may be used in either the singular or the plural. The terms “payment in full”, “paid in full” and any other similar terms or phrases when used herein with respect to the Obligations or the Grantor Obligations means the unconditional, final and irrevocable payment in full, in immediately available funds, of all of the Obligations or the Grantor Obligations, as the case may be, in each case, unless otherwise specified, other than indemnification and other contingent obligations not then due and payable. The words “include”, “includes” and “including”, and words of similar import, shall not be limiting and shall be deemed to be followed by the phrase “without limitation”. All references to the Lenders herein shall, where appropriate, include any Agent and any Lender. The word “license” shall include “sublicense” and vice versa, and the same shall be true for corresponding terms such as licensor, licensee, sub licensor, sublicense, and related noun and verb forms. If any conflict or inconsistency exists between this Agreement and the Credit Agreement, the Credit Agreement shall govern.

 

9


SECTION 2. GRANT OF SECURITY INTEREST IN REAL AND PERSONAL PROPERTY;

CONTINUING LIABILITY UNDER COLLATERAL

2.1. Collateral . (a) Each Grantor hereby assigns and transfers to the Collateral Agent, and hereby grants to the Collateral Agent, for the benefit of the Secured Parties, a first priority Lien and security interest in all of the assets and all real and personal property (whether tangible or intangible) of such Grantor, including all of the following property, in each case, wherever located and now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Collateral”), as security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) and observance of all Grantor Obligations and all other Obligations under the Loan Documents:

 

  (i) all Accounts;

 

  (ii) all Chattel Paper;

 

  (iii) all Collateral Accounts and all Collateral Account Funds;

 

  (iv) all Commercial Tort Claims;

 

  (v) all Contracts;

 

  (vi) all Deposit Accounts;

 

  (vii) all Documents;

 

  (viii) all Equipment;

 

  (ix) all Fixtures;

 

  (x) all General Intangibles;

 

  (xi) all Goods;

 

  (xii) all Instruments;

 

  (xiii) all Insurance;

 

  (xiv) all Intellectual Property and Intellectual Property Licenses;

 

  (xv) all Inventory

 

  (xvi) all Investment Property;

 

  (xvii) all Letters of Credit and Letter of Credit Rights;

 

  (xviii) all Money;

 

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(xix) all Pledged Collateral as set forth in Section 3;

(xx) all Real Estate;

(xxi) all Securities;

(xxii) all Securities Accounts;

(xxiii) all books, records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals, computer software, computer printouts, tapes, disks and other electronic storage media and related data processing software and similar items that at any time pertain to or evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon;

(xxiv) all Proceeds, products, accessions, rents and profits of or in respect of any of the foregoing; and

(xxv) to the extent not otherwise included, all other personal property, whether tangible or intangible, of such Grantor and all Proceeds, products, accessions, rents, issues and profits of any and all of the foregoing and all collateral security, supporting obligations and guarantees given by any person with respect to any of the foregoing;

provided that no security interest or Lien shall be granted in any Excluded Asset or any United States intent-to-use trademark or service mark application until an amendment to allege use or statement of use has been filed under 15 U.S.C. § 1051(c) or 15 U.S.C. § 1051(d) and accepted by the United States Patent and Trademark Office, upon which such application shall automatically be subject to the security interest granted herein and deemed to be included in the Collateral.

(b) In addition, to secure the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) and observance of the Grantor Obligations and all other Obligations under the Loan Documents and in order to induce the Collateral Agent and the Secured Parties as aforesaid, each Grantor hereby grants to the Collateral Agent, for itself and the benefit of the Secured Parties, a right of setoff against the property of such Grantor held by the Collateral Agent or any Secured Party, consisting of property described above in Section 2.1(a) now or hereafter in the possession or custody of or in transit to the Collateral Agent or any Secured Party, for the account of such Grantor, or as to which such Grantor may have any right or power.

2.2. Liability . Notwithstanding anything herein to the contrary, (i) each Grantor shall remain liable for all obligations under and in respect of the Collateral and nothing contained herein is intended or shall be a delegation of duties to the Collateral Agent or any other Secured Party, (ii) each Grantor shall remain liable under each of the agreements included in the Collateral, including any Accounts and any Contracts to perform all of the obligations undertaken by it thereunder all in accordance with and pursuant to the terms and provisions thereof and neither the Collateral Agent nor any other Secured Party shall have any obligation or liability under any of such agreements by reason of or arising out of this Agreement or any other

 

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document related hereto nor shall the Collateral Agent nor any other Secured Party have any obligation to make any inquiry as to the nature or sufficiency of any payment received by it or have any obligation to take any action to collect or enforce any rights under any agreement included in the Collateral, including any agreements relating to any Accounts or any Contracts and (iii) the exercise by the Collateral Agent of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the Contracts and agreements included in the Collateral, including any agreements relating to any Accounts and any Contracts.

2.3. Authorization . Each Grantor also ratifies its authorization for the Collateral Agent to file in any relevant jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof Each Grantor further authorizes the Collateral Agent to file with the United States Patent and Trademark Office or the United States Copyright Office (or any successor office or any similar office in any other country, union of countries or any political subdivision of any of the foregoing), any Intellectual Property Security Agreements, this Agreement and such other documents as may be reasonably necessary or advisable for the purpose of effecting, perfecting, confirming, continuing, enforcing or protecting the security interest granted by each Grantor and naming any Grantor or the Grantors as debtors, grantors, or assignors, as applicable, and the Collateral Agent as secured party, grantee, or assignee, as applicable.

SECTION 3. PLEDGE OF EQUITY INTERESTS;

DEBT SECURITIES; CHATTEL PAPER; INSTRUMENTS

3.1. Pledge . Each Grantor, as security for the payment or performance, as the case may be, in full of all of its Grantor Obligations hereby assigns and pledges to the Collateral Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest in all of such Grantor’s right, title and interest in, to and under:

(a) (i) the Equity Interests owned by it as of the Closing Date and listed opposite the name of such Grantor on Schedule A , (ii) all of the Equity Interests obtained in the future by a Grantor of each Person that becomes a direct or indirect Domestic Subsidiary of such Grantor, and all of the Equity Interests obtained in the future by a Grantor up to 100% of the nonvoting and 66% of the voting Equity Interests of each Person that becomes a direct or indirect Foreign Subsidiary of such Grantor and which is classified as a “controlled foreign corporation” under Section 957 of the Internal Revenue Code of 1986, as amended, and (iii) the certificates representing all such Equity Interests (collectively, the “ Pledged Equity Interests ”),

(b) (i) the debt securities owned by it as of the Closing Date and listed opposite the name of such Grantor on Schedule A , (ii) any debt securities in the future issued to such Grantor and (iii) the promissory notes and any other instruments evidencing such debt securities, in each case including but not limited to debt securities owned by a Grantor and issued by another Grantor or a Subsidiary of a Grantor (collectively, the “ Pledged Debt Securities ”),

(c) subject to Section 3.6 , all payments of principal or interest, dividends, cash, Chattel Paper, Instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of, and all other Proceeds received in respect of, the securities referred to in clauses (a) and (b) above,

 

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(d) subject to Section 3.6 , all rights and privileges of such Grantor with respect to the securities and other property referred to in clauses (a), (b) and (c) above, and

(e) all Proceeds of any of the foregoing (the items referred to in clauses (a) through (e) being collectively referred to as the “ Pledged Collateral ”).

3.2. Delivery of the Pledged Securities .

(a) On the Closing Date each Grantor will deliver to the Collateral Agent all Pledged Securities, Chattel Paper and Instruments then owned by it. Each Grantor agrees promptly (but in any event within twenty days after receipt thereof by such Grantor) to deliver or cause to be delivered to the Collateral Agent any and all Pledged Securities acquired by it after the Closing Date.

(b) Each Grantor will cause any Indebtedness for borrowed money owed to such Grantor by any Person other than a Grantor (or any Subsidiary thereof) in principal amount in excess of $1,000,000 that is evidenced by a duly executed promissory note to be pledged and delivered to the Collateral Agent pursuant to the terms hereof

(c) Upon the delivery thereof to the Collateral Agent by any Grantor, (i) any Securities Collateral shall be accompanied by stock powers duly executed in blank or other instruments of transfer satisfactory to the Collateral Agent and (ii) all other property comprising part of the Securities Collateral shall be accompanied by proper instruments of assignment duly executed by the applicable Grantor. Each delivery of Securities Collateral shall be accompanied by a schedule describing the securities included therein, which schedule shall be attached hereto as part of Schedule A and made a part hereof, provided that failure to attach any such schedule hereto shall not affect the validity of such pledge of such Securities Collateral. Each schedule so delivered shall supplement any prior schedules so delivered.

(d) If any Pledged Collateral is or shall become evidenced or represented by an Uncertificated Security, such Grantor shall (i) cause the issuer to execute and deliver to the Collateral Agent an acknowledgment of the pledge of such Uncertificated Security in form and substance reasonably satisfactory to the Agents, and (ii) if necessary to perfect a security interest in such Uncertificated Security, cause such pledge to be recorded on the equity holder register or the books of the issuer, execute any customary pledge forms or other documents necessary or appropriate to complete the pledge and give the Collateral Agent the right to transfer such Uncertificated Security under the terms hereof

3.3. Representations. Warranties and Covenants Related to Equity Interests . The Grantors jointly and severally represent, warrant and covenant to and with the Collateral Agent, for the benefit of the Secured Parties, that:

(a) Schedule A correctly sets forth the percentage of the issued and outstanding units of each class of the Equity Interests of the issuer thereof represented by the Pledged Equity Interests and includes (i) all of the Equity Interests of each Person that is a direct

 

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Domestic Subsidiary of such Grantor, and all of the Equity Interests up to 100% of the nonvoting and 66% of the voting Equity Interests of each Person that that is a Foreign Subsidiary of such Grantor and (ii) all of the debt securities and promissory notes held by each Grantor. No such Equity Interests are subject to prohibitions on assignment or encumbrance or to agreements that require or purport to require consent of or notice to any party in connection with the grant of a security interest thereon (including the exercise of remedies by the Collateral Agent with respect thereto) except for such consents that have been obtained and such notices have been given or Permitted Liens.

(b) In the case of Pledged Equity Interests and Pledged Debt Securities issued by any Grantor, such Pledged Equity Interests and Pledged Debt Securities have been duly and validly authorized and issued by the issuers thereof and (i) in the case of Pledged Equity Interests, are fully paid and nonassessable and (ii) in the case of Pledged Debt Securities, are legal, valid and binding obligations of the issuers thereof, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(c) Except for the security interests granted hereunder, each of the Grantors (i) is and, subject to any transfers made in compliance with, or transactions permitted by, the Credit Agreement, will continue to be the direct owner, beneficially and of record, of the Pledged Equity Interests indicated on Schedule A as owned by such Grantor, (ii) holds the same free and clear of all Liens, other than Liens created by this Agreement, Liens expressly permitted by the Credit Agreement and transfers made in compliance with the Credit Agreement, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than Liens created by this Agreement, Liens expressly permitted by the Credit Agreement and transfers made in compliance with the Credit Agreement, and (iv) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Agreement), however arising, of all persons whomsoever.

(d) In the case of Pledged Collateral issued by any Grantor, except for restrictions and limitations imposed by the Loan Documents or securities laws generally, such Pledged Collateral is and will continue to be freely transferable and assignable, and none of such Pledged Collateral is or will be subject to any option, right of first refusal, shareholders agreement, voting trust, charter or by-law provisions or contractual restriction that prohibits the pledge of such Pledged Collateral hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Collateral Agent of rights and remedies hereunder.

(e) Each of the Grantors has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby contemplated.

(f) No consent or approval of any Governmental Authority, any securities exchange or any other person was or is necessary to ensure the validity of the pledge of any Pledged Collateral issued by any Grantor effected hereby (other than such as have been obtained and are in full force and effect).

 

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(g) By virtue of the execution and delivery by the Grantors of this Agreement, when any Collateral is delivered to the Collateral Agent in accordance with this Agreement, the Collateral Agent will obtain a legal, valid and perfected first priority Lien upon and security interest in such Collateral (subject only to Permitted Liens) as security for the payment and performance of the Grantor Obligations.

(h) If such Grantor shall become entitled to receive or shall receive any stock or other ownership certificate (including any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Pledged Equity Interests in any issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of or other ownership interests in the Pledged Equity Interests, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Secured Parties, hold the same in trust for the Secured Parties and deliver the same to the Collateral Agent in the exact form received, duly endorsed by such Grantor to the Collateral Agent, if required, together with an undated stock power or similar instrument of transfer covering such certificate duly executed in blank by such Grantor and with, if the Collateral Agent so requests, signature guaranteed, to be held by the Collateral Agent, subject to the terms hereof, as additional collateral security for the respective Grantor’s Grantor Obligations. Any sums paid upon or in respect of the Pledged Equity Interests upon the liquidation or dissolution of any issuer shall be paid over to the Collateral Agent to be held by it hereunder as additional collateral security for the respective Grantor’s Grantor Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Equity Interests or any property shall be distributed upon or with respect to the Pledged Equity Interests pursuant to the recapitalization or reclassification of the capital of any issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Collateral Agent, be delivered to the Collateral Agent to be held by it hereunder as additional collateral security for the respective Grantor’s Grantor Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Equity Interests shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Collateral Agent, hold such money or property in trust for the Secured Parties, segregated from other funds of such Grantor, as additional collateral security for the respective Grantor’s Grantor Obligations.

(i) In the case of each Grantor which is an issuer, such issuer agrees that (i) it shall be bound by the terms of this Agreement relating to the Pledged Equity Interests issued by it and shall comply with such terms insofar as such terms are applicable to it, and (ii) it shall notify the Collateral Agent promptly in writing of the occurrence of any of the events described in Section 3.3(h) with respect to the Pledged Equity Interests issued by it. In addition, each Grantor which is either an issuer or an owner of any Pledged Equity Interest hereby consents to the grant by each other Grantor of the security interest hereunder in favor of the Collateral Agent and to the transfer of any Pledged Equity Interest to the Collateral Agent or its nominee following the occurrence and during the continuance of an Event of Default and to the substitution of the Collateral Agent or its nominee as a partner, member or shareholder of the issuer of the related Pledged Equity Interest.

 

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3.4. Certification of Limited Liability Company and Limited Partnership Interests . To the extent permitted by applicable laws save where any Grantor would suffer materially adverse consequences, each interest in any limited liability company or limited partnership, in each case controlled by any Grantor and pledged hereunder shall be represented by a certificate, shall be a “security” within the meaning of Article 8 of the UCC and shall be governed by Article 8 of the UCC.

3.5. Registration in Nominee Name Denominations . The Collateral Agent, on behalf of the Secured Parties, shall have the right (in its sole and absolute discretion) to hold the Pledged Collateral in its own name as pledgee, the name of its nominee (as pledgee or as subagent) or the name of the applicable Grantor, endorsed or assigned in blank or in favor of the Collateral Agent. To the extent not prohibited by applicable law or contract, each Grantor will promptly give to the Collateral Agent copies of any material notices or other material communications received by it with respect to Pledged Collateral registered in the name of such Grantor. Upon the occurrence and during the continuation of an Event of Default, the Collateral Agent shall at all times have the right to exchange the certificates representing Pledged Collateral for certificates of smaller or larger denominations for any purpose consistent with this Agreement.

3.6. Voting Rights Dividends and Interest .

(a) Unless and until an Event of Default shall have occurred and be continuing and the Collateral Agent shall have notified the Grantors that their rights under this Section 3.6 are being suspended:

(i) Each Grantor shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement, the Credit Agreement and the other Loan Documents, provided that such rights and powers shall not be exercised in any manner that could reasonably be expected to materially and adversely affect the rights inuring to a holder of any Pledged Collateral or the rights and remedies of any of the Collateral Agent or the other Secured Parties under this Agreement, the Credit Agreement or any other Loan Document or the ability of the Secured Parties to exercise the same.

(ii) To the extent that the Collateral Agent is the registered owner thereof, the Collateral Agent shall execute and deliver to each Grantor, or cause to be executed and delivered to such Grantor, all such proxies, powers of attorney and other instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above (including for the purpose of reinstating any such rights and powers after the cure or waiver of any Event of Default).

(iii) Each Grantor shall be entitled to receive and retain any and all cash dividends, interest, principal and other cash distributions paid on or distributed in respect of the Pledged Collateral to the extent and only to the extent that such dividends, interest, principal and other distributions are permitted by, and otherwise paid or distributed in

 

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accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable laws, provided that any noncash dividends, interest, principal or other distributions that would constitute Pledged Equity Interests or Pledged Debt Securities, whether resulting from a subdivision, combination or reclassification of the outstanding Equity Interests of the issuer of any Pledged Collateral or received in exchange for Pledged Collateral or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by any Grantor, shall not be commingled by such Grantor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).

(b) Upon the occurrence and during the continuance of an Event of Default, after the Collateral Agent shall have notified the Grantors of the suspension of their rights under paragraph (a) of this Section 3.6 , then all rights of any Grantor to dividends, interest, principal or other distributions that such Grantor is authorized to receive pursuant to paragraph (a)(iii) of this Section 3.6 shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such dividends, interest, principal or other distributions. All dividends, interest, principal or other distributions received by any Grantor contrary to the provisions of this Section 3.6 shall be held in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of such Grantor and shall be forthwith delivered to the Collateral Agent upon demand in the same form as so received (with any necessary endorsement). Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this paragraph (b) shall be retained by the Collateral Agent in an account to be established by the Collateral Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 6.5 . After all Events of Default have been cured or waived and the Borrower has delivered to the Collateral Agent a certificate to that effect, the Collateral Agent shall promptly repay to each Grantor (without interest) all dividends, interest, principal or other distributions that such Grantor would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 3.6 and that remain in such account.

