UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-33209
ALTRA INDUSTRIAL MOTION CORP.
(Exact name of registrant as specified in its charter)
Delaware | 61-1478870 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
300 Granite Street, Suite 201 Braintree, MA | 02184 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code:
(781) 917-0600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Name of Each Exchange on Which Registered |
|
Common Stock, $0.001 par value | NASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ |
Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant based on the closing price (as reported by the NASDAQ Global Market) of such common stock on the last business day of the registrants most recently completed second fiscal quarter (June 29, 2013) was approximately $712.2 million.
As of February 19, 2014, there were 27,053,037 shares of Common Stock, $0.001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following document are incorporated herein by reference into the Part of the Form 10-K indicated.
Document |
Part of Form 10-K into which Incorporated |
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Altra Industrial Motion Corp. Proxy Statement for the 2014 Annual Meeting of Stockholders |
Part III |
Page | ||||||
PART I |
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Item 1. |
3 | |||||
Item 1A. |
15 | |||||
Item 1B. |
28 | |||||
Item 2. |
29 | |||||
Item 3. |
30 | |||||
Item 4. |
30 | |||||
Item 5. |
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 30 | ||||
Item 6. |
33 | |||||
Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 34 | ||||
Item 7A. |
49 | |||||
Item 8. |
51 | |||||
Item 9 |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
85 | ||||
Item 9A. |
85 | |||||
Item 9B. |
88 | |||||
PART III |
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Item 10. |
88 | |||||
Item 11. |
88 | |||||
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 88 | ||||
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
88 | ||||
Item 14. |
88 | |||||
PART IV |
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Item 15. |
88 |
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Item 1. | Business |
Our Company
Altra Industrial Motion Corp. (Altra or the Company) (formerly Altra Holdings, Inc.) is the parent company of Altra Power Transmission, Inc. (APT) (formerly Altra Industrial Motion, Inc.) and owns 100% of APTs outstanding capital stock. APT, directly or indirectly, owns 100% of the capital stock of 68 of its subsidiaries and 85% of the capital stock of one of its subsidiaries located in Brazil. The following chart illustrates a summary of our corporate structure:
We are a leading global designer, producer and marketer of a wide range of mechanical power transmission, or MPT, and products serving customers in a diverse group of industries, including energy, general industrial, material handling, mining, transportation, and turf and garden. Our product portfolio includes industrial clutches and brakes, enclosed gear drives, open gearing, belted drives, couplings, engineered bearing assemblies, linear components, gear motors, electronic drives, and other related products. Our products are used in a wide variety of high-volume manufacturing processes, where the reliability and accuracy of our products are critical in both avoiding costly down time and enhancing the overall efficiency of manufacturing operations. Our products are also used in non-manufacturing applications where product quality and reliability are especially critical, such as clutches and brakes for elevators and residential and commercial lawnmowers. For the year ended December 31, 2013, we had net sales of $722.2 million and net income attributable to Altra Industrial Motion Corp. of $40.3 million.
We market our products under well recognized and established brands, many of which have been in existence for over 50 years. We believe many of our brands, when taken together with our brands in the same product category have achieved the number one or number two position in terms of consolidated market share and brand awareness in their respective product categories. Our products are either incorporated into products sold by original equipment manufacturers, (OEMs), sold to end users directly, or sold through industrial distributors.
We are led by a highly experienced management team that has established a proven track record of execution, successfully completing and integrating major strategic acquisitions and delivering significant growth in both revenue and profits. We employ a comprehensive business process called the Altra Business System, or ABS, which focuses on eliminating inefficiencies from business processes to improve quality, delivery, and cost.
In this Annual Report on Form 10-K, the terms Altra, Altra Industrial Motion, the Company, we, us and our refer to Altra Industrial Motion Corp. and its subsidiaries, except where the context otherwise requires or indicates.
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We file reports and other documents with the Securities and Exchange Commission. You may read and copy documents we file at the SECs Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You should call 1-800-SEC-0330 for more information on the public reference room. Our SEC Filings are also available to you on the SECs internet site at http://www.sec.gov.
Our internet address is www.altramotion.com. By following the link Investor Relations and then SEC filings on our Internet website, we make available, free of charge, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) as soon as reasonably practicable after such forms are filed with or furnished to the SEC. We are not including information contained on or available through our website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.
History and Acquisitions
Although Altra was incorporated in Delaware in 2004, much of our current business has its roots with the prior acquisition by Colfax Corporation, or Colfax, of the MPT (mechanical power transmission) group of Zurn Technologies, Inc. in December 1996. Colfax subsequently acquired Industrial Clutch Corp. in May 1997, Nuttall Gear Corp. in July 1997 and the Boston Gear and Delroyd Worm Gear brands in August 1997 as part of Colfaxs acquisition of Imo Industries, Inc. In February 2000, Colfax acquired Warner Electric, Inc., which sold products under the Warner Electric, Formsprag Clutch, Stieber, and Wichita Clutch brands. Colfax formed Power Transmission Holding, LLC or PTH in June 2004 to serve as a holding company for all of these power transmission businesses. Boston Gear was established in 1877, Warner Electric, Inc. in 1927, and Wichita Clutch in 1949.
On November 30, 2004, we acquired our original core business through the acquisition of PTH from Colfax. We refer to this transaction as the PTH Acquisition.
On October 22, 2004, The Kilian Company, or Kilian, a company formed at the direction of Genstar Capital, then the largest stockholder of Altra, acquired Kilian Manufacturing Corporation from Timken U.S. Corporation. At the completion of the PTH Acquisition, (i) all of the outstanding shares of Kilian capital stock were exchanged for shares of our capital stock and (ii) Kilian and its subsidiaries were transferred to APT.