(c) Upon the occurrence and during the continuance of an Event of Default, but after the Collateral Agent shall have notified the Grantors of the suspension of their rights under paragraph 3.6 of this Section 3.6 , all rights of any Grantor to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 3.6 and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 3.6 shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers, provided that , unless otherwise directed by the Required Lenders, the Collateral Agent shall have the right from time to time following and during the continuance of an Event of Default to permit the Grantors to exercise such rights.

(d) Any notice given by the Collateral Agent to the Grantors suspending their rights under paragraph 3.6 of this Section 3.6 (i) may be given by telephone if confirmed in writing within a reasonable time, (ii) may be given to one or more of the Grantors at the same or

 

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different times and (iii) may suspend all or any portion of the rights of the Grantors under paragraph (a)(i), (a)(ii) or (a)(iii) (as specified by the Collateral Agent in its sole and absolute discretion) and without waiving or otherwise affecting the Collateral Agent’s rights to give additional notices from time to time suspending other rights so long as an Event of Default has occurred and is continuing.

SECTION 4. REPRESENTATIONS AND WARRANTIES

To induce the Agents and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby represents and warrants to the Secured Parties that:

4.1. Representations in Credit Agreement . In the case of each Grantor, the representations and warranties set forth in the Credit Agreement as they relate to such Grantor or to the Loan Documents to which such Grantor is a party, each of which is hereby incorporated herein by reference, are true and correct, in all material respects, as of the date hereof except for representations and warranties expressly stated to relate to a specific earlier date, in which case such representations and warranties were true and correct in all material respects as of such earlier date, and the Secured Parties shall be entitled to rely on each of them as if they were fully set forth herein.

4.2. Title No Other Liens . Such Grantor owns each item of the Collateral free and clear of any and all Liens or claims, including, without limitation, Liens arising as a result of such Grantor becoming bound (as a result of merger or otherwise) as grantor under a security agreement entered into by another Person, except for Permitted Liens.

4.3. Name; Jurisdiction of Organization. etc . On the date hereof, such Grantor’s exact legal name (as indicated on the public record of such Grantor’s jurisdiction of formation or organization), jurisdiction of organization, organizational identification number, if any, and the location of such Grantor’s chief executive office or, if different, its principal place of business are specified on Schedule 4.3 hereto. Each Grantor is organized solely under the law of the jurisdiction so specified and has not filed any certificates of domestication, transfer or continuance in any other jurisdiction. Except as specified on Schedule 4.3 , no such Grantor has changed its name, jurisdiction of organization, chief executive office or, if different, its principal place of business or its corporate structure in any way (e.g. by merger, consolidation, change in corporate form or otherwise) within the past year and has not within the last four months become bound (whether as a result of merger or otherwise) as a grantor under a security agreement entered into by another person, which has not heretofore been (or on the date hereof will be) terminated, other than Liens expressly permitted under the Credit Agreement.

 

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4.4. Inventory and Equipment . Any Inventory now or hereafter produced by any Grantor included in the Collateral has been and will be produced in material compliance with the requirements of all Applicable Laws and regulations, including the Fair Labor Standards Act, as amended.

4.5. Certain Investment Property and Deposit Accounts .

(a) Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Investment Property and Deposit Accounts pledged by it hereunder, free of any and all Liens, except Permitted Liens.

(b) As of the date hereof, no Grantor has any Deposit Account, Securities Account or Commodity Account other than the accounts listed in Schedule 4.5(b) .

4.6. Intentionally Omitted .

4.7. Intellectual Property .

(a) Schedule 4.7 sets forth a true, complete and correct list of (i) all Registered Intellectual Property , all material unregistered Trademarks and all material unregistered Copyrights in each case which are owned or exclusively licensed by a Grantor on the date hereof(indicating for each Registered item the registration or application number and the applicable filing jurisdiction); and (ii) all Intellectual Property Licenses. Except as set forth in Schedule 4.7 , the applicable Grantor is the exclusive owner of the entire right, title and interest in and to, or has the right to use pursuant to a valid and enforceable Intellectual Property License, all Intellectual Property used in the conduct of its business as currently conducted, free and clear of any Liens other than Permitted Liens.

(b) Except as set forth in Schedule 4.7 , on the date hereof, all Intellectual Property owned by a Grantor is subsisting, unexpired and has not been abandoned and to such Grantor’s knowledge, valid and enforceable and, to such Grantor’s knowledge, all material Intellectual Property licensed to a Grantor, is valid, enforceable, subsisting and unexpired and has not been abandoned. To such Grantor’s knowledge, neither the operation of such Grantor’s business as currently conducted nor the use of any Intellectual Property in connection therewith by any Grantor conflicts with, infringes, misappropriates, dilutes, misuses or otherwise violates the Intellectual Property rights of any other person.

(c) Except as set forth in Schedule 4.7 hereto, on the date hereof (i) none of the Intellectual Property used by a Grantor in the conduct of its business is the subject of any Intellectual Property License pursuant to which a Grantor is the licensor and (ii) there are no other Contracts which grant a Grantor the right to use any Intellectual Property.

(d) Except as set forth in Schedule 4.7 , (i) no claim has been asserted or threatened against any of the Grantors that the use of any Intellectual Property by any Grantor does or may conflict with, infringe upon, misappropriate, dilute, misuse or otherwise violate the Intellectual Property rights of any other party; and (ii) no Grantor has received any demand, claim, notice, or inquiry from any Person in respect of the Intellectual Property used by such Grantor in the conduct of its business as currently conducted which challenges, threatens to

 

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challenge or inquires as to whether there is any basis to challenge the validity or enforceability of, or the ownership by any such Grantor in, or the right of any Grantor to use, any such Intellectual Property, and no Grantor knows of any basis for any of the same;

(e) Except as set forth in Schedule 4.7 , no holding, decision, decree, award, injunction, order or judgment has been rendered by any Governmental Authority or arbitrator in the United States or outside the United States which would limit or cancel the validity or enforceability of any Intellectual Property owned by a Grantor, or to such Grantor’s knowledge, any Intellectual Property licensed to a Grantor. Such Grantor is not aware of any unauthorized uses of any item included in the material Intellectual Property used in the conduct of its business as currently conducted that could reasonably be expected to lead to such item becoming invalid or unenforceable.

(f) Except as set forth in Schedule 4.7 , no action, litigation, arbitration, opposition, cancellation, action, investigation or proceeding or proceeding is pending or to each Grantor’s knowledge, threatened against any of the Grantors on the date hereof (i) seeking to limit, cancel or question the ownership, registerability, use, validity or enforceability of any Intellectual Property used in the conduct of their businesses as currently conducted or any interest therein of any Grantor, (ii) alleging that any Intellectual Property owned or used by, services provided by, processes used by, or products manufactured or sold by such Grantor infringe, dilute, misappropriate or violate any patent, trademark, copyright, or any other intellectual property right of any other person, (iii) alleging that any Intellectual Property is being licensed or sublicensed in violation of any Intellectual Property or any other right of any other person, or (iv) which, if adversely determined, would have a Material Adverse Effect or would materially detract from the value of any Intellectual Property used by any Grantor in the conduct of its business as currently conducted.

(g) Except as set forth in Schedule 4.7 , to such Grantor’s knowledge, no person is engaging in any activity that conflicts with, infringes upon, misappropriates, dilutes, misuses, otherwise violates or is otherwise engaged in any unauthorized use of, any Intellectual Property owned or licensed by a Grantor or upon the rights of such Grantor therein. Such Grantor has not granted any release, covenant not to sue, non-assertion assurance, or other right to any person with respect to any part of its Intellectual Property, other than as set forth in Schedule 4.7 . The consummation of the transactions contemplated by this Agreement will not result in the termination, cancellation, abandonment, modification, limitation or impairment of any of a Grantor’s right in or to any material Intellectual Property owned or licensed by a Grantor.

(h) Except as set forth in Schedule 4.7 , with respect to each material Intellectual Property License: (i) such license is valid and binding in full force and effect; (ii) such license will not cease to be valid, binding and in full force and effect on terms substantially the same as those currently in effect as a result of the rights and interests granted herein or in the Credit Agreement (including the enforcement of remedies), nor will the grant of such rights and interests constitute a breach or default under such license that would give the licensor or licensee a right to terminate or adversely modify the terms of such license; (iii) no party to any such license has given a Grantor notice of a material breach or default under any such license, which breach or default has not been cured, or of its intention to terminate or cancel any such license or

 

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convert such license to a non-exclusive license or convert such license to run directly to a sublicensee; and (iv) such Grantor is not in material breach or default and no event has occurred that, with notice and/or lapse of time, would constitute such a breach or default or permit termination, modification or acceleration under any Intellectual Property License.

(i) No employee, independent contractor or agent of a Grantor or any Grantor’s predecessor in interest has failed to assign his or her rights (if any) in any Intellectual Property to Grantor or Grantor’s Predecessor (including right in to and under any patents, inventions and discoveries). To such Grantor’s knowledge, (i) none of the Trade Secrets owned by such Grantor have been used, divulged, disclosed or appropriated to the detriment of such Grantor; (ii) no employee, independent contractor or agent of such Grantor has misappropriated any Trade Secrets of any other person in the course of the performance of his or her duties as an employee, independent contractor or agent of such Grantor; and (iii) no employee, independent contractor or agent of such Grantor is in material breach or default of any agreement relating to the protection, ownership, development, use or transfer of any Intellectual Property owned or licensed by a Grantor.

(j) Each Grantor has timely made all necessary filings, payments and recordations to protect its interest in the material Registered Intellectual Property, including in the United States, recordations of all its interest in the United States Patent and Trademark Office and the United States Copyright Office.

4.8. Letters of Credit and Letter of Credit Rights . No Grantor is a beneficiary or assignee under any Letter of Credit other than the Letters of Credit described on Schedule 4.8 .

4.9. Intentionally Omitted .

4.10. Contracts . Schedule 4.10 sets forth all of the Material Contracts in which a Grantor has any right or interest.

(a) Except as set forth on Schedule 4.10 and subject to the provisions of Section 5.6(c) below, no such Material Contract prohibits assignment or encumbrance by such Grantor or requires or purports to require consent of, or notice to, any party (other than such Grantor) to any such Material Contract in connection with the execution, delivery and performance of this Agreement, including the exercise of remedies by the Collateral Agent with respect to such Material Contract, except for such consents that have been obtained and such notices that have been given which the Grantor believes, in its reasonable judgment, is usual and customary in transactions of such type.

(b) Each Material Contract is in full force and effect and constitutes a valid and legally enforceable obligation of each other party thereto, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law).

 

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(c) Neither a Grantor nor, to the Grantor’s knowledge, any of the other parties to the Material Contracts is in default in the performance or observance of any of the material terms thereof

(d) No amount payable to a Grantor under or in connection with any Material Contract is evidenced by any Instrument or Tangible Chattel Paper which has not been delivered to the Collateral Agent or constitutes Electronic Chattel Paper that is not under the Control of the Collateral Agent.

SECTION 5. COVENANTS

Each Grantor covenants and agrees with the Secured Parties that, from and after the date of this Agreement until the Obligations and Grantor Obligations shall have been paid in full, and all Commitments under the Credit Agreement shall have expired or been terminated:

5.1. Covenants in Credit Agreement . Each Grantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken by it or not taken by it, as the case may be, pursuant to the Credit Agreement, so that no Default or Event of Default is caused by its failure to take such action or to refrain from taking such action.

5.2. Payment of Obligations . At its option, the Collateral Agent may discharge past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Collateral and not expressly permitted pursuant to the Credit Agreement, and may pay for the maintenance and preservation of the Collateral to the extent any Grantor fails to do so, and each Grantor jointly and severally agrees to reimburse the Collateral Agent on demand for any payment made or any expense incurred by the Collateral Agent pursuant to the foregoing authorization, provided that nothing in this paragraph shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Collateral Agent or any Secured Party to cure or perform, any covenants or other promises of any Grantor with respect to taxes, assessments, charges, fees, Liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents.

5.3. Maintenance of Perfected Security Interest; Further Documentation .

(a) Such Grantor shall maintain each of the security interests created by this Agreement as a perfected security interest having at least the priority described in the Credit Agreement and shall defend such security interest against the claims and demands of all persons whomsoever.

(b) Such Grantor shall furnish to the Secured Parties from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the assets and property of such Grantor as the Collateral Agent may request, in writing, all in reasonable detail.

(c) At any time and from time to time, upon the written request of the Collateral Agent, and at the sole expense of such Grantor, such Grantor shall promptly and duly authorize, execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Collateral Agent may reasonably request for the purpose of

 

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obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including (i) the filing of any financing or continuation statements under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and (ii) in the case of Investment Property constituting Collateral and any other relevant Collateral, taking such actions necessary to enable the Collateral Agent to obtain control within the meaning of Section 8-106 of the UCC with respect thereto.

5.4. Notices . Such Grantor shall advise the Collateral Agent promptly, in reasonable detail, of:

(a) any Lien (other than any Permitted Lien) on any of the Collateral which would adversely affect the ability of the Collateral Agent to exercise any of its remedies hereunder; and

(b) of the occurrence of any other event which could reasonably be expected to have a Material Adverse Effect on the value of the Collateral.

5.5. Intellectual Property .

(a) Each Grantor (either itself or through its licensees or Affiliates) shall (i) consistent with reasonable business judgment continue to use each Trademark that is Intellectual Property in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain, consistent with reasonable business judgment, the quality of products and services offered under each Trademark and take all commercially reasonable steps to ensure that all licensed users of such Trademark maintain quality standards as established by such Grantor, (iii) use reasonable efforts to use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Collateral Agent, for the benefit of the Secured Parties, shall be entitled to obtain a perfected security interest in such mark pursuant to this Agreement and the Trademark Security Agreement, and (v) consistent with reasonable business judgment not (and shall use commercially reasonable efforts to not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark would be reasonably likely to become invalidated or impaired in any material way.

(b) Consistent with reasonable business judgment each Grantor (either itself or through its licensees or Affiliates) shall not do any act, or omit to do any act, whereby any Patent owned by a Grantor would be reasonably likely to become forfeited, abandoned or dedicated to the public.

(c) Consistent with reasonable business judgment each Grantor (either itself or through licensees or Affiliates) (i) will employ each Copyright owned by a Grantor and (ii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of such Copyrights owned by a Grantor would be reasonably likely to become invalidated or otherwise impaired. Such Grantor shall not (either itself or through licensees) do any act which would be reasonably likely to cause any portion of the Copyrights owned by a Grantor to fall into the public domain.

 

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(d) Each Grantor (either itself or through its licensees or Affiliates) agrees that it shall not knowingly do any act that uses any Intellectual Property to infringe, dilute, misappropriate or otherwise violate the Intellectual Property rights of any other person

(e) Each Grantor shall use, and use commercially reasonable efforts to cause its licensees to use, proper statutory notice in connection with the use of the Intellectual Property owned by such Grantor.

(f) Each Grantor shall notify the Collateral Agent if it knows that any application or registration included in the Intellectual Property owned or licensed by a Grantor has become or is reasonably likely to become, forfeited, abandoned or dedicated to the public, or of any adverse determination of any Governmental Authority (including the institution of or any adverse determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding any Grantor’s ownership of or right to use, or the validity of, any such Intellectual Property or such Grantor’s right to register the same, to own and maintain the same or use the same.

(g) Promptly upon a Grantor’s acquisition or creation of any copyrightable work, patentable invention or, trademark, such Grantor shall apply for registration thereof with the United States Copyright Office, the United States Patent and Trademark Office and any other appropriate office unless with respect to copyrightable works and patentable inventions, such registration is, in accordance with commercially reasonable business judgment not appropriate. Whenever a Grantor, either by itself or through any agent, employee, licensee or designee, shall (i) file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country, union of countries or any political subdivision thereof (ii) with regard to any intent-to-use trademark or service mark, when an amendment to allege use or statement of use has been filed under 15 U.S.C. § 105 1(c) or 15 U.S.C. § 105 1(d) and accepted by the United States Patent and Trademark Office; or (iii) acquires or develops any Intellectual Property, such Grantor shall report such filing to the Collateral Agent within ten (10) days after such filing occurs. Upon request of the Collateral Agent, each Grantor shall within five (5) days of such request, execute and deliver, and have timely recorded, any and all agreements, instruments, documents, and papers as the Collateral Agent may reasonably request to effect, evidence, perfect or otherwise put on public record the Secured Parties’ security interest in any Copyright, Patent, Trademark or other Intellectual Property of such Grantor and in the case of a Trademark, the goodwill and general intangibles of such Grantor relating thereto or represented thereby.