On February 10, 2006, we purchased all of the outstanding share capital of Hay Hall Holdings Limited, or Hay Hall. Hay Hall was a UK-based holding company established in 1996 that was focused primarily on the manufacture of couplings and clutch brakes. Hay Hall consisted of five main businesses that were niche focused and had strong brand names and established reputations within their primary markets. Through Hay Hall, we acquired 15 strong brands in complementary product lines, improved customer leverage and expanded geographic presence in over 11 countries.
On May 18, 2006, we acquired substantially all of the assets of Bear Linear Inc., now known as Warner Linear. Warner Linear manufactures high value-added linear actuators which are electromechanical power transmission devices designed to move and position loads linearly for mobile off-highway and industrial applications.
On April 5, 2007, we acquired all of the outstanding shares of TB Woods Corporation, or TB Woods. TB Woods is an established designer, manufacturer and marketer of mechanical industrial power transmission products. In December 2007, the Company divested the TB Woods electronics division.
On October 5, 2007, we acquired substantially all of the assets of All Power Transmission Manufacturing, Inc., or All Power, a manufacturer of universal joints.
On May 29, 2011, we acquired substantially all of the assets and liabilities of Danfoss Bauer GmbH relating to its gear motor business, or Bauer. We refer to this transaction as the Bauer Acquisition. Bauer is a European manufacturer of high-quality gear motors, offering engineered solutions to a variety of industries, including material handling, metals, food processing, and energy.
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On July 11, 2012, we acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda., now known as Lamiflex Do Brasil Equipamentos Industriais S.A., or Lamiflex. Lamiflex is one of the premier Brazilian manufacturer of high-speed disc couplings, providing engineered solutions to a variety of industries, including oil and gas, power generation, metals and mining.
On November 22, 2013, we changed our legal corporate name from Altra Holdings, Inc. to Altra Industrial Motion Corp.
On December 17, 2013, we completed the acquisition of Svendborg Brakes A/S and S.B. Patent Holding ApS (together Svendborg). We acquired all the issued and outstanding shares of Svendborg from Friction Holding A/S. Svendborg is the leading global manufacturer of premium quality caliper brakes.
Our Industry
Based on industry data supplied by the Power Transmission Distributors Association in collaboration with Industrial Market Information, we estimate that industrial power transmission products generated sales in the United States of approximately $36.5 billion in 2013. These products are used to generate, transmit, control and transform mechanical energy. The industrial power transmission industry can be divided into three areas: MPT products; motors and generators; and adjustable speed drives. We compete primarily in the MPT area which, based on industry data, we estimate was a $21.9 billion market in the United States in 2013.
The global MPT market is highly fragmented, with over 1,000 small manufacturers. While smaller companies tend to focus on regional niche markets with narrow product lines, larger companies that generate annual sales of over $100 million generally offer a much broader range of products and have global capabilities. Buyers of MPT products are broadly diversified across many sectors of the economy and typically place a premium on factors such as quality, reliability, availability, and design and application engineering support. We believe the most successful industry participants are those that leverage their distribution network, their products reputations for quality and reliability and their service and technical support capabilities to maintain attractive margins on products and gain market share.
Our Strengths
Leading Market Shares and Brand Names. We believe we hold the number one or number two market position in key products across many of our core platforms. We believe that almost 50% of our sales are derived from products where we hold the number one or number two share and brand recognition, assuming our brands in the same product category are taken together, in the markets we serve. In addition, we believe we have recently captured additional market share in several product lines due to our innovative product development efforts and exceptional customer service and product delivery.
Customized, Engineered Products Serving Niche Markets. We employ approximately 296 non-manufacturing engineers involved with product design, research and development, testing and technical customer support, and we often participate in lengthy design and qualification processes with our customers. Many of our product lines involve a large number of unique parts, are delivered in small order quantities with short lead times, and require varying levels of technical support and responsive customer service. As a result of these characteristics, as well as the essential nature of our products to the efficient operations of our customers, we generate a significant amount of recurring sales with repeat customers.
Aftermarket Sales Supported by Large Installed Base. With a history dating back to 1857 with the formation of TB Woods, we believe we benefit from one of the largest installed customer bases in the industry. The moving, wearing nature of our products necessitates regular replacement and our large installed base of products generates significant aftermarket replacement demand. This has created a recurring revenue stream from a diversified group of end-user customers. For 2013, we estimate that approximately 42% of our revenues were derived from aftermarket sales.
Diversified End Markets. Our revenue base has a balanced exposure across a diverse mix of end-user industries, including energy, food processing, general industrial, material handling, mining, transportation, and turf and garden. We believe our diversified end markets insulate us from volatility in any single industry or type
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of end-user. In 2013, no single industry represented more than 10.8% of our total sales. In addition, we are geographically diversified with approximately 40% of our sales coming from outside North America during 2013.
Strong Relationships with Distributors and OEMs. We have over 1,000 direct OEM customers and enjoy established, long-term relationships with the leading industrial MPT distributors, critical factors that contribute to our high base of recurring aftermarket revenues. We sell our products through more than 3,000 distributor outlets worldwide. We believe our scale, expansive product lines and end-user preference for our products make our product portfolio attractive to both large and multi-branch distributors, as well as regional and independent distributors in our industry.
Experienced, High-Caliber Management Team. We are led by a highly experienced management team with over 250 years of cumulative industrial business experience and an average of 15 years with our companies. Our CEO, Carl Christenson, has over 30 years of experience in the MPT industry, while our CFO, Christian Storch, has approximately 25 years of experience. Our management team has established a proven track record of execution, successfully completing and integrating major strategic acquisitions and delivering significant growth and profitability.
The Altra Business System. We benefit from an established culture of lean management emphasizing quality, delivery and cost through the Altra Business System, or ABS. ABS is at the core of our performance-driven culture and drives both our strategic development and operational improvements. We continually evaluate every aspect of our business to identify productivity improvements and cost savings.