(h) Each Grantor shall take all reasonably necessary steps, including in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country, union of countries or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of Intellectual Property owned by a Grantor including the payment of required fees and taxes, the filing of responses to office actions issued by the United States Patent and Trademark Office and the United States Copyright Office, the filing of applications for renewal or extension, the filing of affidavits of use and affidavits of incontestability, the filing of divisional, continuation, continuation-in-part, reissue, and renewal

 

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applications or extensions, the payment of maintenance fees, and the participation in interference, reexamination, opposition, cancellation, infringement and misappropriation proceedings.

(i) Each Grantor shall not, without the prior written consent of the Collateral Agent, discontinue use of or otherwise abandon any of its Intellectual Property, unless such Grantor shall have determined in accordance with commercially reasonable business judgment that such use or the pursuit or maintenance of such Intellectual Property is no longer desirable in the conduct of such Grantor’s business and that the loss thereof could not reasonably be expected to have a Material Adverse Effect and, in any such case, such Grantor shall have given prompt notice of any such abandonment to the Collateral Agent in accordance herewith.

(j) In the event that any Grantor becomes aware that any Intellectual Property owned or exclusively licensed by a Grantor has been infringed, misappropriated, diluted or otherwise violated in any material respect by another party, such Grantor shall promptly notify the Collateral Agent and take such actions and cause its Affiliates to take such actions, as such Grantor shall reasonably deem appropriate under the circumstances or, subject to the terms of the Intellectual Property Licenses, as the Collateral Agent may reasonably request, to protect, maintain, enforce and preserve the full value of such Intellectual Property.

(k) Each Grantor agrees that, with regard to any intent-to-use trademark or service mark; when an amendment to allege use or statement of use has been filed under 15 U.S.C. § 1051(c) or 15 U.S.C. § 1051(d) and accepted by the United States Patent and Trademark Office, and should it obtain an ownership interest in or license to use any item of Intellectual Property which is not owned by or licensed to any Grantor as of the date hereof (the “ After-Acquired Intellectual Property ”), (i) the provisions of Section 2 shall automatically apply thereto, (ii) any such After-Acquired Intellectual Property, and in the case of Trademarks, the goodwill of the business connected therewith or symbolized thereby, shall automatically become part of the Intellectual Property or Intellectual Property Licenses as applicable, and (iii) it shall give prompt (and, in any event within ten (10) days after such Grantor acquires such ownership interest or learns of such license, as applicable) written notice thereof to the Collateral Agent in accordance herewith in accordance with the terms herein.

(l) Each Grantor agrees to execute a Copyright Security Agreement, Patent Security Agreement or Trademark Security Agreement, as applicable, with respect to both its Intellectual Property and its After-Acquired Intellectual Property (in each case, that are owned or exclusively licensed by a Grantor and are registered or filed with a Governmental Authority) in order to record the security interest granted herein to the Collateral Agent for the benefit of the Secured Parties with the United States Patent and Trademark Office, the United States Copyright Office, and any other applicable Governmental Authority.

(m) Each Grantor shall take all reasonably necessary steps to protect the secrecy of all material Trade Secrets.

(n) Each Grantor shall use commercially reasonably efforts to collect, at its own expense, all amounts due or to become due to such Grantor in respect of the Intellectual Property or any portion thereof In connection with such collections, each Grantor may take

 

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(and, at the Collateral Agent’s reasonable direction, shall take) such action as such Grantor or the Collateral Agent may deem reasonably necessary or advisable to enforce collection of such amounts. Notwithstanding the foregoing, the Collateral Agent shall have the right at any time upon the occurrence and during the continuance of an Event of Default, to notify, or require such Grantor to notify, any obligors with respect to any such amounts of the existence of the security interest created hereby.

5.6. Contracts .

(a) Each Grantor shall perform and comply with all its material obligations under the Material Contracts.

(b) Each Grantor shall deliver to the Collateral Agent a copy of each default notice or demand due to breach received by it relating in any way to any Material Contract and shall, concurrently with the delivery of each Quarterly Compliance Certificate, promptly provide the Administrative Agent with an updated Schedule 4. 10 to the Credit Agreement and deliver to the Collateral Agent a copy of such new Material Contract.

(c) Each Grantor agrees that it shall use all commercially reasonable efforts to not permit to become effective in any document creating any Material Contract, a provision that would prohibit the creation or perfection of, or exercise of remedies in connection with, a Lien on such Contract in favor of the of the Collateral Agent for the ratable benefit of the Secured Parties unless such Grantor believes, in its reasonable judgment, that such prohibition is usual and customary in transactions of such type.

5.7. Letter of Credit Rights . If any Grantor is at any time a beneficiary under a letter of credit in an aggregate principal amount exceeding $5,000,000 now or hereafter issued in favor of such Grantor, such Grantor shall promptly notify the Collateral Agent thereof and, at the request and option of the Collateral Agent, such Grantor shall use commercially reasonable efforts, and pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent, to either (a) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to the Collateral Agent of the proceeds of any drawing under the letter of credit or (b) arrange for the Collateral Agent to become the transferee beneficiary of the letter of credit, with the Collateral Agent agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be paid to the applicable Grantor unless an Event of Default has occurred or is continuing.

5.8. Commercial Tort Claims . Each Grantor shall advise the Collateral Agent promptly of any material Commercial Tort Claim held by such Grantor and shall promptly execute a supplement to this Agreement in form and substance reasonably satisfactory to the Collateral Agent to grant a security interest in such Commercial Tort Claim to the Collateral Agent for the benefit of the Secured Parties.

5.9. Bailee Letters . If requested by Collateral Agent, each Grantor shall use its commercially reasonable efforts to obtain a Bailee Letter from all bailees who from time to time have possession of Collateral on anything other than a temporary basis.

 

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SECTION 6. REMEDIAL PROVISIONS

6.1. Certain Matters Relating to Accounts .

(a) If required by the Collateral Agent at any time after the occurrence and during the continuance of a Default or an Event of Default, any payments of Accounts, when collected by any Grantor, (i) shall be forthwith (and, in any event, within one Business Day) deposited by such Grantor in the exact form received, duly endorsed by such Grantor to the Collateral Agent if required, in a Collateral Account maintained under the sole dominion and control of the Collateral Agent, subject to withdrawal by the Collateral Agent for the account of the Secured Parties only as provided in Section 6.5 , and (ii) until so turned over, shall be held by such Grantor in trust for the Secured Parties, segregated from other funds of such Grantor. Each such deposit of Proceeds of Accounts shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit.

(b) At the Collateral Agent’s request at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver to the Collateral Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts that are included in the Collateral, including all customer agreements and invoices.

(c) If an Event of Default shall occur and be continuing, all Proceeds received by any Grantor consisting of cash, Cash Equivalents, checks and other near-cash items shall be held by such Grantor in trust for the Secured Parties, segregated from other funds of such Grantor, and shall forthwith upon receipt by such Grantor be turned over to the Collateral Agent in the exact form received by such Grantor (duly endorsed by such Grantor to the Collateral Agent, if required). All Proceeds received by the Collateral Agent hereunder shall be held by the Collateral Agent in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Collateral Agent in a Collateral Account (or by such Grantor in trust for the Secured Parties) shall continue to be held as collateral security for all of the respective Grantor’s Grantor Obligations and shall not constitute payment thereof until applied as provided in Section 6.5 .

6.2. Communications with Obligors: Grantors Remain Liable .

(a) The Collateral Agent may, at any time after the occurrence and during the continuance of a Default or Event of Default, notify, or require any Grantor to so notify, the Account Debtor or counterparty on any Account or Contract of the security interest of the Collateral Agent therein. In addition, after the occurrence and during the continuance of an Event of Default, the Collateral Agent may upon written notice to the applicable Grantor, notify, or require any Grantor to notify, the Account Debtor or counterparty to make all payments under the Accounts and/or Contracts directly to the Collateral Agent.

(b) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Accounts and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. No Secured Party shall have any obligation or liability

 

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under any Account (or any agreement giving rise thereto) or Contract by reason of or arising out of this Agreement or the receipt by any Secured Party of any payment relating thereto, nor shall any Secured Party be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Account (or any agreement giving rise thereto) or Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

6.3. Pledged Equity Interests .

(a) If a an Event of Default shall occur and be continuing, the Collateral Agent shall have the right, without notice to any Grantor, to transfer all or any portion of the Investment Property constituting Collateral to its name or the name of its nominee or agent. In addition, the Collateral Agent shall have the right at any time that an Event of Default is continuing, to exchange any certificates or instruments representing any Investment Property constituting Collateral for certificates or instruments of smaller or larger denominations. In order to permit the Collateral Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to the Collateral Agent all proxies, dividend payment orders and other instruments as the Collateral Agent may from time to time request and each Grantor acknowledges that the Collateral Agent may utilize the power of attorney set forth herein at any time an Event of Default is continuing.

(b) Each Grantor hereby authorizes and instructs each issuer of any Pledged Equity Interests pledged by such Grantor hereunder, and each issuer of Pledged Securities that is a Grantor hereunder hereby agrees, to (i) comply with any instruction received by it from the Collateral Agent in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each issuer shall be fully protected in so complying, and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to the Investment Property constituting Collateral, including Pledged Equity Interests, directly to the Collateral Agent.

6.4. Control Agreements . If an Event of Default shall occur and be continuing, the Collateral Agent shall be entitled to issue entitlement orders, notices of control or similar notices under the Control Agreements to the extent of the Grantor’s interests therein. The Collateral Agent agrees not to issue any such notices unless and until an Event of Default has occurred and is continuing.

6.5. Application of Proceeds . If an Event of Default shall occur and be continuing, at any time at the Collateral Agent’s election, the Collateral Agent may apply all or any part of the net Proceeds (after deducting fees and expenses as provided in Section 6.6 ) constituting Collateral realized through the exercise by the Collateral Agent of its remedies hereunder, whether or not held in any Collateral Account, in payment of the respective Grantor’s Grantor Obligations in accordance with Section 1.09 of the Credit Agreement.

 

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6.6. Code and Other Remedies .

(a) If an Event of Default shall occur and be continuing, the Collateral Agent, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted in this Agreement and in any other Loan Document, all rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or its rights under any other applicable law or in equity. Without limiting the generality of the foregoing, the Collateral Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived to the extent permitted by applicable law), may in such circumstances forthwith enter upon the premises of such Grantor where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving such Grantor or any other Person notice and opportunity for a hearing on the Collateral Agent’s claim or action and may collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, license, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of any Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Each Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released to the extent permitted by applicable law. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Collateral Agent may sell the Collateral without giving any warranties as to the Collateral. The Collateral Agent may specifically disclaim or modify any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral. Each Grantor further acknowledges and agrees that it is not commercially unreasonable for the Collateral Agent (i) to fail to incur expenses reasonably deemed significant by the Collateral Agent to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against Account Debtors or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against Account Debtors and other

 

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Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as the Grantor, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure the Collateral Agent against risks of loss, collection or disposition of Collateral or to provide to the Collateral Agent a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the Collateral Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Collateral Agent in the collection or disposition of any of the Collateral. Each Grantor acknowledges that the purpose of this Section 6.6(a) is to provide non- exhaustive indications of what actions or omissions by the Collateral Agent would not be commercially unreasonable in the Collateral Agent’s exercise of remedies against the Collateral and that other actions or omissions by the Collateral Agent shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 6.6(a). Each Grantor hereby waives any claims against the Collateral Agent arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale. Each Grantor further agrees, at the Collateral Agent’s request, to assemble the Collateral and make it available to the Collateral Agent at places which the Collateral Agent shall reasonably select, whether at such Grantor’s premises or elsewhere. The Collateral Agent shall have the right to the extent permitted by applicable law to enter onto the property where any Collateral is located and take possession thereof with or without judicial process.

(b) The Collateral Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.6 , after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or the rights of the Secured Parties hereunder, including reasonable attorneys’ fees and disbursements in accordance with the terms of the Credit Agreement, to the payment in whole or in part of the Obligations and only after such application and after the payment by the Collateral Agent of any other amount required by any provision of law, including Section 9-615(a) of the UCC, need the Collateral Agent account for the surplus, if any, to the respective Grantor. If the Collateral Agent sells any of the Collateral upon credit, the respective Grantor will be credited only with payments actually made by the purchaser and received by the Collateral Agent and applied to Indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, the Collateral Agent may resell the Collateral and the respective Grantor shall be credited with Proceeds of the subsequent sale if, and as when received. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against any Secured Party arising out of the exercise by them of any rights hereunder, except to the extent that such claims, damages and demands are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from primarily the gross negligence, willful misconduct or bad faith of such Secured Party.

 

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6.7. Grant of License to Use Intellectual Property . Solely for the purpose of enabling, and to the extent reasonably necessary to enable the Collateral Agent to exercise rights and remedies under this Agreement at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Collateral Agent, to the extent it has the right to do so, a nonexclusive license (exercisable without payment of royalty or other compensation to the Grantors), subject, in the case of Trademarks, to sufficient rights of quality control and inspection in favor of such Grantor, to use any of the Collateral consisting of Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof The use of such license by the Collateral Agent may be exercised, at the sole discretion of the Collateral Agent, upon the occurrence and during the continuation of an Event of Default.

6.8. Deficiency . Each Grantor shall remain liable for any deficiency if the Proceeds of any sale or other disposition of the Collateral are insufficient to pay its Grantor Obligations and the fees and disbursements of any attorneys employed by any Secured Party to collect such deficiency in accordance with the terms of the Credit Agreement.

SECTION 7. THE COLLATERAL AGENT

7.1. Collateral Agent’s Appointment as Attorney-in-Fact, etc.

(a) Each Grantor hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Collateral Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following:

(i) in the name of such Grantor or its own name, or otherwise, take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account or Contract or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such moneys due under any Account or Contract or with respect to any other Collateral whenever payable;

(ii) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Collateral Agent may reasonably request to evidence, protect, perfect, maintain and preserve the Secured Parties’ security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby;

 

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(iii) pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

(iv) execute, in connection with any sale provided for in Section 6.6 , any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

(v) (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Collateral Agent or as the Collateral Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Collateral Agent may deem appropriate; (7) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Collateral Agent shall in its sole discretion determine; and (8) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and do, at the Collateral Agent’s option and such Grantor’s expense, at any time, or from time to time, all acts and things which the Collateral Agent deems necessary to protect, preserve or realize upon the Collateral and the Secured Parties’ security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

The Collateral Agent agrees that, except as provided in Section 7.1(b) , it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing.

(b) If any Grantor fails to perform or comply with any of its agreements contained herein, the Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement and promptly give notice to such Grantor of such action.

(c) The expenses of the Collateral Agent incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable at the Interest Rate payable when a Default or Event of Default has occurred and is continuing under the Credit Agreement, from the date of payment by the Collateral Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Collateral Agent on demand and if not paid, shall be included in Participating Lender Expenses under the Credit Agreement.

 

32


(d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released.

7.2. Duty of Collateral Agent . The Collateral Agent’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Collateral Agent deals with similar property for its own account. Neither the Collateral Agent, nor any other Secured Party nor any of their respective officers, directors, partners, employees, agents, attorneys and other advisors, attorneys-in-fact or affiliates shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Secured Parties hereunder are solely to protect the Secured Parties’ interests in the Collateral and shall not impose any duty upon any Secured Party to exercise any such powers. The Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, partners, employees, agents, attorneys and other advisors, attorneys-in- fact or affiliates shall be responsible to any Grantor for any act or failure to act hereunder, except to the extent that any such act or failure to act is found by a final and nonappealable decision of a court of competent jurisdiction to have resulted primarily from their own gross negligence, bad faith or willful misconduct.

7.3. Execution of Financing Statements and Mortgages . Each Grantor acknowledges that pursuant to Section 9-509(b) of the UCC and any other applicable law, each Grantor authorizes the Collateral Agent to file or record financing or continuation statements, and amendments thereto, mortgages and other filing or recording documents or instruments with respect to the Collateral, without the signature of such Grantor, in such form and in such offices as the Collateral Agent determines appropriate to perfect or maintain the perfection of the security interests of the Collateral Agent under this Agreement. Each Grantor agrees that such financing statements may describe the collateral in the same manner as described in the Security Documents or as “all assets” or “all personal property,” whether now owned or hereafter existing or acquired or such other description as the Collateral Agent, in its sole judgment, determines is necessary or advisable. If permitted by applicable law, a photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction where so permitted.

7.4. Authority of Collateral Agent . Each Grantor acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Agent and the other Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto

 

33


as may exist from time to time among them, but, as between the Collateral Agent and the Grantors, the Collateral Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority.

7.5. Appointment of Co-Collateral Agents . At any time or from time to time, in order to comply with any Requirement of Law, the Collateral Agent may appoint (after consulting with the Borrower) another bank or trust company or one of more other persons, either to act as co-agent or agents on behalf of the Secured Parties with such power and authority as may be necessary for the effectual operation of the provisions hereof and which may be specified in the instrument of appointment (which may, in the discretion of the Collateral Agent, include provisions for indemnification and similar protections of such co-agent or separate agent).

SECTION 8. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS;

TERMINATION AND RELEASES

8.1. Continuing Security Interest .

This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the payment in full of all Grantor Obligations, be binding upon each Grantor, its successors and assigns, and inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and its successors, transferees and assigns for the benefit and on behalf of the Secured Parties. Without limiting the generality of the foregoing, but subject to the terms of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full in cash of all Grantor Obligations, the security interest granted hereby shall terminate hereunder and of record and all rights to the Collateral shall revert to Grantors. Upon any such termination the Collateral Agent shall, at Grantors’ expense, reasonably promptly upon request by Grantor, execute and deliver to Grantors such documents as Grantors shall reasonably request to evidence the termination of such security interests and liens.

8.2. Termination of Security Interest .

If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Collateral Agent, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. At the request and sole expense of such Grantor, a Grantor Subsidiary shall be released from its obligations hereunder in the event that all the Capital Stock or substantially all of the assets of such Grantor Subsidiary shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement (including by way of merger or consolidation). In the event that any Subsidiary is released from its obligations hereunder pursuant to this Article 8, any Mortgage granted by such Subsidiary to the Collateral Agent shall also be released.

 

34


8.3. Reinstatement . Notwithstanding anything to the contrary contained herein, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Grantor Obligations or any other Obligations under the Loan Documents, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Grantor Obligations all other Obligations under the Loan Documents shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

SECTION 9. MISCELLANEOUS

9.1. Amendments in Writing . None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by each affected Grantor and the Collateral Agent, subject to any Lender consents required under the Credit Agreement; provided that any provision of this Agreement imposing obligations on any Grantor may be waived by the Collateral Agent in a written instrument executed by the Collateral Agent.

9.2. Notices . All notices, requests and demands to or upon the Collateral Agent shall be addressed to it at the address specified in the Credit Agreement and as to any Grantor hereunder shall be addressed to it at the address of the Borrower specified in the Credit Agreement.

9.3. No Waiver by Course of Conduct; Cumulative Remedies . No Secured Party shall by any act (except by a written instrument entered into in accordance with the requirements of the Credit Agreement), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Secured Party would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

9.4. Enforcement Expenses; Indemnification .

(a) Each Grantor agrees to pay or reimburse each Secured Party for all its out-of-pocket costs and expenses incurred in enforcing or preserving any rights under this Agreement and the other Loan Documents, including the out-of-pocket fees and disbursements of counsel to the Secured Parties and of counsel to the Collateral Agent, in each case, in accordance with the terms of, and subject to, the Credit Agreement.

 

35


(b) Each Grantor agrees to pay, and to hold each Secured Party harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement.

(c) Each Grantor agrees to pay, and to hold each Secured Party harmless from, any and all Participating Lender Expenses under the Credit Agreement.

(d) The agreements in this Section 9.4 shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents.

9.5. Successors and Assigns . This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Secured Parties and their successors and assigns; provided that, except as expressly permitted by the terms of the Credit Agreement, no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Collateral Agent, and any attempted assignment without such consent shall be null and void.

9.6. Set-Off . Each Grantor hereby irrevocably authorizes each Secured Party at any time and from time to time while an Event of Default shall have occurred and be continuing, without notice to such Grantor or any other Grantor, any such notice being expressly waived by each Grantor, to set-off, appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Secured Party to or for the credit or the account of such Grantor, or any part thereof in such amounts as such Secured Party may elect, against and on account of the obligations and liabilities of such Grantor to such Secured Party hereunder and claims of every nature and description of such Secured Party against such Grantor, in any currency, whether arising hereunder, under the Credit Agreement, any other Loan Document or otherwise, as such Secured Party may elect, whether or not any Secured Party has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. Each Secured Party shall notify such Grantor promptly of any such set-off and the application made by such Secured Party of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Secured Party under this Section 9.6 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Secured Party may have.

9.7. 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), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

 

36


9.8. Severability . Any provision of this Agreement which 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.

9.9. Section Headings . The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof

9.10. Integration . This Agreement and the other Loan Documents represent the agreement of the Grantors, the Collateral Agent and the other Secured Parties with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by any Secured Party relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Loan Documents. In the event that a provision of this Agreement is in direct conflict with a similar provision of the Credit Agreement and the two provisions cannot be reconciled, the term in the Credit Agreement shall govern.

9.11. APPLICABLE LAW . THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF ANY SECURITY INTEREST HEREUNDER, OR ANY REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE PURSUANT TO MANDATORY CHOICE OF LAW RULES GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN NEW YORK.

9.12. Submission to Jurisdiction: Waivers . Each party hereto irrevocably and unconditionally agrees that any legal action or proceeding with respect to this Agreement or any other Loan Document may be brought in the courts of the State of New York in the borough of Manhattan, County of New York or of the United States District Court for the Southern District of New York, and, by execution and delivery of this Agreement, the Borrower, on behalf of itself and each Grantor, hereby irrevocably accepts in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Borrower, for itself and on behalf of each Grantor, further irrevocably consents to the service of process out of any of the aforementioned courts and in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Borrower at its address for notices set forth in the Credit Agreement, such service to become effective five (5) days after such mailing. Nothing herein shall affect the right of the Lenders or the Agents to service of process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Borrower or any Grantor in any other jurisdiction. The Borrower, for itself and on behalf of each Grantor, hereby expressly and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the jurisdiction or laying of venue of any such litigation brought in any such court referred to above and any claim that any such litigation has been brought in an inconvenient forum.

 

37


9.13. Acknowledgments . Each Grantor hereby acknowledges that:

(a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party;

(b) no Secured Party has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor;

(c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Secured Parties or among the Grantors and the Secured Parties; and

(d) it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement originally filed in connection herewith without the prior written consent of the Collateral Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the UCC.

9.14. Additional Grantors . (a) Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Counterparty Agreement in form and substance reasonably satisfactory to the Agents.

9.15. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

[Signature Page Follows]

 

38


IN WITNESS WHEREOF, each of the undersigned has caused this Security and Pledge Agreement to be duly executed and delivered as of the date first written above.

 

GLOBAL POWER EQUIPMENT GROUP

INC., a Delaware corporation, as Borrower

By:  

 

Name:  
Title:  

DELTAK CONSTRUCTION SERVICES,

INC., a Wisconsin corporation, as a Grantor

By:  

 

Name:  
Title:  

DELTAK, L.L.C., A Delaware limited liability

company, as a Grantor

By:  

 

Name:  
Title:  

BRADEN MANUFACTURING, L.L.C., A

Delaware limited liability company, as a Grantor

By:  

 

Name:  
Title:  

BRADEN CONSTRUCTION SERVICES,

INC., A Delaware corporation, as a Grantor

By:  

 

Name:  
Title:  

[Signature Page to Security and Pledge Agreement]


GLOBAL POWER PROFESSIONAL

SERVICES, L.LC., A Delaware limited

liability company, as a Grantor

By:  

 

Name:  
Title:  

WILLIAMS INDUSTRIAL SERVICES

GROUP, L.LC., a Delaware limited liability

company, as a Grantor

By:  

 

Name:  
Title:  

WILLIAMS PLANT SERVICES, LLC, a

Georgia limited liability company, as a Grantor

By:  

 

Name:  
Title:  

WSSERVICES, LP, a California limited

partnership, as a Grantor

By:  

 

Name:  
Title:  

WILLIAMS SPECIALTY SERVICES,

LLC, a Georgia limited liability company, as a

Grantor

By:  

 

Name:  
Title:  


WILLIAMS INDUSTRIAL SERVICES,
LLC, a Georgia limited liability company, as a
Grantor
By:  

 

Name:  
Title:  

[Signature Page to Security and Pledge Agreement]


MORGAN STANLEY & CO.

INCORPORATED, as Collateral Agent

By:

 

 

Name:

 

Title:

 

[Signature Page to Security and Pledge Agreement]


CREDIT AGREEMENT

Exhibit M

[Form of] Global Inter-Company Note

 


CREDIT AGREEMENT

EXHIBIT M

FORM OF GLOBAL INTERCOMPANY NOTE

This Note, and the obligations of each Person set forth on Schedule A hereto, in its capacity as Payor (collectively, the “ Payor ”) hereunder, shall be subordinate and junior in right of payment to all Senior Indebtedness (as defined in Section 1.07 of Annex A hereto) on the terms and conditions set forth in Annex A hereto, which Annex A is herein incorporated by reference and made a part hereof as if set forth herein in its entirety. Annex A shall not be amended, modified or supplemented without the written consent of the Required Lenders (as defined in the Credit Agreement referred to below).

New York, New York

January     , 2008

FOR VALUE RECEIVED, each Person set forth on Schedule A hereto from time to time, in its capacity as Payor (individually or collectively, as the context may require, a “ Payor ”), hereby promises to pay on demand to the order of each other Person set forth on Schedule A hereto or its assigns (individually or collectively, as the context may require, a “ Payee ”), in lawful money of the United States of America in immediately available funds, at such location in the United States of America as the applicable Payee shall from time to time designate, the unpaid principal amount of all loans and advances made by the applicable Payee to the applicable Payor; provided that such amounts shall not exceed the applicable amounts set forth in Section 8.02(d) of the Credit Agreement.

The applicable Payor also promises to pay interest on the unpaid principal amount hereof in like money at said location from the date hereof until paid at such rate per annum as shall be agreed upon from time to time by the applicable Payor and the applicable Payee.

Upon the earlier to occur of (x) the commencement of any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar proceeding of any jurisdiction relating to the applicable Payor or (y) any exercise of remedies (including the termination of the Total Commitment) pursuant to Section 11 of the Credit Agreement referred to below, the unpaid principal amount of all loans and advances evidenced by this Note hereof shall become immediately due and payable without presentment, demand, protest or notice of any kind in connection with this Note, in each case subject to the subordination provisions set forth above and in Annex A hereto.

This Note is the Global Intercompany Note referred to in the Credit Agreement (as amended, restated, modified, and/or supplemented, extended or renewed from time to time, the “Credit Agreement”), dated as of January 18, 2008 among Global Power Equipment Group Inc., (the “Borrower”) as Borrower, certain subsidiaries of the Borrower as Guarantor, the lenders from time to time party thereto (the “ Lenders ”), The CIT Group/Business Credit Inc., as Syndication Agent, General Electric Capital Corporation, as Documentation Agent, Morgan Stanley Senior Funding, Inc., as Administrative Agent and Morgan Stanley & Co. Incorporated as collateral agent (in such capacity, the “Collateral Agent”) and is subject to the terms thereof, and shall be pledged by the applicable Payee pursuant to the Pledge Agreement (as defined in the Credit Agreement). The applicable Payor hereby acknowledges and agrees that the Pledgee (as defined in the Pledge Agreement) may, pursuant to the Pledge Agreement as in effect from time to time, exercise all rights provided therein with respect to this Note].


Exhibit M

Page 2

 

The applicable Payee shall record all loans and advances made by it to the applicable Payor (all of which shall be evidenced by this Note), and all repayments or prepayments thereof, in its books and records, such books and records constituting prima facie evidence of the accuracy of the information contained therein.

All payments under this Note shall be made without offset, counterclaim or deduction of any kind.

The applicable Payor hereby waives presentment, demand, protest or notice of any kind in connection with this Note.

Any Subsidiary (as defined in the Credit Agreement) of the Borrower that wishes to become, or is required pursuant to the terms of the Credit Agreement to become, a party to this Note after the date hereof shall become a Payor or Payee, as applicable, hereunder by executing a counterpart hereof or a joinder agreement (which joinder agreement is in form and substance satisfactory to the Collateral Agent) and delivering same to the Collateral Agent. Each party to this Note on the date hereof agrees that any such Subsidiary shall, at the time it becomes a Payor or Payee pursuant to the foregoing provisions, be treated as if it were an original party hereto.


Exhibit M

Page 3

 

THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

 

Global Power Equipment Group Inc.
By:  

 

Name:  
Title:  
Global Power Professional Services, L.L.C.
By:  

 

Name:  
Title:  
Braden Manufacturing, L.L.C.
By:  

 

Name:  
Title:  
Braden Construction Services, Inc.
By:  

 

Name:  
Title:  


Exhibit M

Page 4

 

Deltak Construction Services, Inc.

By:

 

 

Name:

 

Title:

 

Deltak, L.L.C.

By:

 

 

Name:

 

Title:

 

Williams Industrial Services Group, L.L.C.

By:

 

 

Name:

 

Title:

 

Williams Industrial Services, LLC

By:

 

 

Name:

 

Title:

 


Exhibit M

Page 5

 

Williams Specialty Services, LLC

By:  

 

Name:  
Title:  
Williams Plant Services, LLC
By:  

 

Name:  
Title:  

WSServices, LP

By:  

 

Name:  
Title:  
Braden Manufacturing. SA de CV
By:  

 

Name:  
Title:  


Exhibit M

Page 6

 

Braden-Europe BV
By:  

 

Name:  
Title:  
Braden Power Equipment (Shanghai) Co., Ltd.
By:  

 

Name:  
Title:  

Exhibit 10.2

AMENDMENT NO. 1

TO

CREDIT AGREEMENT

THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (the “ Amendment ”), effective as of April 24, 2008, is made by and among GLOBAL POWER EQUIPMENT GROUP INC., a corporation formed under the laws of Delaware (the “ Company ” or the “ Borrower ”), the other Credit Parties party hereto, the Lenders party hereto, MORGAN STANLEY SENIOR FUNDING, INC., a corporation formed under the laws of Delaware, as lead arranger and bookrunner and as administrative agent for the Lenders (in such capacity, together with its successors and assigns, if any, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, a corporation formed under the laws of Delaware, as collateral agent for the Secured Parties (in such capacity, together with its successors and assigns, if any, the “ Collateral Agent ”), THE CIT GROUP/BUSINESS CREDIT, INC. a corporation formed under the laws of Delaware, as syndication agent and as revolving agent for the Revolving Lenders (in such capacity, together with its successors and assigns, if any, the “ Revolving Agent ”) and GENERAL ELECTRIC CAPITAL CORPORATION, a corporation formed under the laws of Delaware, as documentation agent (in such capacity, the “ Documentation Agent ”, together with the Administrative Agent and the Collateral Agent, the “ Agents ”).

WHEREAS, the Borrower, the other Credit Parties party thereto, the Lenders party thereto and the Agents are parties to that certain Credit Agreement, dated as of January 22, 2008 (as it may be further amended, supplemented or otherwise modified, the “ Credit Agreement ”), pursuant to which the Lenders and the Agents provide the Borrower with certain financial accommodations; and

WHEREAS, the Credit Agreement shall be amended as set forth herein on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions . All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement.

2. Amendment to Credit Agreement . The Credit Agreement is hereby amended as follows:

(a) Section 3.06(c) is hereby deleted and replaced in its entirety with the following:

(c) the Revolving Agent, for the account of the Revolving Lenders, a Letter of Credit fee in an amount equal to the Applicable Margin for Revolving Loans that are LIBOR Rate Loans times the undrawn amount of all outstanding Letters of Credit, payable quarterly in arrears and on the date of the termination or expiration of the Revolving Commitments; and


(b) Section 3.06(d) is hereby deleted and replaced in its entirety with the following:

(d) to the Revolving Agent for the benefit of the L/C Issuer, (i) payable quarterly upon notice from the Revolving Agent, an additional fee equal to 0.33% per annum times the average aggregate face amount of all Letters of Credit issued and outstanding during such three-month period plus , (ii) payable quarterly, applicable standard bank issuance and amendment charges, not to exceed, for each Letter of Credit issuance or amendment, $500.

(c) Section 14.01 of the Credit Agreement is hereby amended by (i) deleting the defined term “Letter of Credit Issuance Fee” and (ii) deleting the defined term “Consolidated EBITDA” in its entirety and replacing it with the following:

Consolidated EBITDA ” means, for any period, for the Credit Parties, determined on a consolidated basis, an amount equal to Consolidated Net Income for such period, plus (a) the following (without duplication) to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Expense for such period; (ii) the provision for federal, state, local and foreign income taxes for such period; (iii) depreciation and amortization expense; (iv) cash restructuring charges and associated professional fee expenses taken on or after December 1, 2007 and prior to December 31, 2008 in an amount not to exceed $14,000,000 (fourteen million Dollars); (v) extraordinary cash expenses associated with tax and audit work incurred on or after December 1, 2007 and prior to the first anniversary of the Closing Date in an amount not to exceed $4,000,000 (four million Dollars); (vi) cash expenses resulting from a draw of a Letter of Credit issued for the benefit of Air Liquide and associated with the Air Liquide settlement in an amount not to exceed $5,700,000 (five million seven hundred thousand Dollars); (vii) any non-cash write downs or non-cash write-offs including fixed asset impairments or write-downs, intangible asset impairments, deferred tax asset write-offs and non-cash stock compensation expenses; (viii) all extraordinary, non-recurring, non-cash items decreasing Consolidated Net Income for such period; (ix) cash costs and expenses not to exceed $1,000,000 (one million Dollars), incurred with respect to defending and/or prosecuting the SNC Litigation during the period from the Closing Date to December 31, 2009; and (x) all extraordinary, non-recurring, cash expenditures associated with approved bankruptcy claims and professional fees decreasing Consolidated Net Income for such period in an aggregate amount not to exceed $4,000,000 (four million Dollars); and minus (b) the following (without duplication) to the extent included in calculating such Consolidated Net Income: (i) all items constituting interest income; (ii) Federal, state, local and foreign income tax benefits for such period; (iii) write ups, reevaluations and non-Cash gains resulting from the marking or reevaluation of any asset; and (iv) all extraordinary, non-recurring, non-Cash items increasing Consolidated Net Income for such period; provided that Consolidated EBITDA for each monthly period ending on or prior to November 30, 2007 shall be the amount specified for such period on Schedule C-1 hereto.