Our Business Strategy
Our long-term strategy is to increase our sales through organic growth, expand our geographic reach and product offerings through strategic acquisitions and improve our profitability through cost reduction initiatives. We seek to achieve these objectives through the following strategies:
Leverage Our Sales and Distribution Network. We intend to continue to leverage our established, long-term relationships with the industrys leading national and regional distributors to help maintain and grow our revenues. We seek to capitalize on customer brand preferences for our products to generate pull-through aftermarket demand from our distribution channel. We believe this strategy also allows our distributors to achieve higher profit margins, further enhancing our preferred position with them.
Focus Our Strategic Marketing on New Growth Opportunities. We intend to expand our emphasis on strategic marketing to focus on new growth opportunities in key end-user and OEM markets. Through a systematic process that leverages our core brands and products, we seek to identify attractive markets and product niches, collect customer and market data, identify market drivers, tailor product and service solutions to specific market and customer requirements, and deploy resources to gain market share and drive future sales growth.
Accelerate New Product and Technology Development. We focus on aggressively developing new products across our business in response to customer needs in various markets. Our extensive application-engineering know-how drives both new and repeat sales and we have an established history of innovation with over 200 granted patents and pending patent applications worldwide. In total, new products developed by us during the past three years generated approximately $74 million in revenues during 2013.
Capitalize on Growth and Sourcing Opportunities in the Asia-Pacific Market. We intend to leverage our established sales offices in the Asia Pacific region and expand into regions where we currently do not have sales representation. In 2012, we expanded our manufacturing presence in Asia beyond our current plant in Shenzhen, China, with the addition of our new manufacturing facility in Changzhou, China. In addition, with the Svendborg Acquisition in 2013, we acquired a leased production facility in Shanghai, China. During 2013, we sourced approximately 25.1% of our purchases from low-cost countries, resulting in average cost reductions of approximately 23.1% for these products. Within the next several years, we intend to utilize our sourcing resources in China to increase our current level of low-cost country sourced purchases. We may also consider additional opportunities to outsource some of our production from North American and Western European locations to Asia or lower cost regions.
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Continue to Improve Operational and Manufacturing Efficiencies through ABS. We believe we can continue to improve profitability through cost control, overhead rationalization, global process optimization, continued implementation of lean manufacturing techniques and strategic pricing initiatives. Our operating plan, based on manufacturing centers of excellence, provides additional opportunities to consolidate purchasing processes and reduce costs by sharing best practices across geographies and business lines.
Selectively Pursue Strategic Acquisitions that Complement Our Strong Platform. We have a successful track record of identifying, acquiring and integrating acquisitions. We believe that in the future there may be a number of attractive potential acquisition candidates, in part due to the fragmented nature of the industry. We plan to continue our disciplined pursuit of strategic acquisitions to strengthen our product portfolio, enhance our industry leadership, leverage fixed costs, expand our global footprint, and create value in products and markets that we know and understand.
Products
We, through our subsidiaries, are a leading global designer, producer and marketer of a wide range of electromechanical power transmission products. The Company brings together strong brands covering over 40 product lines with production facilities in eleven countries. Altras leading brands include Ameridrives Couplings, Bauer Gear Motor, Bibby Turboflex, Boston Gear, Delroyd Worm Gear, Formsprag Clutch, Huco, Industrial Clutch, Inertia Dynamics, Kilian Manufacturing, Lamiflex Couplings, Marland Clutch, Matrix, Nuttall Gear, Stieber Clutch, Svendborg Brakes, TB Woods, Twiflex, Warner Electric, Warner Linear, and Wichita Clutch. Our products serve a wide variety of end markets including aerospace, energy, food processing, general industrial, material handling, mining, petrochemical, transportation and turf and garden. We primarily sell our products to OEMs and through long-standing relationships with the industrys leading industrial distributors such as Motion Industries, Applied Industrial Technologies, Kaman Industrial Technologies and W.W. Grainger. The following discussion of our products does not include detailed product category revenue because such information is not individually tracked by our financial reporting system and is not separately reported by our general purpose financial statements. Conducting a detailed product revenue internal assessment and audit would involve unreasonable effort and expense as revenue information by product line is not available. We maintain sales information by operating facility, but do not maintain any accounting sales data by product line.
Our products, principal brands and markets and sample applications are set forth below:
Products |
Principal Brands |
Principal Markets | Sample Applications | |||
Clutches and Brakes |
Warner Electric, Wichita Clutch, Formsprag Clutch, Stieber Clutch, Svendborg Brakes, Matrix, Inertia Dynamics, Twiflex, Industrial Clutch, Marland Clutch |
Aerospace, energy,
material handling, metals, turf and garden, mining |
Elevators, forklifts,
lawn mowers, oil well draw works, punch presses, conveyors |
|||
Gearing |
Boston Gear, Nuttall Gear, Delroyd, Bauer Gear Motor |
Food processing,
material handling, metals, transportation |
Conveyors, ethanol
mixers, packaging machinery, metal processing equipment |
|||
Engineered Couplings |
Ameridrives, Bibby Transmissions, TB Woods, Lamiflex |
Energy, metals,
plastics, chemical |
Extruders, turbines,
steel strip mills, pumps |
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Products |
Principal Brands |
Principal Markets | Sample Applications | |||
Engineered Bearing Assemblies |
Kilian
|
Aerospace,
material
|
Cargo rollers, seat
storage systems, conveyors |
|||
Power Transmission Components |
Warner Electric, Boston Gear, Huco Dynatork, Warner Linear, Matrix, TB Woods |
Material handling,
|
Conveyors, lawn
|
|||
Engineered Belted Drives |
TB Woods |
Aggregate, HVAC,
|
Pumps, sand and gravel
|
Our products are used in a wide variety of high-volume manufacturing processes, where the reliability and accuracy of our products are critical in both avoiding costly down time and enhancing the overall efficiency of manufacturing operations. Our products are also used in non-manufacturing applications where product quality and reliability are especially critical, such as clutches and brakes for elevators and residential and commercial lawnmowers.