 

2


3. Conditions Precedent . The amendments set forth in Section 2 above shall become effective as of April 24, 2008, but only once each of the following conditions is satisfied:

(a) (i) the Administrative Agent shall have received an amendment fee in an amount equal to $25,000, (ii) the Term Lenders shall have received an amendment fee in an amount equal to $177,750, (iii) the Revolving Lenders shall have received an amendment fee in an amount equal to $45,000, and (iv) the Borrower shall have paid all other Participating Lender Expenses required to be paid under the Loan Documents;

(b) the Administrative Agent shall have received this Amendment, duly executed by the Required Lenders, Administrative Agent, Revolving Agent and Borrower, and the same shall be in full force and effect;

(c) The representations and warranties in this Amendment, the Credit Agreement, as amended by this Amendment, and the other Loan Documents shall be true and correct in all material respects on and as of the date hereof, as though made on such date;

(d) After giving effect to this Amendment, no Default, Event of Default or event that, with the giving of notice or passage of time, would constitute an Event of Default shall have occurred and be continuing on the date hereof, nor shall result from the consummation of the transactions contemplated herein; and

(e) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against Borrower, any Guarantor or any Lender.

4. Representations and Warranties . Borrower hereby represents and warrants as follows:

(a) This Amendment and the Credit Agreement, as amended hereby, constitute legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms.

 

3


(b) The Borrower has the legal power and authority to execute and deliver this Amendment.

(c) The officers executing this Amendment have been duly authorized to execute and deliver the same and bind the Borrower with respect to the provisions hereof.

(d) The execution and delivery of this Amendment by the Borrower and the performance and observance by the Borrower of the provisions hereof do not violate or conflict with the organizational documents of the Borrower or any law applicable to the Borrower or result in a breach of any provisions of or constitute a default under any other agreement, instrument or document binding upon or enforceable against the Borrower.

(e) No Event of Default or Default has occurred and is continuing or would exist after giving effect to this Amendment.

5. Effect on the Credit Agreement .

(a) Except as specifically amended herein, the Credit Agreement, and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed.

(b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Agents, or constitute a waiver of any provision of the Credit Agreement, or any other documents, instruments or agreements executed and/or delivered under or in connection therewith.

6. Governing Law . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be construed in accordance with and governed by the law of the State of New York, without regard to principles of conflicts of law (other than Section 5-1401 of the General Obligations Law of the State of New York).

7. Captions . The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof

8. Counterparts; Effectiveness . This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument; provided no party shall be bound unless and until the parties hereto have each signed a counterpart hereof. Facsimile transmissions of any executed original documents and/or retransmission of any executed facsimile transmission shall be deemed to be the same as the delivery of an executed original. At the written request of any party hereto, the other parties hereto shall confirm facsimile transmissions by executing duplicate original documents and delivering the same to the requesting party or parties.

 

4


[Remainder of Page Intentionally Left Blank]

 

5


IN WITNESS WHEREOF , the undersigned have duly executed this Amendment as of the day and year first above written.

 

GLOBAL POWER EQUIPMENT GROUP

INC. , a Delaware corporation, as Borrower

By:  

LOGO

  Name:   John M. Matheson
  Title:   President and Chief Executive Officer

DELTAK CONSTRUCTION SERVICES, INC. ,

a Wisconsin corporation, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Director

DELTAK, L.L.C. , A Delaware limited liability

company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Director

BRADEN CONSTRUCTION SERVICES, INC. ,

A Delaware corporation, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Director

BRADEN MANUFACTURING L.L.C. , A

Delaware limited liability company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Director

 

[SIGNATURE PAGE – AMENDMENT NO. 1 TO CREDIT AGREEMENT]


GLOBAL POWER PROFESSIONAL SERVICES, L.L. C ., A Delaware limited liability company, as a Guarantor
By:  

LOGO

  Name:   John M. Matheson
  Title:   Manager
WILLIAMS INDUSTRIAL SERVICES GROUP, L.L.C. , a Delaware limited liability company, as a Guarantor
By:  

LOGO

  Name:   John M. Matheson
  Title:   Manager

WILLIAMS INDUSTRIAL SERVICES, LLC , a

Georgia limited liability company, as a Guarantor

By:  

LOGO

  Name:   David Willis
  Title:   Manager

WILLIAMS SPECIALTY SERVICES, LLC , a

Georgia limited liability company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Manager

WILLIAMS PLANT SERVICES, LLC , a

Georgia limited liability company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Manager

 

[SIGNATURE PAGE – AMENDMENT NO. 1 TO CREDIT AGREEMENT]


Schedule C-1

Consolidated EBITDA for certain months prior to November 2007

[See separate Schedule]


Schedule C1

 

Global Power Equipment Group

North America Monthly 2007 P&I.

($ in thousands)

   CONFIDENTIAL
FOR DISCUSSION PURPOSES ONLY
 
   Month of  
   Jan-07     Feb-07     Mar-07     Apr-07     May-07     Jun-07     Jul-07     Aug-07     Sep-07     Oct-07     Nov-07  

Revenue

                      

Heat Recovery Equipment

   $ 2,238      $ 2,169      $ 2,404      $ 3,277      $ 3,398      $ 4,486      $ 4,962      $ 8,618      $ 7,235      $ 9,106      $ 6,496   

Auxiliary Power Equipment

     5,618        7,096        6,854        5,988        7,138        8,628        6,657        9,642        6,470        16,817        11,569   

Industrial Services

     9,835        17,748        20,859        22,145        29,083        18,445        8,713        10,707        13,065        19,012        14,809   
                                                                                        

Total Revenue

     17,691        27,013        30,117        31,410        39,619        31,559        20,332        28,967        26,770        44,935        32,874   

Total Gross Profit

                      

Heat Recovery Equipment

     1,101        597        601        873        906        1,143        982        1,011        1,628        1,901        1,484   

Auxiliary Power Equipment

     1,105        823        1,260        1,699        2,091        1,404        1,041        3,257        1,460        4,791        4,029   

Industrial Services

     1,185        2,298        3,315        3,141        2,472        1,774        1,066        1,309        2,376        2,027        2,181   
                                                                                        

Total Gross Profit

     3,391        3,718        5,176        5,713        5,469        4,321        3,089        5,577        5,464        8,719        7,694   

Operating Expense

                      

General  & Administrative

     3,934        4,381        4,148        3,769        3,764        3,515        9,560        6,047        5,333        5,434        7,054   

Selling & Marketing

     265        238        349        236        279        305        394        280        166        229        382   

Commissions

     57        29        36        36        37        33        36        91        74        80        90   

Profit Sharing / MIC

     —          —          —          —          —          —          —          —          —          —          —     

Amortization

     147        146        147        147        146        147        147        146        147        147        146   

Other (Income) Expense - including LC Fees

     1        —          —          (1     (39     —          —          (2     (12     (4     (4
                                                                                        

Total Operating Expenses

     4,404        4,794        4,680        4,187        4,187        4,000        10,137        6,562        5,708        5,886        7,668   

Operating Profit (Loss)

   $ (1,013   $ (1,076   $ 496      $ 1,526      $ 1,282      $ 321      $ (7,048   $ (985   $ (244   $ 2,833      $ 26   

Restructuring Fees

     —          —          —          —          —          —          —          —          —          —          —     

Financing Fees

     —          —          —          —          —          —          —          —          —          —          —     

Discontinued Operations

     —          —          —          —          —          —          —          —          —          —          —     

Interest Income

     —          —          —          —          —          —          —          —          —          —          —     

Net Interest Expense

     439        295        1,005        1,290        823        1,181        1,559        (189     854        876        957   
                                                                                        

Income (Loss) Before Taxes and Minority Interest

     (1,452     (1,371     (509     236        459        (860     (8,607     (796     (1,098     1,957        (931

Income Tax Provision (benefit)

     50        28        47        58        (717     50        14        52        30        44        57   
                                                                                        

Income (Loss) Before Minority Interest

     (1,502     (1,399     (556     178        1,176        (910     (8,621     (848     (1,128     1,913        (988

Minority Interest Income/(Loss)

     —          —          —          —          —          —          —          —          —          —          —     

Net Income (Loss)

   $ (1,502   $ (1,399   $ (556   $ 178      $ 1,176      $ (910   $ (8,621   $ (848   $ (1,128   $ 1,913      $ (988

Add Back:

                      

Income Tax Provision (Benefit)

     50        28        47        58        (717     50        14        52        30        44        57   

Depreciation & Amortization Included Above

     181        172        266        180        179        178        179        161        134        153        150   

Net Interest Included Above

     439        295        1,005        1,290        823        1,181        1,559        (189     854        877        957   

Amortization Included Above

     147        146        148        147        146        147        147        146        147        147        146   
                                                                                        

EBITDA

     (685     (758     910        1,853        1,607        646        (6,722     (678     37        3,134        322   

Non-cash FX loss (gain)

     —          —          —          —          —          —          —          —          —          —          —     

Consol Interest - LC fees not included above

     —          —          —          —          —          —          —          —          —          —          —     

Restructuring Fees

     —          —          —          —          —          —          —          —          —          —          —     

Empower/Consulting/Bankruptcy professionals

     1,645        1,954        1,631        1,563        1,267        1,264        7,021        2,426        3,212        2,797        3,702   

Loss (gain) from sale of Global Power Asia Ltd

     —          —          —          —          —          —          —          —          —          —          —     

Stock Based Compensation

     49        49        133        49        49        132        49        49        132        49        49   
                                                                                        

Adjusted EBITDA

   $ 1,009      $ 1,245      $ 2,674      $ 3,465      $ 2,923      $ 2,042      $ 348      $ 1,797      $ 3,381      $ 5,980      $ 4,073   

Exhibit 10.3

EXECUTION VERSION

*** TEXT OMITTED AND

FILED SEPARATELY

CONFIDENTIAL TREATMENT

REQUESTED

AMENDMENT NO. 2

TO

CREDIT AGREEMENT

THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT (the “ Amendment ”), effective as of July 30, 2008, is made by and among GLOBAL POWER EQUIPMENT GROUP INC., a corporation formed under the laws of Delaware (the “ Company ” or the “ Borrower ”), the other Credit Parties party hereto, the Lenders party hereto, MORGAN STANLEY SENIOR FUNDING, INC., a corporation formed under the laws of Delaware, as lead arranger and bookrunner and as administrative agent for the Lenders (in such capacity, together with its successors and assigns, if any, the “ Administrative Agent ”), MORGAN STANLEY & CO. INCORPORATED, a corporation formed under the laws of Delaware, as collateral agent for the Secured Parties (in such capacity, together with its successors and assigns, if any, the “ Collateral Agent ”), THE CIT GROUP/BUSINESS CREDIT, INC. a corporation formed under the laws of Delaware, as syndication agent and as revolving agent for the Revolving Lenders (in such capacity, together with its successors and assigns, if any, the “ Revolving Agent ”) and GENERAL ELECTRIC CAPITAL CORPORATION, a corporation formed under the laws of Delaware, as documentation agent (in such capacity, the “ Documentation Agent ”, together with the Administrative Agent and the Collateral Agent, the “ Agents ”).

WHEREAS, the Borrower, the other Credit Parties party thereto, the Lenders party thereto and the Agents are parties to that certain Credit Agreement, dated as of January 22, 2008 and as amended on April 24, 2008 (as it may be further amended, supplemented or otherwise modified, the “ Credit Agreement ”), pursuant to which the Lenders and the Agents provide the Borrower with certain financial accommodations; and

WHEREAS, the Credit Agreement shall be amended as set forth herein on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions . All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement.

2. Amendment to Credit Agreement . The Credit Agreement is hereby amended as follows:

(a) Subsection 1.01(a)(i) is hereby deleted and replaced in its entirety with the following:

(i) Twenty-five million Dollars ($25,000,000) or

(b) Section 3.06(b) is hereby amended by deleting the last sentence thereof and replacing it with the following: “The Unused Commitment Fee shall be non-refundable and paid monthly in arrears and on the date of the termination or expiration of the Revolving Commitments.”


(c) Section 3.06(c) is hereby deleted and replaced in its entirety with the following:

(c) the Revolving Agent, for the account of the Revolving Lenders, a Letter of Credit fee in an amount equal to the Letter of Credit Applicable Margin times the undrawn amount of all outstanding Letters of Credit, payable monthly in arrears and on the date of the termination or expiration of the Revolving Commitments;

(d) Section 3.06(d) is hereby deleted and replaced in its entirety with the following:

(d) to the Revolving Agent for the benefit of the L/C Issuer, (i) payable monthly upon notice from the Revolving Agent, an additional fee equal to 0.32% per annum times the average aggregate face amount of all Letters of Credit issued and outstanding during such one-month period plus, (ii) payable monthly, applicable standard bank issuance and amendment charges, not to exceed, for each Letter of Credit issuance or amendment, $500.

(e) Section 7.15(a) is hereby deleted and replaced in its entirety with the following:

(a) No Credit Party shall have any Deposit Account (other than the accounts listed on Schedule 5.01(t)(iii)) , commodities account or Securities Account other than accounts subject to Control Agreements and the Credit Parties shall cause the Collateral Agent, on behalf of the Secured Parties, to have a valid, perfected, first-priority security interest in such accounts (other than those accounts listed on Schedule 5.01(t)(iii)) . The Credit Parties shall not permit the balance in the accounts listed on Schedule 5.01(t)(iii) to exceed $500,000 at any time.

(f) Section 7.15(c) is hereby deleted and replaced in its entirety with the following:

(c) Each Credit Party shall take all reasonable steps necessary from time to time to deposit or cause to be deposited promptly all of its Collections (including those sent in cash or otherwise directly to any Credit Party) into an account subject to a Control Agreement (other than with respect to those accounts listed on Schedule 5.01(t)(iii)) .

(g) Section 8.01(m) is hereby deleted in its entirety.

(h) Section 8.03 is hereby amended by (i) deleting the “and” at the end of clause (k) thereof, (ii) deleting the period at the end of clause (l) thereof and replacing it with “; and” and (iii) inserting a new clause (m) at the end thereof which shall read as follows:

“(m) Indebtedness of the Company and its Subsidiaries in an amount not to exceed $3,000,000.00 to be used to finance the renewal of insurance coverage for itself and its domestic and foreign Subsidiaries under its existing insurance plans.”

 

2


(i) Section 9.01 is hereby amended by deleting the table therein in its entirety and replacing it with the following:

 

Measurement Period Ending

   Ratio

March 31, 2008

   3.00x

June 30, 2008

   2.50x

September 30, 2008

   3.00x

December 31, 2008

   3.00x

March 31, 2009

   3.00x

June 30, 2009

   3.25x

September 30, 2009

   3.50x

December 31, 2009

   3.75x

March 31, 2010

   3.75x

June 30, 2010

   3.50x

September 30, 2010

   3.25x

December 31, 2010

   3.00x

March 31, 2011

   3.00x

June 30, 2011

   2.75x

September 30, 2011

   2.75x

December 31, 2011

   2.50x

March 31, 2012

   2.50x

June 30, 2012

   2.25x

September 30, 2012, and each period thereafter

   2.00x

(j) Section 9.02 is hereby amended by deleting the table therein in its entirety and replacing it with the following:

 

Measurement Period Ending

   Ratio

June 30, 2008

   2.00x

September 30, 2008

   1.75x

December 31, 2008

   1.75x

March 31, 2009

   1.75x

June 30, 2009

   1.60x

September 30, 2009

   1.50x

December 31, 2009

   1.40x

March 31, 2010

   1.45x

June 30, 2010

   1.50x

September 30, 2010

   1.55x

December 31, 2010

   1.60x

 

3


Measurement Period Ending

   Ratio

March 31, 2011

   1.60x

June 30, 2011

   1.70x

September 30, 2011

   1.70x

December 31, 2011

   1.80x

March 31, 2012

   1.80x

June 30, 2012

   1.90x

September 30, 2012

   1.90x

December 31, 2012, and each period thereafter

   2.00x

(k) Section 9.03 is hereby amended by deleting the table therein in its entirety and replacing it with the following:

 

Fiscal Month Ending

   Minimum
Liquidity

January 31, 2008

   $ 15,000,000

February 29, 2008

   $ 15,000,000

March 31, 2008

   $ 15,000,000

April 30, 2008

   $ 15,000,000

May 31, 2008

   $ 15,000,000

June 30, 2008

   $ 15,000,000

July 31, 2008

   $ 0

August 31, 2008

   $ 0

September 30, 2008

   $ 0

October 31, 2008

   $ 0

November 30, 2008

   $ 0

December 31, 2008

   $ 0

January 31, 2009

   $ 2,500,000

February 28, 2009

   $ 2,500,000

March 31, 2009

   $ 2,500,000

April 30, 2009

   $ 5,000,000

May 31, 2009

   $ 5,000,000

June 30, 2009

   $ 5,000,000

July 31, 2009, and each period thereafter

   $ 10,000,000

(l) Section 14.01 of the Credit Agreement is hereby amended by:

(i) adding the following defined term in appropriate alphabetical order:

Letter of Credit Applicable Margin ” means a percentage per annum equal to 2.75%.

 

4


(ii) deleting the defined term “Applicable Margin” in its entirety and replacing it with the following:

Applicable Margin ” means a percentage per annum, as set forth below:

 

     Alternate Base
Rate Loan
    LIBOR Rate Loan  

Revolving Loans

   2.50   3.50

Term Loans

   6.50   7.50

; and

(iii) deleting the defined term “Excluded Account” in its entirety.

(iv) deleting the defined term “Interest Payment Date” in its entirety and replacing it with the following:

Interest Payment Date ” means (i) for the Revolving Loans the last Business Day of each Fiscal Month and (ii) for the Term Loans, the last Business Day of each Fiscal Quarter, in each case commencing on the first such date to occur after the Closing Date, and the Maturity Date; provided that, with respect to the amount of any Loan prepaid, the Interest Payment Date shall be the date of such prepayment.

(m) The Schedules to the Credit Agreement are hereby amended by:

(i) deleting the existing Schedule 5.01(t)(i) and inserting Schedule 5.01(t)(i) in the form attached hereto as Exhibit A.

(ii) inserting Schedule 5.01(t)(iii) in the form attached hereto as Exhibit B in appropriate numerical order.

3. Modification of Post-Closing Obligations .

(a) The obligations set forth in Schedule 4.03 of the Credit Agreement are hereby modified as follows:

(i) the obligation set forth in paragraph 1(e)(iii) of such Schedule is hereby waived, provided that in lieu of such obligation, on or before the date falling 30 days after the date of this Amendment, the Credit Parties shall deliver to the Collateral Agent a stock certificate (and related stock power) representing 65% of the Capital Stock of Global Power Equipment Group Inc. in Global Power Equipment Group (Hong Kong) Limited, the owner of 100% of the Capital Stock of Braden Power Equipment (Shanghai) Co. Ltd; and

 

5


(ii) the time to satisfy the obligation set forth in paragraph 1(e)(iii) of such Schedule is hereby extended to the date falling 30 days after the date of this Amendment,

it being agreed and understood that the provisions of paragraphs 2, 3 and 4 of such Schedule shall apply to the above obligations, as if such obligations were set forth in such Schedule.

4. Conditions Precedent . The amendments set forth in Section 2 above shall become effective as of July     , 2008, but only once each of the following conditions is satisfied:

(a) (i) the Administrative Agent shall have received an amendment fee in an amount equal to $250,000, (ii) the Term Lenders shall, in aggregate have received an amendment fee in an amount equal to $437,500, (iii) the Revolving Lenders shall, in aggregate have received an amendment fee in an amount equal to $150,000, and (iv) the Borrower shall have paid all other Participating Lender Expenses required to be paid under the Loan Documents;

(b) the Administrative Agent shall have received this Amendment, duly executed by the Required Lenders, Administrative Agent, Revolving Agent and Borrower, and the same shall be in full force and effect;

(c) The representations and warranties in this Amendment, the Credit Agreement, as amended by this Amendment, and the other Loan Documents shall be true and correct in all material respects on and as of the date hereof, as though made on such date (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date);

(d) After giving effect to this Amendment, no Default, Event of Default or event that, with the giving of notice or passage of time, would constitute an Event of Default shall have occurred and be continuing on the date hereof, nor shall result from the consummation of the transactions contemplated herein; and

(e) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against Borrower, any Guarantor or any Lender.

5. Representations and Warranties . Borrower hereby represents and warrants as follows:

(a) This Amendment and the Credit Agreement, as amended hereby, constitute legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms.

 

6


(b) The Borrower has the legal power and authority to execute and deliver this Amendment.

(c) The officers executing this Amendment have been duly authorized to execute and deliver the same and bind the Borrower with respect to the provisions hereof.

(d) The execution and delivery of this Amendment by the Borrower and the performance and observance by the Borrower of the provisions hereof do not violate or conflict with the organizational documents of the Borrower or any law applicable to the Borrower or result in a breach of any provisions of or constitute a default under any other agreement, instrument or document binding upon or enforceable against the Borrower.

(e) No Event of Default or Default has occurred and is continuing (save as contemplated in Section 3 above) or would exist after giving effect to this Amendment.

6. Effect on the Credit Agreement .

(a) Except as specifically amended herein, the Credit Agreement, and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed.

(b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Agents, or constitute a waiver of any provision of the Credit Agreement, or any other documents, instruments or agreements executed and/or delivered under or in connection therewith.

7. Governing Law . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be construed in accordance with and governed by the law of the State of New York, without regard to principles of conflicts of law (other than Section 5-1401 of the General Obligations Law of the State of New York).

8. Captions . The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof

9. Counterparts; Effectiveness . This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument; provided no party shall be bound unless and until the parties hereto have each signed a counterpart hereof. Facsimile transmissions of any executed original documents and/or retransmission of any executed facsimile transmission shall be deemed to be the same as the delivery of an executed original. At the written request of any party hereto, the other parties hereto shall confirm facsimile transmissions by executing duplicate original documents and delivering the same to the requesting party or parties.

 

7


[Remainder of Page Intentionally Left Blank]

 

8


IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as of the day and year first above written.

 

GLOBAL POWER EQUIPMENT GROUP

INC. , a Delaware corporation, as Borrower

By:  

LOGO

  Name:   John M. Matheson
  Title:   President and Chief Executive Officer

DELTAK CONSTRUCTION SERVICES, INC. ,

a Wisconsin corporation, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Director

DELTAK, L.L.C. , A Delaware limited liability

company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Director

BRADEN CONSTRUCTION SERVICES, INC. ,

A Delaware corporation, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Director

BRADEN MANUFACTURING L.L.C. , A

Delaware limited liability company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Director

 

[SIGNATURE PAGE – AMENDMENT NO. 2 TO CREDIT AGREEMENT]


GLOBAL POWER PROFESSIONAL

SERVICES, L.L. C . , A Delaware limited liability company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Manager

WILLIAMS INDUSTRIAL SERVICES

GROUP, L.L.C. , a Delaware limited liability company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Manager

WILLIAMS INDUSTRIAL SERVICES, LLC , a

Georgia limited liability company, as a Guarantor

By:  

LOGO

  Name:   David Willis
  Title:   Manager

WILLIAMS SPECIALTY SERVICES, LLC , a

Georgia limited liability company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Manager

WILLIAMS PLANT SERVICES, LLC , a

Georgia limited liability company, as a Guarantor

By:  

LOGO

  Name:   John M. Matheson
  Title:   Manager

 

[SIGNATURE PAGE – AMENDMENT NO. 2 TO CREDIT AGREEMENT]


Exhibit A

Schedule 5.01(t)(i)

Cash Management Banks / Location of Existing Bank Accounts

Schedule 5.01(t)(i)

 

Global Power Equipment Group Inc.:

     

Bank

  

Account Description

  

Account Number

Wells Fargo    Master account    ***
Wells Fargo    A/P account    ***

Braden Manufacturing, L.L.C.:

     

Rank

  

Account Description

  

Account Number

Wells Fargo    Master account    ***
Wells Fargo    A/P account    ***
Wells Fargo    Payroll    ***

Deltak, L.L.C.:

     

Bank

  

Account Description

  

Account Number

Wells Fargo    Master account    ***
Wells Fargo    A/P account    ***
Wells Fargo    Payroll    ***

Deltak Construction Services, Inc.

     

Bank

  

Account Description

  

Account Number

Wells Fargo    A/P account    ***
Wells Fargo    Payroll    ***

Williams Industrial Services Group, L.L.C.:

  

Bank

  

Account Description

  

Account Number

Bank of America    Escrow Account    ***
Bank of America    Concentration Account    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Depository / Lockbox    ***

Williams Industrial Services, LLC

     

Bank

  

Account Description

  

Account Number

Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***

Williams Specialty Services, LLC

     

Bank

  

Account Description

  

Account Number

Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Depository / Lockbox    ***

Williams Plant Services, LLC

     

Bank

  

Account Description

  

Account Number

Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Depository / Lockbox    ***

*** TEXT OMITTED AND FILED SEPARATELY

CONFIDENTIAL TREATMENT REQUESTED


Exhibit B

Schedule 5.01(t)(iii)

Accounts Not Subject to Control Agreements

 

Williams Industrial Services Group, L.L.C.:

     

Bank

  

Account Description

  

Account Number

Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***

Williams Industrial Services, LLC

     

Bank

  

Account Description

  

Account Number

Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***

Williams Specialty Services, LLC

     

Bank

  

Account Description

  

Account Number

Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***

Williams Plant Services, LLC

     

Bank

  

Account Description

  

Account Number

Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***
Bank of America    Disbursement    ***

*** TEXT OMITTED AND FILED SEPARATELY

CONFIDENTIAL TREATMENT REQUESTED

Exhibit 10.22

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into between Global Power Equipment Group Inc., a Delaware corporation (the “Company”), and Tracy D. Pagliara (“Executive”) on March 22, 2010 to set forth the terms pursuant to which Executive will become General Counsel, Secretary, and Vice President of Business Development of the Company on April 5, 2010 (the “Effective Date”).

The Company and Executive, intending to be bound upon execution of this Agreement on the date first set forth above, agree as follows:

1. Employment; Term . The Company engages and employs Executive to serve as General Counsel, Secretary, and Vice President of Business Development of the Company and to perform the duties incidental to those positions together with such other duties as may be specified, from time to time, by the Company’s Chief Executive Officer (the “CEO”) in a manner consistent with Executive’s status as a senior executive officer of the Company, all in accordance with the terms and conditions of this Agreement. The scheduled term of Executive’s employment under this Agreement (the “Term”) will begin on the Effective Date and, subject to earlier termination as provided in Section 8 below, will continue through March 31, 2012. On March 31, 2012 and on each March 31 thereafter occurring while Executive remains employed under this Agreement, the Term will be automatically extended for one additional year unless (a) either party has given written notice to the other, by not later than the immediately preceding March 1, that the Term should not be so extended, or (b) Executive’s employment under this Agreement has been earlier terminated in accordance with the provisions of Section 8 below. The actual term of Executive’s employment under this Agreement, from the Effective Date through the Termination Date (as defined in Section 9 below), is sometimes referred to below as the “Contract Period.”

2. Full-Time Services; Location; Compliance .

2.1 Full-Time Services . Throughout the Contract Period, Executive will devote substantially all of his business time and efforts to the service of the Company and its Subsidiaries (as defined below in this Section 2.1), except for usual vacation periods, reasonable periods of illness, and reasonable periods of time devoted to his personal financial affairs and charitable and civic activities that do not interfere with the performance by Executive of his duties under this Agreement. For purposes of this Agreement, the term “Subsidiary” means any corporation, partnership, or other entity a majority of the voting control of which is directly or indirectly owned or controlled by the Company.

2.2 Location . Executive’s primary place of employment for the Company will be the Company’s headquarters in Tulsa, Oklahoma. Executive will relocate his personal residence to the Tulsa, Oklahoma area as soon as reasonably practicable after the execution of this Agreement. In the course of his employment with the Company, Executive will travel on business to the extent necessary to efficiently perform his duties under this Agreement.

2.3 Compliance . In the performance of his duties under this Agreement Executive will comply with all policies, procedures, and rules established by the Company from time to time and with all applicable laws and governmental rules and regulations. For the avoidance of doubt, it is a condition of Executive’s continued employment that he submit to periodic physical examinations in accordance with Company policy (and at the Company’s cost as specified in Section 5.4 below).


3. Executive Officer; Reporting . Throughout the Contract Period, Executive will hold the offices of General Counsel, Secretary, and Vice President of Business Development of the Company and will report to and be accountable to the CEO.

4. Compensation . For all services to be rendered by Executive to the Company and its Subsidiaries under this Agreement during the Contract Period, including services as an officer of the Company or as an officer or director of any Subsidiary and any other services specified by the CEO, the Company will pay and provide to Executive the compensation and benefits specified in this Section 4.

4.1 Base Salary . The Company will pay Executive base salary (the “Base Salary”), in equal semi-monthly or more frequent installments, at the rate of not less than $300,000 per year, subject to such increases as the Board of Directors of the Company (the “Board”) may approve.

4.2 Annual Bonus . Throughout the Contract Period, Executive will be a participant in and entitled to bonuses under the Company’s Incentive Compensation Plan as in effect from time to time (the “ICP”). Unless otherwise determined by the Board in connection with a general reduction of bonus percentages for any particular year or years, Executive will have, for each “Bonus Year” (as defined in the ICP): (a) a target bonus of 55% of the Base Salary paid to Executive during that Bonus Year, and (b) a maximum bonus of 110% of the Base Salary paid to Executive during that Bonus Year. The Board has generally reduced target (but not maximum) bonus percentages for 2010 and, as a result, Executive’s target bonus percentage for 2010 will be 45% rather than 55%.

4.3 Equity Grant .

(a) As of the Effective Date, the Company will grant to Executive 300,000 Restricted Stock Units (“RSUs”) under the Company’s 2008 Management Incentive Plan (the “MIP”). Subject to acceleration under the terms of the MIP or another provision of this Section 4.3, the RSUs so granted will vest 25% per year on March 31 of each of 2011 through 2014, provided:

(i) As to one half of the RSUs that might vest on any particular March 31 (the “Time Vested RSUs”), Executive remains in the employ of the Company through that date, and

(ii) As to the other one half of the RSUs that might vest on any particular March 31 (the “Performance Vested RSUs”):

(A) Executive remains in the employ of the Company through that date, and

(B) the Company achieves its EBITDA Target (as defined in the ICP) for the immediately preceding calendar year, as determined after the end of that immediately preceding calendar year.

(b) Executive will be eligible to participate in all future grants of equity compensation that are made generally to senior executives of the Company. For the avoidance of doubt, the extent of Executive’s actual participation in any such future grant will be within the Board’s sole discretion.

 

2


5. Benefits .

5.1 401(k) Plan and Flex Benefit Plan . Throughout the Contract Period, Executive will be entitled to participate in the Company’s 401(k) plan and its Flex Benefit Plan on the terms and conditions generally applicable to senior executives of the Company.

5.2 Insurance, Salary Continuation on Disability . Throughout the Contract Period, the Company will make available to Executive medical, dental, vision, life, accidental death and dismemberment, short and long term disability, and travel accident insurance on the terms and conditions generally applicable to senior executives of the Company. If Executive becomes disabled while employed by the Company, the Company will pay to Executive the difference between his Base Salary and the benefit payable under the Company provided short term disability insurance for a period of up to six months.

5.3 Tax Return Preparation . The Company will reimburse Executive for the reasonable costs of preparation of income tax returns each year in accordance with the policy from time to time in effect for senior executives generally.

5.4 Periodic Physical Examinations . The Company will pay the cost of periodic physical examinations for Executive (either every other year or annually, depending upon attained age) in accordance with the policy from time to time in effect for senior executives generally.

5.5 Vacation . In addition to paid holidays generally provided to senior executives of the Company, Executive will be entitled to four weeks of paid vacation per year, to be taken at times selected by Executive in such a manner as to minimize disruption to the operations of the Company.

5.6 Expenses of Relocation to the Tulsa Area; Gross Up Payment . The Company will reimburse Executive for the reasonable costs incurred by him in relocating his personal residence to the Tulsa, Oklahoma area, to the extent that those costs (a) meet applicable Internal Revenue Service rules for relocation expenses (as to those types of relocation expenses that are deductible for Federal income tax purposes), and (b) are consistent with the Company’s general policy on reimbursement of relocation expenses (“Qualifying Relocation Costs”). In addition to reimbursing Executive for Qualifying Relocation Costs, the Company will pay to Executive an amount (the “Relocation Gross Up Payment”) that is sufficient to put Executive in the same position on an after tax basis as if the reimbursement of Qualifying Relocation Costs had not given rise to any income tax liability on the part of Executive. All requests for reimbursement of Qualifying Relocation Costs must be made by not later than September 30, 2010 and reimbursement of those amounts plus payment of the Relocation Gross Up Payment will be made by not later than November 30, 2010.

5.7 Closing Costs . The Company will reimburse Executive for reasonable closing costs incurred by him in the purchase of a personal residence in the Tulsa, Oklahoma area (“Qualifying Closing Costs”). Any reimbursement for Qualifying Closing Costs will be made under this Section 5.7 and no reimbursement for Qualifying Closing Costs will be made under Section 5.6. In addition to reimbursing Executive for Qualifying Closing Costs, the Company will pay to Executive an amount (the “Closing Gross Up Payment”) that is sufficient to put Executive in the same position on an after tax basis as if the reimbursement of Qualifying Closing Costs had not given rise to any income tax liability on the part of Executive. All requests for reimbursement of Qualifying Closing Costs must be made by not later than September 30, 2011 and reimbursement of those amounts plus payment of the Closing Gross Up Payment will be made by not later than November 30, 2011.

 

3


6. Expense Reimbursement . The Company will reimburse Executive for reasonable and necessary business expenses incurred in performing his duties under this Agreement. These reimbursements will be made in accordance with, and subject to any relevant limitations in, the Company’s policies in effect from time to time with respect to travel, entertainment, and other business expenses (including documentation requirements).

7. Indemnification . Executive will be entitled to indemnification by the Company pursuant to and in accordance with the Company’s Amended and Restated Bylaws.

8. Termination .

8.1 Upon Expiration of the Term . Unless earlier terminated pursuant to another provision of this Section 8 or automatically extended for an additional year as contemplated by Section 1 above (because neither party has timely given notice to the other that the Term should not be extended), Executive’s employment under this Agreement will terminate without further action by either party on March 31, 2012 (or on a later anniversary of that date if the Term has earlier been automatically extended for one or more additional years as contemplated by Section 1 above).