Clutches and Brakes. Clutches are devices which use mechanical, magnetic, hydraulic, pneumatic, or friction type connections to facilitate engaging or disengaging two rotating members. Brakes are combinations of interacting parts that work to slow or stop machinery. We manufacture a variety of clutches and brakes in three main product categories: electromagnetic, overrunning and heavy duty. Our core clutch and brake manufacturing facilities are located in Connecticut, Indiana, Illinois, Michigan, Texas, the United Kingdom, Germany, France, Denmark and China.
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Electromagnetic Clutches and Brakes. Our industrial products include clutches and brakes with specially designed controls for material handling, forklift, elevator, medical mobility, mobile off-highway, baggage handling and plant productivity applications. We also offer a line of clutch and brake products for walk-behind mowers, residential lawn tractors and commercial mowers. While industrial applications are predominant, we also manufacture several vehicular niche applications including on-road refrigeration compressor clutches and agricultural equipment clutches. We market our electromagnetic products under the Warner Electric, Inertia Dynamics and Matrix brand names. |
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Overrunning Clutches. Specific product lines include indexing and backstopping clutches. Primary industrial applications include conveyors, gear reducers, hoists and cranes, mining machinery, machine tools, paper machinery, packaging machinery, pumping equipment and other specialty machinery. We market and sell these products under the Formsprag, Marland, and Stieber brand names. |
|
Heavy Duty Clutches and Brakes. Our heavy duty clutch and brake product lines serve various markets including metal forming, off-shore and land-based oil and gas drilling platforms, mining, material handling, marine applications and various off-highway and construction equipment segments. Our line of heavy duty pneumatic, hydraulic and caliper clutches and brakes are marketed under the Wichita Clutch, Twiflex, Industrial Clutch and Svendborg Brakes brand names. |
Gearing. Gears reduce the output speed and increase the torque of an electric motor or engine to the level required to drive a particular piece of equipment. These products are used in various industrial, material handling, mixing, transportation and food processing applications. Specific product lines include vertical and horizontal gear drives, speed reducers and increasers, high-speed compressor drives, enclosed custom gear drives, various enclosed gear drive and gear motor configurations and open gearing products such as spur, helical, worm and miter/bevel gears. We design and manufacture a broad range of gearing products under the Boston Gear, Nuttall Gear, Delroyd, and Bauer Gear Motor brand names. We manufacture our gearing products at our facilities in New York, North Carolina, Germany, Slovakia, and China, and sell to a variety of end markets.
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Engineered Couplings. Couplings are the interface between two shafts, which enable power to be transmitted from one shaft to the other. Because shafts are often misaligned, we design our couplings with a measure of flexibility that accommodates various degrees of misalignment. Our coupling product line includes gear couplings, high-speed disc and diaphragm couplings, elastomeric couplings, grid couplings, universal joints, jaw couplings and spindles. Our coupling products are used in a wide range of markets including power generation, steel and custom machinery industries. We manufacture a broad range of coupling products under the Ameridrives, Bibby, Lamiflex and TB Woods brand names. Our engineered couplings are manufactured in our facilities in China, Brazil, Mexico, Pennsylvania, Texas, the United Kingdom and Wisconsin.
Engineered Bearing Assemblies. Bearings are components that support, guide and reduce friction of motion between fixed and moving machine parts. Our engineered bearing assembly product line includes ball bearings, roller bearings, thrust bearings, track rollers, stainless steel bearings, polymer assemblies, housed units and custom assemblies. We manufacture a broad range of engineered bearing products under the Kilian brand name. We sell bearing products to a wide range of end markets, including the general industrial and automotive markets, with a particularly strong OEM customer focus. We manufacture our bearing products at our facilities in New York, Canada and China.
Power Transmission Components. Power transmission components are used in a number of industries to generate, transfer or control motion from a power source to an application requiring rotary or linear motion. Power transmission products are applicable in most industrial markets, including, but not limited to metals processing, turf and garden and material handling applications. Specific product lines include linear actuators, miniature and small precision couplings, air motors, friction materials, hydrostatic drives and other various items. We manufacture or market a broad array of power transmission components under several businesses including Warner Linear, Huco Dynatork, Boston Gear, Warner Electric, TB Woods and Matrix. Our core power transmission component manufacturing facilities are located in Illinois, Pennsylvania, North Carolina, the United Kingdom and China.
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Warner Linear. Warner Linear is a designer and manufacturer of rugged service electromechanical linear actuators for off-highway vehicles, agriculture, turf care, special vehicles, medical equipment, industrial and marine applications. |
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Huco Dynatork. Huco Dynatork is a leading manufacturer and supplier of a complete range of precision couplings, universal joints, rod ends and linkages. |
|
Other Accessories. Our Boston Gear, Warner Electric, Matrix and TB Woods businesses make or market several other accessories such as sensors, sleeve bearings, AC/DC motors, shaft accessories, face tooth couplings, mechanical variable speed drives, and fluid power components that are used in numerous end markets. |
Engineered Belted Drives. Belted drives incorporate both a rubber-based belt and at least two sheaves or sprockets. Belted drives typically change the speed of an electric motor or engine to the level required for a particular piece of equipment. Our belted drive line includes three types of v-belts, three types of synchronous belts, standard and made-to-order sheaves and sprockets, and split taper bushings. We sell belted drives to a wide range of end markets, including aggregate, energy, chemical and material handling. Our engineered belted drives are primarily manufactured under the TB Woods brand in our facilities in Pennsylvania and Mexico.
Research and Development and Product Engineering
We closely integrate new product development with marketing, manufacturing and product engineering in meeting the needs of our customers. We have product engineering teams that work to enhance our existing products and develop new product applications for our growing base of customers that require custom solutions. We believe these capabilities provide a significant competitive advantage in the development of high quality industrial power transmission products. Our product engineering teams focus on:
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lowering the cost of manufacturing our existing products; |
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redesigning existing product lines to increase their efficiency or enhance their performance; and |
|
developing new product applications. |
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Our continued investment in new product development is intended to help drive customer growth as we address key customer needs.
Sales and Marketing
We sell our products in over 70 countries to over 1,000 direct OEM customers and over 3,000 distributor outlets. We offer our products through our direct sales force comprised of 172 company-employed sales associates as well as independent sales representatives. Our worldwide sales and distribution presence enables us to provide timely and responsive support and service to our customers, many of which operate globally, and to capitalize on growth opportunities in both developed and emerging markets around the world.
We employ an integrated sales and marketing strategy concentrated on both key industries and individual product lines. We believe this dual vertical market and horizontal product approach distinguishes us in the marketplace allowing us to quickly identify trends and customer growth opportunities and deploy resources accordingly. Within our key industries, we market to OEMs, encouraging them to incorporate our products into their equipment designs, to distributors and to end-users, helping to foster brand preference. With this strategy, we are able to leverage our industry experience and product breadth to sell MPT and motion control solutions for a host of industrial applications.
Distribution
Our MPT components are either incorporated into end products sold by OEMs or sold through industrial distributors as aftermarket products to end users and smaller OEMs. We operate a geographically diversified business. For the year ended December 31, 2013, we derived approximately 60% of our net sales from customers in North America, 28% from customers in Europe and 12% from customers in Asia and the rest of the world. Our global customer base is served by an extensive global sales network comprised of our sales staff as well as our network of over 3,000 distributor outlets.
Rather than serving as passive conduits for delivery of product, our industrial distributors are active participants in influencing product purchasing decisions in the MPT industry. In addition, distributors play a critical role through stocking inventory of our products, which amplifies the accessibility of our products to aftermarket buyers. It is for this reason that distributor partner relationships are so critical to the success of the business. We enjoy strong established relationships with the leading distributors as well as a broad, diversified base of specialty and regional distributors.
Competition
We operate in highly fragmented and very competitive markets within the MPT market. Some of our competitors have achieved substantially more market penetration in certain of the markets in which we operate, such as helical gear drives, and some of our competitors are larger than us and have greater financial and other resources. In particular, we compete with Emerson Power Transmission Manufacturing LP, Rexnord Corporation., and Regal-Beloit Corporation. In addition, with respect to certain of our products, we compete with divisions of our OEM customers. Competition in our business lines is based on a number of considerations including quality, reliability, pricing, availability and design and application engineering support. Our customers increasingly demand a broad product range and we must continue to develop our expertise in order to manufacture and market these products successfully. To remain competitive, regular investment in manufacturing, customer service, and support, marketing, sales, research and development and intellectual property protection is required. We may have to adjust the prices of some of our products to stay competitive. In addition, some of our larger, more sophisticated customers are attempting to reduce the number of vendors from which they purchase in order to increase their efficiency. There is substantial and continuing pressure on major OEMs and larger distributors to reduce costs, including the cost of products purchased from outside suppliers such as us. As a result of cost pressures from our customers, our ability to compete depends in part on our ability to generate production cost savings and, in turn, find reliable, cost-effective outside component suppliers or manufacturers for our products. See Risk Factors Risks Related to our Business We operate in the highly competitive mechanical power transmission industry and if we are not able to compete successfully our business may be significantly harmed.
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Intellectual Property
We rely on a combination of patents, trademarks, copyright, and trade secret laws in the United States and other jurisdictions, as well as employee and third-party non-disclosure agreements, license arrangements, and domain name registrations to protect our intellectual property. We sell our products under a number of registered and unregistered trademarks, which we believe are widely recognized in the MPT industry. With the exception of Boston Gear, Warner Electric, TB Woods, Svendborg and Bauer we do not believe any single patent, trademark or trade name is material to our business as a whole. Any issued patents that cover our proprietary technology and any of our other intellectual property rights may not provide us with adequate protection or be commercially beneficial to us and, patents applied for, may not be issued. The issuance of a patent is not conclusive as to its validity or its enforceability. Competitors may also be able to design around our patents. If we are unable to protect our patented technologies, our competitors could commercialize technologies or products which are substantially similar to ours.
With respect to proprietary know-how, we rely on trade secret laws in the United States and other jurisdictions and on confidentiality agreements. Monitoring the unauthorized use of our technology is difficult and the steps we have taken may not prevent unauthorized use of our technology. The disclosure or misappropriation of our intellectual property could harm our ability to protect our rights and our competitive position.
Some of our registered and unregistered trademarks include: Warner Electric, Boston Gear, TB Woods, Kilian, Nuttall Gear, Ameridrives, Wichita Clutch, Formsprag, Bibby Transmissions, Stieber, Matrix, Inertia Dynamics, Twiflex, Industrial Clutch, Huco Dynatork, Marland, Delroyd, Warner Linear, Bauer Gear Motor, PowerFlex and Svendborg Brakes.
Employees
As of December 31, 2013, we had 3,810 full-time employees, of whom approximately 51% were located in North America (primarily U.S.), 32% in Europe, and 17% in Asia and the rest of the world. Approximately 10% of our full-time factory U.S. employees are represented by labor unions. In addition, approximately 691 employees or 57% of our European employees are represented by labor unions or works councils. Approximately 66 employees in the Kilian production facilities in Toronto, Canada are unionized under a collective bargaining agreement. Approximately 25 employees in the Lamiflex production facilities in Brazil are represented by a works council. Additionally, approximately 47 employees in the TB Woods production facilities in Mexico are unionized under collective bargaining agreements that are subject to annual renewals.
We are a party to four U.S. collective bargaining agreements. The agreements will expire in June 2014, July 2014, October 2014 and October 2016.
We are also party to a collective bargaining agreement with union employees at our Toronto, Canada manufacturing facility. That agreement will expire in July 2015.