8.2 Death or Disability . Executive’s employment under this Agreement will terminate immediately upon his death. The Company may terminate Executive’s employment under this Agreement immediately upon giving notice of termination if Executive is Disabled (as defined below in this Section 8.2) for an aggregate of 90 days in any consecutive 12 calendar months or for 60 consecutive days. For these purposes, Executive will be deemed to be “Disabled” on any date if he is then unable to engage in his own occupation of General Counsel, Secretary, and Vice President of Business Development of the Company by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months.

8.3 For Cause by the Company . The Company may terminate Executive’s employment under this Agreement for “Cause” at any time upon the occurrence of any of the following circumstances (as determined by the Board or its designee):

(a) Consistent failure by Executive (other than as a result of disability) to perform his duties and responsibilities as specified in Sections 1 and 2 above, which failure continues for 15 days after the Board or the CEO has advised Executive in writing of that failure.

(b) A material breach of Executive’s covenants under Section 13.1 (captioned “Confidentiality”) or Section 13.3 (captioned “Noncompetition”).

(c) A material breach by Executive of any other provision of this Agreement not specified in either of Sections 8.3(a) or

8.3(b), which breach is not cured in all substantial respects within 30 days after the Board has advised Executive in writing of the nature of the breach.

(d) Commission by Executive of a felony, or any crime involving theft, dishonesty, or moral turpitude.

 

4


(e) Commission by Executive of any one or more acts or omissions that are willful and deliberate and taken or omitted with intent to harm or injure the business, operations, financial condition, or reputation of the Company or any of its Subsidiaries.

(f) Disregard by Executive of directives of the Board or of the CEO.

(g) Drunkenness or use of drugs by Executive that interferes with the performance of his duties under this Agreement and continues after receipt of notice to Executive from the Company of his violation of this provision.

(h) Any action taken by Executive to secure any personal profit in connection with the business of the Company or any of its Subsidiaries without first obtaining the unanimous consent of all of the members of the Board to the taking of that action.

8.4 For Good Reason by Executive . Executive may terminate his employment under this Agreement for “Good Reason” if:

(a) The Company, without Executive’s consent, materially diminishes Executive’s duties, responsibilities, and/or authority from those set forth in Sections 1 and 3 above or materially breaches any of its obligations under this Agreement (the first date on which any such diminution or other material breach occurs being the “Good Reason Trigger Date”);

(b) Executive delivers written notice to the Board, not later than 90 days after the Good Reason Trigger Date, of the occurrence of the diminution or other breach and of Executive’s intention to terminate his employment for Good Reason based upon that occurrence;

(c) The Company fails to rescind the diminution or to cure the other breach specified in the notice by Executive, as the case may be, within 30 days after Executive has provided the written notice contemplated by Section 8.4(a); and

(d) Executive actually terminates his employment by a subsequent written notice to the Company specifying an effective date of termination that is not earlier than the expiration of the 30 day period specified in Section 8.4(c) and not later than one year after the Good Reason Trigger Date.

8.5 Without Cause by the Company . The Company may terminate Executive’s employment under this Agreement at any time without Cause pursuant to written notice provided to Executive by the Company. Any termination under this Section 8.5 will be effective at such time as the Company may specify in that written notice.

8.6 Without Good Reason by Executive . Executive may terminate his employment under this Agreement at any time without Good Reason pursuant to written notice provided to the Company. Any termination under this Section 8.6 will be effective at such time as Executive may specify in that written notice.

9. Payments upon Termination . For all purposes of this Agreement, the term “Termination Date” means the date on which Executive’s employment with the Company terminates.

 

5


9.1 Upon Termination For Cause, Without Good Reason, or at Expiration of Term following Notice of Nonrenewal by Executive . If Executive’s employment under this Agreement is terminated by the Company for Cause, by Executive without Good Reason, or upon expiration of the Term following notice of nonrenewal given by Executive to the Company as contemplated by Section 1 above, the Company will pay and provide to Executive his Base Salary through the Termination Date, to the extent not already paid, and, except as may otherwise be required by law, the Company will not pay or provide to Executive any further compensation or other benefits under this Agreement after the Termination Date. The Company will pay any Base Salary referred to in this Section 9.1 to Executive within 30 days of the Termination Date.

9.2 Upon Termination Without Cause, For Good Reason, or at Expiration of Term following Notice of Nonrenewal by the Company . If Executive’s employment under this Agreement is terminated by the Company without Cause, by Executive for Good Reason, or upon expiration of the Term following notice of nonrenewal given by the Company to Executive as contemplated by Section 1 above, the Company will pay and provide to Executive the amounts and benefits specified in this Section 9.2, except that the Company will not be obligated to pay Executive the salary continuation payments specified in Section 9.2(d) unless either (x) the Company is deemed to have waived Executive’s obligation to provide a Release as provided in Section 10.2 or (y) Executive has timely executed a Release as contemplated by Section 10.3. The amounts and benefits specified in this Section 9.2 are as follows:

(a) Executive’s Base Salary through the Termination Date, to the extent not already paid, and continuing insurance coverage as specified in Section 5.2 through the Termination Date. The Company will pay any Base Salary referred to in this Section 9.2(a) to Executive within 30 days of the Termination Date.

(b) The amount of the annual bonus under the ICP with respect to the immediately preceding calendar year, to the extent not already paid. The Company will pay this amount to Executive on the same date and in the same amount that the annual bonus for that year would have been paid if Executive’s employment had not been terminated, but in any event not later than March 15 of the current year.

(c) If and only if the Termination Date is at least three full months after the beginning of the ICP Bonus Year within which the Termination Date falls, a lump sum amount (a “Pro Rata Annual Bonus”) equal to a pro rata portion of the full year annual bonus under the ICP that Executive would have been entitled to had his employment continued through the date on which bonuses for that Bonus Year are paid, based on actual financial results of the Company for the entire Bonus Year and individual performance by Executive during that part of the Bonus Year ending on the Termination Date (the “Full Year Pro Forma Bonus Amount”). Any Pro Rata Bonus payable under this Section 9.2(c) will be equal to the Full Year Pro Forma Bonus Amount multiplied by a fraction, the numerator of which is the number of days between January 1 of the Bonus Year and the Termination Date and the denominator of which is 365. The Company will pay any Pro Rata Annual Bonus that may be payable pursuant to this Section 9.2(c) on the same date as other bonuses are paid with respect to the Bonus Year in which the Termination Date falls, but not later than March 15 of the immediately following year.

(d) Continuation of Base Salary, at the rate in effect immediately before the Termination Date or, if Section 9.2(e) applies, at the reduced rate specified in that section, through the first anniversary of the Termination Date. The salary continuation payments to be made

 

6


under this Section 9.2(d) will be made at the same times as salary payments would have been made to Executive if his employment with the Company had continued through the first anniversary of the Termination Date.

(e) This Section 9.2(e) will apply only if the aggregate amount of salary continuation payments under Section 9.2(d), without reference to this Section 9.2(e) (the “Unreduced Amount”), is greater than 1.95 times the dollar limit on separation pay set forth in Section 401(a)(17) of the Internal Revenue Code (the product of 1.95 times the dollar limit set forth in Section 401(a)(17) of the Internal Revenue Code is referred to in this Agreement as the “Modified Limit”). If this Section 9.2(e) applies:

(i) the amount of each salary continuation payment to be made under Section 9.2(d) will be ratably reduced to the extent necessary so that, in the aggregate, the dollar value of all salary continuation payments to be made under Section 9.2(d) will equal the Modified Limit; and

(ii) the Company will make a single lump sum payment to Executive in an amount equal to the amount by which the Unreduced Amount exceeds the Modified Limit. The Company will pay the amount, if any, provided for in this Section 9.2(e)(ii) to Executive during the period of 30 consecutive days that begins exactly six months after the Termination Date.

9.3 Upon Termination by Reason of Death or Disability . If Executive’s employment under this Agreement is terminated by reason of his death or by the Company pursuant to Section 8.2 following Executive’s disability, the Company will pay and provide to Executive or to his personal representative the amounts specified in this Section 9.3 and, except as may otherwise be required by law, the Company will not pay or provide to or on behalf of Executive any further compensation or other benefits under this Agreement after the Termination Date. The amounts and benefits specified in this Section 9.3 are as follows:

(a) Executive’s Base Salary through the Termination Date, to the extent not already paid. The Company will pay this amount to Executive or his personal representative, as the case may be, within 30 days of the Termination Date.

(b) The amount of the Annual Bonus with respect to the immediately preceding calendar year, to the extent not already paid. The Company will pay this amount to Executive or his personal representative, as the case may be, on the same date and in the same amount that the Annual Bonus for that year would have been paid if Executive’s employment had not been terminated, but in any event not later than March 15 of the current year.

(c) If and only if the Termination Date is at least three full months after the beginning of the ICP Bonus Year within which the Termination Date falls, a Pro Rata Annual Bonus determined in the same manner and payable at the same time as if the termination were by the Company without Cause and Section 9.2(c) applied.

(d) Only in the case of termination for Disability, the Company will pay any amount due under the Company’s salary continuation policy (which provides for payment of the difference between monthly benefits under the Company sponsored short term disability insurance and Executive’s Base Salary that would have been received for those months) except that if any such monthly differential amount would, but for this Section 9.3(d) be

 

7


paid later than March 15 of the year following the year in which the Termination Date occurs, the total of all amounts that would be so paid after that March 15 will be accelerated and paid to Executive not later than that March 15.

10. Release . This Section 10 will apply only upon termination of Executive’s employment by the Company without Cause or by Executive for Good Reason.

10.1 Presentation of Release by the Company . If this Section 10 applies, the Company may present to Executive, not later than 21 days after the Termination Date, a form of release (a “Release”) of all current and future claims, known or unknown, arising on or before the date on which the Release is to be executed, that Executive or his assigns have or may have against the Company or any Subsidiary, and the directors, officers, and affiliates of any of them, in substantially the same form as normally used by the Company in connection with the payment of severance compensation to executives (and providing that the Release will not extend to a release by Executive of his rights to indemnification that are referenced in Section 7 above), together with a covering message in which the Company advises Executive that the Release is being presented in accordance with this Section 10.1 and that a failure by Executive to execute and return the Release as contemplated by Section 10.3 would relieve the Company of the obligation to make salary continuation payments or any lump sum payment under Section 9.2(d).

10.2 Effect of Failure by the Company to Present Release . If the Company fails to present a Release and covering message to Executive as contemplated by Section 10.1 within 21 days of the Termination Date, the Company will be deemed to have waived the requirement that Executive execute a Release as a condition to receiving salary continuation payments or any lump sum payment under Section 9.2(d).

10.3 Execution of Release by Executive . If the Company does present a Release and covering message to Executive as contemplated by Section 10.1 within 21 days of the Termination Date, Executive will have until 50 days after the Termination Date (i.e., at least 29 days after presentation of the Release to Executive) within which to deliver an executed copy of the Release to the Company and thereby satisfy the condition to receiving salary continuation payments or any lump sum payment under Section 9.2(d), provided that Executive does not revoke the execution of the Release during any applicable revocation period.

10.4 Effect of Failure to Execute Release or of Revocation of Release . If, after the Company has timely presented a Release and covering message to Executive as contemplated by Section 10.1, Executive fails to deliver an executed copy of the Release to the Company within 50 days after the Termination Date or revokes the execution of the Release during any applicable revocation period, Executive will be deemed to have waived the right to receive salary continuation payments or any lump sum payment under Section 9.2(d).

11. No Obligation to Seek Other Employment or to Otherwise Mitigate Salary Continuation Payments . Executive will not be required to mitigate the amount of any salary continuation payments under Section 9.2(d) by seeking other employment or otherwise and the amount of any such salary continuation payments will not be reduced by any compensation or benefits earned by Executive as the result of employment by another employer or otherwise after the Termination Date.

12. Work Product . All inventions, drawings, improvements, developments, methods, processes, programs, designs, and all similar or related information that relates to the Company’s or any of its Subsidiaries’ actual or anticipated business or research and development or existing or future products or

 

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services and that are conceived, developed, contributed to, or made by Executive (either solely or jointly with others) while he is employed by the Company or any of its Subsidiaries (“Work Product”) will be the sole and exclusive property of the Company or the relevant Subsidiary, as the case may be. Executive will promptly disclose any such Work Product to the Company and take such actions as may be requested by the Company (whether during or after employment) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney, and other instruments).

13. Covenants and Confidential Information . Executive acknowledges the Company’s reliance on and expectation of Executive’s commitment to performance of his duties and responsibilities during the Contract Period and he assumes the obligations set out in this Section 13 in light of that reliance and expectation on the part of the Company.

13.1 Confidentiality . Throughout the Contract Period and at all times thereafter, Executive will not disclose, divulge, discuss, copy, or otherwise use or suffer to be used in any manner, in competition with, or contrary to the interests of, the Company, and will use his best efforts and diligence to safeguard and to protect against disclosure, misuse, espionage, loss, or theft any and all confidential information relating to the Company’s operations, properties, or otherwise to its particular business or other trade secrets of the Company (“Confidential Information”), it being acknowledged by Executive that all confidential information regarding the business of the Company compiled or obtained by, or furnished to Executive during his employment by or association with the Company is Confidential Information as defined in this Section 13.1 and the Company’s exclusive property.

(a) The restrictions in this Section 13.1 will not apply to any information to the extent that it (i) is clearly obtainable in the public domain, (ii) becomes obtainable in the public domain, except by reason of the breach by Executive of his obligations under this Section 13.1, (iii) was not acquired by Executive in connection with his employment or affiliation with the Company, (iv) was not acquired by Executive from the Company or its representatives, or (v) is required to be disclosed by rule of law or by order of a court or governmental body or agency.

(b) Upon the Termination Date or at any other time the Company may request, for whatever reason, Executive will deliver (and in the event of Executive’s death or Disability, his representative will deliver) to the Company all electronic equipment or backup files of or relating to the Company and its Subsidiaries, all memoranda, correspondence, customer data, notes, plans, records, reports, manuals, photographs, computer tapes, and software and other documents and data (and copies thereof) relating to Confidential Information, Work Product, or the business of the Company or any of its Subsidiaries that he may then possess or have under his control. If the Company requests, Executive (or his representative) will provide written confirmation that Executive has returned all such materials to the Company and its Subsidiaries.

(c) Upon the Termination Date or at any other time the Company may request, for whatever reason, Executive will assign all rights, title, and interest in Confidential Information, Work Product, all electronic equipment or backup files of or relating to the Company or any of its Subsidiaries, all memoranda, correspondence, customer data, notes, plans, records, reports, manuals, photographs, computer tapes and software, and other documents and data (and copies thereof) relating to Confidential Information, Work Product or the business of the Company or any of its Subsidiaries that Executive may then possess, have under his control, or have ever developed, obtained, or contributed to during his tenure with the Company.

 

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13.2 Nonsolicitation . During the Contract Period and for a period of one year thereafter through the first anniversary of the Termination Date, Executive will not directly or indirectly: (a) solicit or induce or attempt to solicit or induce any employee of the Company and/or of any Subsidiary or affiliate to terminate his or her employment with the Company and/or any Subsidiary; (b) hire any person who was an employee of the Company or any of its Subsidiaries at any time during Executive’s employment by the Company; or (c) induce or attempt to induce any customer, supplier, distributor, franchisee, licensee, or other individual or entity that has any business relationship with the Company or any of its Subsidiaries to cease doing business with the Company or any of its Subsidiaries, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee, licensee, or other individual or entity and the Company or any of its Subsidiaries.

13.3 Noncompetition . During the Contract Period and for a period of one year thereafter through the first anniversary of the Termination Date, Executive will not directly or indirectly own, operate, manage, control, participate in, consult with, advise, provide services for, or in any manner engage in any business (including by himself or in association with any individual or entity) in competition with the businesses of the Company or any of its Subsidiaries as such businesses (the “Businesses”) exist during Executive’s employment with the Company, within the United States or any other geographical area in which the Company or any of its Subsidiaries engages or plans to engage in the Businesses, except that this Section 13.3 will not prohibit Executive from owning not more than 2% of the outstanding stock of a publicly traded corporation, so long as Executive has no active participation in the business of that corporation.

13.4 Remedies; Attorney’s Fees . Executive acknowledges that the remedy at law for any breach by him of this Section 13 may be inadequate and that the damages following from any such breach may not be readily susceptible to being measured in monetary terms. Accordingly, Executive agrees that, upon adequate proof of Executive’s violation of any legally enforceable provision of this Section 13, (a) the Company will be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, and (b) the Company will be entitled to recover from Executive its costs of any action (including reasonable attorneys’ and experts fees and expenses) brought to enforce, or recover damages with respect to any violation of, the provisions of this Section 13. Nothing in this Section 13 will be deemed to limit the Company’s remedies at law or in equity for any breach by Executive of any of the provisions of this Section 13 that may be pursued or availed of by the Company.

13.5 Acknowledgement . Executive has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon the Company under this Section 13, and hereby acknowledges and agrees that the same are reasonable in time and territory, are designed to eliminate competition that otherwise would be unfair to the Company, do not stifle the inherent skill and experience of Executive, would not operate as a bar to Executive’s sole means of support, are fully required to protect the legitimate interests of the Company, and do not confer a benefit upon the Company disproportionate to the detriment to Executive.