One of the four U.S. collective bargaining agreements contains provisions for additional, potentially significant, lump-sum severance payments to all employees covered by that agreement who are terminated as the result of a plant closing and one of our collective bargaining agreements contains provisions restricting our ability to terminate or relocate operations. See Risk Factors Risks Related to Our Business We may be subject to work stoppages at our facilities, or our customers may be subjected to work stoppages, which could seriously impact our operations and the profitability of our business.
Our facilities in Europe and Brazil have employees who are generally represented by local or national social works councils. Social works councils meet with employer industry associations periodically to discuss employee wages and working conditions. Our facilities in Denmark, France, Germany, Slovakia, and Brazil often participate in such discussions and adhere to any agreements reached.
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Suppliers and Raw Materials
We obtain raw materials, component parts and supplies from a variety of sources, generally from more than one supplier. Our suppliers and sources of raw materials are based in both the United States and other countries and we believe that our sources of raw materials are adequate for our needs for the foreseeable future. We do not believe the loss of any one supplier would have a material adverse effect on our business or results of operations. Our principal raw materials are steel and copper. We generally purchase our materials on the open market, where certain commodities such as steel and copper have fluctuated in price significantly in recent years. We have not experienced any significant shortage of our key materials and have not historically engaged in hedging transactions for commodity suppliers.
Our ability, including manufacturing or distribution capabilities, and that of our suppliers, business partners and contract manufacturers, to make, move and sell products is critical to our success. Damage or disruption to our or their manufacturing or distribution capabilities due to weather, natural disaster, fire or explosion, terrorism, pandemics, strikes, repairs or enhancements at our facilities, excessive demand, raw material shortages, or other reasons, could impair our ability, and that of our suppliers, to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, as well as require additional resources to restore our supply chain.
Seasonality
We experience seasonality in our turf and garden business, which in recent years has represented approximately 7.4% of our net sales. As our large OEM customers prepare for the spring season, our shipments generally start increasing in December, peak in February and March, and begin to decline in April and May. This allows our customers to have inventory in place for the peak consumer purchasing periods for turf and garden products. The June-through-November period is typically the low season for us and our customers in the turf and garden market. Seasonality can also be affected by weather and the level of housing starts.
Regulation
We are subject to a variety of government laws and regulations that apply to companies engaged in international operations. These include compliance with the Foreign Corrupt Practices Act, U.S. Department of Commerce export controls, local government regulations and procurement policies and practices (including regulations relating to import-export control, investments, exchange controls and repatriation of earnings). We maintain controls and procedures to comply with laws and regulations associated with our international operations. In the event we are unable to remain compliant with such laws and regulations, our business may be adversely affected.
Environmental and Health and Safety Matters
We are subject to a variety of federal, state, local, foreign and provincial environmental laws and regulations, including those governing health and safety requirements, the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes and the responsibility to investigate and cleanup contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Some of these laws and regulations require us to obtain permits, which contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and periodically may be subject to modification, renewal and revocation by issuing authorities. Fines and penalties may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. From time to time, our operations may not be in full compliance with the terms and conditions of our permits. We periodically review our procedures and policies for compliance with environmental laws and requirements. We believe that our operations generally are in material compliance with applicable environmental laws and requirements and that any non-compliance would not be expected to result in us incurring material liability or cost to achieve compliance. Historically, the costs of achieving and maintaining compliance with environmental laws and requirements have not been material.
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Certain environmental laws in the United States, such as the federal Superfund law and similar state laws, impose liability for the cost of investigation or remediation of contaminated sites upon the current or, in some cases, the former site owners or operators and upon parties who arranged for the disposal of wastes or transported or sent those wastes to an off-site facility for treatment or disposal, regardless of when the release of hazardous substances occurred or the lawfulness of the activities giving rise to the release. Such liability can be imposed without regard to fault and, under certain circumstances, can be joint and several, resulting in one party being held responsible for the entire obligation. As a practical matter, however, the costs of investigation and remediation generally are allocated among the viable responsible parties on some form of equitable basis. Liability also may include damages to natural resources. We have not been notified that we are a potentially responsible party in connection with any sites we currently or formerly owned or operated. From time to time, we are notified that we are a potentially responsible party and may have liability in connection with off-site disposal facilities. To date, we have generally resolved matters involving off-site disposal facilities for a nominal sum although there can be no assurance that we will be able to resolve pending and future matters in a similar fashion.
Executive Officers of Registrant
The following sets forth certain information with regard to our executive officers as of February 19, 2014 (ages are as of December 31, 2013):
Michael L. Hurt (age 68) , P.E. has been our Executive Chairman since January 2009, Prior to his current position, Mr. Hurt served as Chief Executive Officer and a director since our formation in 2004. In November 2006, Mr. Hurt was elected as chairman of our board. During 2004, prior to our formation, Mr. Hurt provided consulting services to Genstar Capital and was appointed Chairman and Chief Executive Officer of Kilian in October 2004. From January 1991 to November 2003, Mr. Hurt was the President and Chief Executive Officer of TB Woods Incorporated, a manufacturer of industrial power transmission products. Prior to TB Woods, Mr. Hurt spent 23 years in a variety of management positions at the Torrington Company, a major manufacturer of bearings and a subsidiary of Ingersoll Rand. Mr. Hurt holds a B.S. degree in Mechanical Engineering from Clemson University and an M.B.A. from Clemson-Furman University.
Carl R. Christenson (age 54) has been our Chief Executive Officer since January 2009 and a director since July 2007. Prior to his current position, Mr. Christenson served as our President and Chief Operating Officer from January 2005 to December 2008. From 2001 to 2005, Mr. Christenson was the President of Kaydon Bearings, a manufacturer of custom-engineered bearings and a division of Kaydon Corporation. Prior to joining Kaydon, Mr. Christenson held a number of management positions at TB Woods Incorporated and several positions at the Torrington Company. Mr. Christenson holds a M.S. and B.S. degree in Mechanical Engineering from the University of Massachusetts and an M.B.A. from Rensselaer Polytechnic.
Christian Storch (age 54) has been our Chief Financial Officer since December 2007. From 2001 to 2007, Mr. Storch was the Vice President and Chief Financial Officer at Standex International Corporation. Mr. Storch also served on the Board of Directors of Standex International from October 2004 to December 2007. Mr. Storch also served as Standex Internationals Treasurer from 2003 to April 2006 and Manager of Corporate Audit and Assurance Services from July 1999 to 2001. Prior to Standex International, Mr. Storch was a Divisional Financial Director and Corporate Controller at Vossloh AG, a publicly held German transport technology company. Mr. Storch has also previously served as an Audit Manager with Deloitte & Touche, LLP. Mr. Storch holds a degree in business administration from the University of Passau, Germany.
Glenn Deegan (age 47) has been our Vice President, Legal and Human Resources, General Counsel and Secretary since June 2009. Prior to his current position, Mr. Deegan served as our General Counsel and Secretary since September 2008. From March 2007 to August 2008, Mr. Deegan served as Vice President, General Counsel and Secretary of Averion International Corp., a publicly held global provider of clinical research services. Prior to Averion, from June 2001 to March 2007, Mr. Deegan served as Director of Legal Affairs and then as Vice President, General Counsel and Secretary of
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MacroChem Corporation, a publicly held specialty pharmaceutical company. From 1999 to 2001, Mr. Deegan served as Assistant General Counsel of Summit Technology, Inc., a publicly held manufacturer of ophthalmic laser systems. Mr. Deegan previously spent over six years engaged in the private practice of law and also served as law clerk to the Honorable Francis J. Boyle in the United States District Court for the District of Rhode Island. Mr. Deegan holds a B.S. from Providence College and a J.D. from Boston College.
Gerald Ferris (age 64) has been our Vice President of Global Sales since May 2007 and held the same position with Power Transmission Holdings, LLC, our Predecessor, since March 2002. He is responsible for the worldwide sales of our broad product platform. Mr. Ferris joined our Predecessor in 1978 and since joining has held various positions. He became the Vice President of Sales for Boston Gear in 1991. Mr. Ferris holds a B.A. degree in Political Science from Stonehill College.
Todd B. Patriacca (age 44) has been our Vice President of Finance, Corporate Controller and Treasurer since February 2010. Prior to his current position, Mr. Patriacca served as our Vice President of Finance, Corporate Controller and Assistant Treasurer since October 2008 and previous to that, as Vice President of Finance and Corporate Controller since May 2007 and as Corporate Controller since May 2005. Prior to joining us, Mr. Patriacca was Corporate Finance Manager at MKS Instrument Inc., a semi-conductor equipment manufacturer since March 2002. Prior to MKS, Mr. Patriacca spent over ten years at Arthur Andersen LLP in the Assurance Advisory practice. Mr. Patriacca is a Certified Public Accountant and holds a B.A. in History from Colby College and an M.B.A. and an M.S. in Accounting from Northeastern University.
Craig Schuele (age 50) has been our Vice President of Marketing and Business Development since May 2007 and held the same position with our Predecessor since July 2004. Prior to his current position, Mr. Schuele has been Vice President of Marketing since March 2002, and previous to that he was a Director of Marketing. Mr. Schuele joined our Predecessor in 1986 and holds a B.S. degree in Management from Rhode Island College.
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Item 1A. | Risk Factors |
Risks Related to Our Business
We operate in the highly competitive mechanical power transmission industry and if we are not able to compete successfully our business may be significantly harmed.
We operate in highly fragmented and very competitive markets in the MPT industry. Some of our competitors have achieved substantially more market penetration in certain of the markets in which we operate, such as helical gear drives, and some of our competitors are larger than us and have greater financial and other resources. With respect to certain of our products, we compete with divisions of our OEM customers. Competition in our business lines is based on a number of considerations, including quality, reliability, pricing, availability, and design and application engineering support. Our customers increasingly demand a broad product range and we must continue to develop our expertise in order to manufacture and market these products successfully. To remain competitive, regular investment in manufacturing, customer service, and support, marketing, sales, research and development and intellectual property protection is required. In the future we may not have sufficient resources to continue to make such investments and may not be able to maintain our competitive position within each of the markets we serve. We may have to adjust the prices of some of our products to stay competitive.
Additionally, some of our larger, more sophisticated customers are attempting to reduce the number of vendors from which they purchase in order to increase their efficiency. If we are not selected to become one of these preferred providers, we may lose market share in some of the markets in which we compete.
There is substantial and continuing pressure on major OEMs and larger distributors to reduce costs, including the cost of products purchased from outside suppliers. As a result of cost pressures from our customers, our ability to compete depends in part on our ability to generate production cost savings and, in turn, to find reliable, cost effective outside suppliers to source components or manufacture our products. If we are unable to generate sufficient cost savings in the future to offset price reductions, then our gross margin could be materially adversely affected.
Changes in or the cyclical nature of our markets could harm our operations and financial performance.
Our financial performance depends, in large part, on conditions in the markets that we serve and on the U.S. and global economies in general. Some of the markets we serve are highly cyclical, such as the metals, mining, industrial equipment and energy markets. In such an environment, expected cyclical activity or sales may not occur or may be delayed and may result in significant quarter-to-quarter variability in our performance. Any sustained weakness in demand, downturn or uncertainty in cyclical markets may reduce our sales and profitability.
We rely on independent distributors and the loss of these distributors could adversely affect our business.
In addition to our direct sales force and manufacturer sales representatives, we depend on the services of independent distributors to sell our products and provide service and aftermarket support to our customers. We support an extensive distribution network, with over 3,000 distributor locations worldwide. Rather than serving as passive conduits for delivery of product, our independent distributors are active participants in the overall competitive dynamics in the MPT industry. During the year ended December 31, 2013, approximately 34% of our net sales from continuing operations were generated through independent distributors. In particular, sales through our largest distributor accounted for approximately 8% of our net sales for the year ended December 31, 2013. Almost all of the distributors with whom we transact business offer competitive products and services to our customers. In addition, the distribution agreements we have are typically non-exclusive and cancelable by the distributor after a short notice period. The loss of any major distributor or a substantial number of smaller distributors or an increase in the distributors sales of our competitors products to our customers could materially reduce our sales and profits.