 

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14. Compliance with Section 409A .

14.1 Six Month Delay on Certain Payments, Benefits, and Reimbursements . If Executive is a “specified employee” for purposes of Section 409A of the Internal Revenue Code (“Section 409A”), as determined under the Company’s policy for determining specified employees on the Termination Date, each payment, benefit, or reimbursement paid or provided under this Agreement that constitutes a “deferral of compensation” within the meaning of Section 409A, that is to be paid or provided as a result of a “separation from service” within the meaning of Section 409A, and that would otherwise be paid or provided at any time (a “Scheduled Time”) that is on or before the date (the “Six Month Date”) that is exactly six months after the Termination Date (other than payments, benefits, or reimbursements that are treated as separation pay under Section 1.409A-1(b)(9)(v) of the Treasury Regulations) will not be paid or provided at the Scheduled Time but will be accumulated (together with interest at the applicable federal rate under Section 7872(f)(2)(A) of the Internal Revenue Code in effect on the Termination Date) through the Six Month Date and paid or provided during the period of 30 consecutive days beginning on the first business day after the Six Month Date (that period of 30 consecutive days, the “Seventh Month after the Termination Date”), except that if Executive dies before the Six Month Date, the payments, benefits, or reimbursements will be accumulated only through the date of his death and thereafter paid or provided not later than 30 days after the date of death.

14.2 Earlier Payment if Not a Specified Employee . If Executive is not a “specified employee” for purposes of Section 409A (as determined under the Company’s policy for determining specified employees in effect on the Termination Date), any lump sum payment to be made by the Company to Executive after the Termination Date (a) that constitutes a “deferral of compensation” within the meaning of Section 409A, (b) that is to be paid or provided as a result of a “separation from service” within the meaning of Section 409A, and (c) that would otherwise (but for this Section 14) be paid or provided at a Scheduled Time that is on or before the Six Month Date will be paid by the Company to Executive at the Scheduled Time rather than during the Seventh Month after the Termination Date.

14.3 Additional Limitations on Reimbursements and In-Kind Benefits . Any reimbursement of expenses or in-kind benefits provided to Executive after the Termination Date under any section of this Agreement that are taxable benefits (and that are not disability pay or death benefit plans within the meaning of Section 409A) are intended to comply, to the maximum extent possible, with the exception to Section 409A set forth in Section 1.409A-1(b)(9)(v) of the Treasury Regulations. To the extent that any reimbursement of expenses or in-kind benefits provided under any section of this Agreement either do not qualify for that exception, or are provided beyond the applicable time periods set forth in Section 1.409A-1(b)(9)(v) of the Treasury Regulations, then they will be subject to the following additional rules: (i) any reimbursement of eligible expenses will be paid within 30 days following Executive’s written request for reimbursement; provided that Executive provides written notice no later than 60 days before the last day of the calendar year following the calendar year in which the expense was incurred so that the Company can make the reimbursement within the time periods required by Section 409A; (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during any calendar year will not affect the amount of expenses eligible for reimbursement, or in-kind benefits to be provided, during any other calendar year; and (iii) the right to reimbursement or in-kind benefits will not be subject to liquidation or exchange for any other benefit.

14.4 Compliance Generally . Each payment or reimbursement and the provision of each benefit under this Agreement shall be considered a separate payment and not one of a series of payments

 

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for purposes of Section 409A. The Company and Executive intend that the payments and benefits provided under this Agreement will either be exempt from the application of, or comply with, the requirements of Section 409A. This Agreement is to be construed, administered, and governed in a manner that effects that intent and the Company will not take any action that is inconsistent with that intent. Without limiting the foregoing, the payments and benefits provided under this Agreement may not be deferred, accelerated, extended, paid out, or modified in a manner that would result in the imposition upon Executive of an additional tax under Section 409A.

14.5 Termination of Employment to Constitute a Separation from Service . The parties intend that the phrase “termination of employment” and words and phrases of similar import mean a “separation from service” with the Company within the meaning of Section 409A. Executive and the Company will take all steps necessary (including taking into account this Section 14.5 when considering any further agreement regarding provision of services by Executive to the Company after the Termination Date) to ensure that (a) any termination of employment under this Agreement constitutes a “separation from service” within the meaning of Section 409A, and (b) the Termination Date is the date on which Executive experiences a “separation from service” within the meaning of Section 409A.

14.6 References to the Internal Revenue Code and its Sections . For purposes of this Agreement, the term “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended and references to any of Sections 409A, 280G, and 4999, are references to those respective sections of the Internal Revenue Code. References in this Agreement to Section 409A are intended to include any proposed, temporary, or final regulations, or any other guidance, promulgated with respect to Section 409A by the U.S. Department of Treasury or the Internal Revenue Service.

15. Survival of Obligations .  Except as is otherwise expressly provided in this Agreement, the respective obligations of the Company and Executive under this Agreement will survive any termination of Executive’s employment under this Agreement.

16. Notices .  Notices and all other communications provided for in this Agreement must be in writing and will be deemed to have been duly given: (a) when delivered in person (to the CEO in the case of notices to the Company and to Executive in the case of notices to Executive); (b) the first business day after deposit with a nationally recognized overnight courier, properly addressed and charges prepaid; or (c) the third business day after mailing by United States registered or certified mail, return receipt requested, properly addressed and postage prepaid. Notices to the Company will be properly addressed if addressed, as follows:

Global Power Equipment Group Inc.

6120 South Yale, Suite 1480

Tulsa, OK 74136

Attention: Chief Executive Officer

Telephone: 918.488.0828

Notices to Executive will be properly addressed if addressed to Executive’s home address as communicated by Executive to the Company as of the Effective Date. Either party may change the address to which notices are to be sent by courier or mailed by notice to the other in accordance with this Section 16.

 

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17. Entire Agreement . This Agreement contains the entire agreement and understanding between Executive and the Company on its subject matter and supersedes any prior understandings, agreements, or representations by either party to the other, whether written or oral, relevant to the subject matter of this Agreement.

18. Miscellaneous .

18.1 No Conflict . Executive represents and warrants that he is not a party to any agreement, contract, or understanding, whether employment or otherwise, that would restrict or prohibit him from undertaking or performing employment in accordance with the terms and conditions of this Agreement.

18.2 Assistance . During the term of this Agreement and thereafter, Executive will provide reasonable assistance to the Company in litigation and regulatory matters that relate to events that occurred during Executive’s period of employment with the Company. Executive will be entitled to reimbursement of reasonable out-of-pocket travel or related costs and expenses relating to any such cooperation or assistance that occurs following the Termination Date.

18.3 Severability . The provisions of this Agreement are severable and if any one or more provision is determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions and any partially unenforceable provision to the extent enforceable in any jurisdiction nevertheless will be binding and enforceable.

18.4 Benefit of Agreement . The rights and obligations of the Company under this Agreement will inure to the benefit of, and will be binding on, the Company and its successors and assigns, and the rights and obligations (other than obligations to perform services) of Executive under this Agreement will inure to the benefit of, and will be binding upon, Executive and his heirs, personal representatives, and assigns.

18.5 No Waiver . The failure of either party to enforce any provision or provisions of this Agreement will not in any way be construed as a waiver of any such provision or provisions as to any future violations thereof, nor prevent that party from later enforcing each and every other provision of this Agreement. The rights granted the parties in this Agreement are cumulative and the waiver of any single remedy will not constitute a waiver of that party’s right to assert all other legal remedies available to it under the circumstances.

18.6 Modification . This Agreement may not be modified or terminated orally. No modification or termination will be valid unless in writing and signed by the party against which the modification or termination is sought to be enforced.

18.7 Governing Law and Venue . The provisions of this Agreement will be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made in and to be performed exclusively within that State, notwithstanding any conflict of law provision to the contrary. The parties consent to venue and personal jurisdiction over them in the courts of the State of Delaware and federal courts sitting in Delaware, for purposes of construing and enforcing this Agreement.

 

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IN WITNESS WHEREOF, the Company and Executive have executed this Agreement, the Company by a duly authorized representative, on the date first written above.

 

  GLOBAL POWER EQUIPMENT GROUP INC.

/s/ Tracy D. Pagliara

 

By:

 

/s/ David L. Keller

TRACY D. PAGLIARA    

David L. Keller

President and Chief Executive Officer

 

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Exhibit 10.23

AMENDMENT NO. 4

TO

CREDIT AGREEMENT

THIS AMENDMENT NO. 4 TO CREDIT AGREEMENT (this “ Amendment ”), dated as of June 25, 2010, is made by and among GLOBAL POWER EQUIPMENT GROUP INC., a corporation formed under the laws of Delaware (the “ Company ” or the “ Borrower ”), the other Credit Parties party hereto, the Lenders party hereto, MORGAN STANLEY SENIOR FUNDING, INC., a corporation formed under the laws of Delaware, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, if any, the “ Administrative Agent ”) and revolving agent for the Revolving Lenders (in such capacity, together with its successors and assigns, if any, the “ Revolving Agent ”), MORGAN STANLEY & CO. INCORPORATED, a corporation formed under the laws of Delaware, as collateral agent for the Secured Parties (in such capacity, together with its successors and assigns, if any, the “ Collateral Agent ”), and GENERAL ELECTRIC CAPITAL CORPORATION, a corporation formed under the laws of Delaware, as documentation agent (in such capacity, the “ Documentation Agent ”, together with the Administrative Agent, the Collateral Agent, and the Revolving Agent, the “ Agents ”).

WHEREAS, the Borrower, the other Credit Parties party thereto, the Lenders party thereto and the Agents are parties to that certain Credit Agreement, dated as of January 22, 2008 and as amended on April 24, 2008, July 30, 2008 and December 31, 2009 (as it may be further amended, supplemented or otherwise modified, the “ Credit Agreement ”), pursuant to which the Lenders and the Agents provide the Borrower with certain financial accommodations; and

WHEREAS, the Credit Agreement shall be amended as set forth herein on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions .

(a) All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement.

2. Amendment to Credit Agreement . The Credit Agreement is hereby amended as follows:

(a) Section 8.03 is hereby amended by (i) deleting the “and” at the end of clause (l) thereof, (ii) deleting the period at the end of clause (m) thereof and


replacing it with “; and” and (iii) inserting a new clause (n) at the end thereof that shall read as follows:

(n) Indebtedness of the Company incurred for the purpose of making cash payments in lieu of fractional shares in connection with a Permitted Reverse Stock Split in an aggregate amount not to exceed $150,000.

(b) Section 8.06 is hereby deleted and replaced in its entirety with the following:

Section 8.06. Restricted Payments . It shall not and shall not permit any of its Subsidiaries to, directly or indirectly declare or make any Restricted Payment or incur any obligation contingent or otherwise to do so; provided that (a) any Credit Party may make Restricted Payments to any other Credit Party, (b) any Subsidiary that is not a Credit Party may make Restricted Payments to any Credit Party, (c) any Subsidiary that is not a Credit Party may make Restricted Payments to any wholly owned Subsidiary of any Credit Party, (d) the Company may redeem, repurchase or otherwise acquire for value outstanding Capital Stock of the Company (or options or warrants to purchase the Company’s Capital Stock) following the death, disability or termination of employment of officers, directors or employees of the Company or any of its Subsidiaries so long as such redemption, repurchase or acquisition would not result in a Default or Event of Default and (e) the Company may, in connection with a Permitted Reverse Stock Split and in an aggregate amount not to exceed $150,000, redeem, repurchase or otherwise acquire for value outstanding Capital Stock of the Company or make cash payments in connection with the outstanding Capital Stock of the Company to avoid the occurrence of fractional shares.

(c) Section 8.15 is hereby deleted and replaced in its entirety with the following:

Section 8.15. Limitation on Issuance of Capital Stock . It shall not, and it shall not permit any of its Subsidiaries to, issue or sell or enter into any agreement or arrangement for the issuance and sale of any shares of its Capital Stock, any Securities convertible into or exchangeable for its Capital Stock or any warrants, options or other rights for the purchase or acquisition of any of its Capital Stock, other than (a) in connection with the plans set forth on Schedule 8.15; (b) the issuance of Capital Stock of any Subsidiary to any Credit Party (so long as such Capital Stock is pledged and delivered to the Collateral Agent within ten (10) days of the issuance thereof in accordance with the terms of the Security Agreement); (c) the issuance of Capital Stock by any Subsidiary of directors’ qualifying shares; (d) the issuance of Capital Stock

 

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by the Company so long as any such issuance does not constitute a Change of Control; or (e) the issuance of Capital Stock by the Company in connection with a Permitted Reverse Stock Split.

(d) Section 14.01 is hereby amended to add the following defined term in its appropriate alphabetical order:

“Permitted Reverse Stock Split” means an exchange and combination of outstanding Capital Stock of the Company, that is effected no later than April 22, 2011, in which the number of outstanding shares of Capital Stock of the Company is reduced and the proportionate equity interests of each Person holding such Capital Stock remain unchanged (disregarding any changes in proportionate equity interests resulting from payments made by the Company in respect of fractional shares) and that is otherwise in compliance with this Agreement.

3. Representations and Warranties . Each Credit Party signatory hereto hereby represents and warrants as follows:

(a) This Amendment and the Credit Agreement, as amended hereby, constitute legal, valid and binding obligations of such Credit Party and are enforceable against such Credit Party in accordance with their respective terms;

(b) Such Credit Party has all requisite entity and legal power and authority to execute and deliver this Amendment;

(c) The officers executing this Amendment have been duly authorized to execute and deliver the same and bind such Credit Party with respect to the provisions hereof;

(d) The execution and delivery of this Amendment by such Credit Party and the performance and observance by such Credit Party of the provisions hereof do not violate or conflict with the organizational documents of such Credit Party or any law applicable to such Credit Party or result in a breach of any provisions of or constitute a default under any other agreement, instrument or document binding upon or enforceable against such Credit Party; and

(e) No Event of Default or Default has occurred and is continuing or would exist after giving effect to this Amendment.

4. Effect on the Credit Agreement .

(a) Except as specifically amended herein, the Credit Agreement, and all other documents, instruments and agreements executed and/or delivered in connection therewith including each of the Loan Documents, shall remain in full force and effect, and are hereby ratified and confirmed.

 

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(b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or any Agent, or constitute a waiver of any provision of the Credit Agreement, any other Loan Document or any other documents, instruments or agreements executed and/or delivered under or in connection therewith.

5. Governing Law . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be construed in accordance with and governed by the law of the State of New York, without regard to principles of conflicts of law (other than Section 5-1401 of the General Obligations Law of the State of New York).

6. Captions . The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

7. Counterparts; Effectiveness . This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument; provided no party shall be bound unless and until the parties hereto have each signed a counterpart hereof. Facsimile transmissions or electronic transmission by portable document format (PDF) of any executed original documents and/or retransmission of any executed facsimile or electronic transmission shall be deemed to be the same as the delivery of an executed original. At the written request of any party hereto, the other parties hereto shall confirm facsimile or electronic transmissions by executing duplicate original documents and delivering the same to the requesting party or parties.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF , the undersigned have duly executed this Amendment as of the day and year first above written.

 

GLOBAL POWER EQUIPMENT GROUP INC. , a Delaware corporation, as Borrower
By:  

/s/ David L. Keller

Name:   David L. Keller
Title:   President and Chief Executive Officer
DELTAK CONSTRUCTION SERVICES, INC., a Wisconsin corporation, as a Guarantor
By:  

/s/ David L. Keller

Name:   David L. Keller
Title:   Director
DELTAK, L.L.C., A Delaware limited liability company, as a Guarantor
By:  

/s/ David L. Keller

Name:   David L. Keller
Title:   Director
BRADEN CONSTRUCTION SERVICES, INC ., A Delaware corporation, as a Guarantor
By:  

/s/ David L. Keller

Name:   David L. Keller
Title:   Director
BRADEN MANUFACTURING, L.L.C., A Delaware limited liability company, as a Guarantor
By:  

/s/ David L. Keller

Name:   David L. Keller
Title:   Director


GLOBAL POWER PROFESSIONAL SERVICES, L.L.C. , A Delaware limited liability company, as a Guarantor
By:  

/s/ David L. Keller

Name:   David L. Keller
Title:   Manager
WILLIAMS INDUSTRIAL SERVICES GROUP, L.L.C. , a Delaware limited liability company, as a Guarantor
By:  

/s/ David L. Keller

Name:   David L. Keller
Title:   Manager
WILLIAMS INDUSTRIAL SERVICES, LLC, a Georgia limited liability company, as a Guarantor
By:  

/s/ David Willis

Name:   David Willis
Title:   Manager
WILLIAMS SPECIALTY SERVICES, LLC, a Georgia limited liability company, as a Guarantor
By:  

/s/ David L. Keller

Name:   David L. Keller
Title:   Manager
WILLIAMS PLANT SERVICES, LLC, a Georgia limited liability company, as a Guarantor
By:  

/s/ David L. Keller

Name:   David L. Keller
Title:   Manager


MORGAN STANLEY SENIOR FUNDING, INC. , as Administrative Agent, Revolving Agent, and Lender
By:  

/s/ Stephen B. King

Name:   Stephen B. King
Title:   Vice President
MORGAN STANLEY & CO. INCORPORATED , as Collateral Agent
By:  

/s/ Stephen B. King

Name:   Stephen B. King
Title:   Executive Director