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We must continue to invest in new technologies and manufacturing techniques; however, our ability to develop or adapt to changing technology and manufacturing techniques is uncertain and our failure to do so could place us at a competitive disadvantage.
The successful implementation of our business strategy requires us to continuously invest in new technologies and manufacturing techniques to evolve our existing products and introduce new products to meet our customers needs in the industries we serve and want to serve. For example, motion control products offer more precise positioning and control compared to industrial clutches and brakes. If manufacturing processes are developed to make motion control products more price competitive and less complicated to operate, our customers may decrease their purchases of MPT products.
Our products are characterized by performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. We believe that our customers rigorously evaluate their suppliers on the basis of a number of factors, including:
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product quality and availability; |
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price competitiveness; |
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technical expertise and development capability; |
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reliability and timeliness of delivery; |
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product design capability; |
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manufacturing expertise; and |
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sales support and customer service. |
Our success depends on our ability to invest in new technologies and manufacturing techniques to continue to meet our customers changing demands with respect to the above factors. We may not be able to make required capital expenditures and, even if we do so, we may be unsuccessful in addressing technological advances or introducing new products necessary to remain competitive within our markets. Furthermore, our own technological developments may not be able to produce a sustainable competitive advantage. If we fail to invest successfully in improvements to our technology and manufacturing techniques, our business may be materially adversely affected.
Our operations are subject to international risks that could affect our operating results.
Our net sales outside North America represented approximately 40% of our total net sales for the year ended December 31, 2013. In addition, we sell products to domestic customers for use in their products sold overseas. We also source a significant portion of our products and materials from overseas, a practice which is increasing. Our business is subject to risks associated with doing business internationally, and our future results could be materially adversely affected by a variety of factors, including:
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fluctuations in currency exchange rates; |
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exchange rate controls; |
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tariffs or other trade protection measures and import or export licensing requirements; |
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potentially negative consequences from changes in tax laws; |
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interest rates; |
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unexpected changes in regulatory requirements; |
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changes in foreign intellectual property law; |
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differing labor regulations; |
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requirements relating to withholding taxes on remittances and other payments by subsidiaries; |
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restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in various jurisdictions; |
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potential political instability and the actions of foreign governments; and |
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restrictions on our ability to repatriate dividends from our subsidiaries. |
As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. However, any of these factors could materially adversely affect our international operations and, consequently, our operating results.
Our operations depend on production facilities throughout the world, many of which are located outside the United States and are subject to increased risks of disrupted production causing delays in shipments and loss of customers and revenue.
We operate businesses with manufacturing facilities worldwide, many of which are located outside the United States including in Brazil, Canada, China, Denmark, France, Germany, Mexico, Russia, Slovakia, and the United Kingdom. Serving a global customer base requires that we place more production in emerging markets to capitalize on market opportunities and cost efficiencies. Our international production facilities and operations could be disrupted by currency fluctuations and devaluation, capital and currency exchange controls, low or negative economic growth rates, natural disaster, labor strike, military activity or war, political unrest, terrorist activity or public health concerns, particularly in emerging countries that are not well-equipped to handle such occurrences. Any production disruptions could materially adversely affect our business.
We rely on estimated forecasts of our OEM customers needs, and inaccuracies in such forecasts could materially adversely affect our business.
We generally sell our products pursuant to individual purchase orders instead of under long-term purchase commitments. Therefore, we rely on estimated demand forecasts, based upon input from our customers, to determine how much material to purchase and product to manufacture. Because our sales are based on purchase orders, our customers may cancel, delay or otherwise modify their purchase commitments with little or no consequence to them and with little or no notice to us. For these reasons, we generally have limited visibility regarding our customers actual product needs. The quantities or timing required by our customers for our products could vary significantly. Whether in response to changes affecting the industry or a customers specific business pressures, any cancellation, delay or other modification in our customers orders could significantly reduce our revenue, impact our working capital, cause our operating results to fluctuate from period to period and make it more difficult for us to predict our revenue. In the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to minimize the effect of the lost revenue on our business and we may purchase too much inventory and spend more capital than expected, which may materially adversely affect our business.
From time to time, our customers may experience deterioration of their businesses. In addition, during periods of economic difficulty, our customers may not be able to accurately estimate demand forecasts and may scale back orders in an abundance of caution. As a result, existing or potential customers may delay or cancel plans to purchase our products and may not be able to fulfill their obligations to us in a timely fashion. Such cancellations, reductions or inability to fulfill obligations could significantly reduce our revenue, impact our working capital, cause our operating results to fluctuate adversely from period to period and make it more difficult for us to predict our revenue.
Our inability to efficiently utilize or re-negotiate minimum purchase requirements in certain supply agreements could decrease our profitability.
Our ability to maintain and expand our business depends, in part, on our ability to continue to obtain raw materials and component parts on favorable terms from various suppliers. Agreements with some of our suppliers contain minimum purchase requirements. We can give no assurance that we will be able to utilize the minimum amount of raw materials or component parts that we are required to purchase under certain supply agreements which contain minimum purchase requirements. If we are required to purchase more raw materials or component parts than we are able to utilize in the operation of our business, the costs of providing our products
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would likely increase, which could decrease our profitability and have a material adverse effect on our business, financial condition and results of operations.
Disruption of our supply chain could have an adverse effect on our business, financial condition and results of operations.
Our ability, including manufacturing or distribution capabilities, and that of our suppliers, business partners and contract manufacturers, to make, move and sell products is critical to our success. Damage or disruption to our or their manufacturing or distribution capabilities due to weather, natural disaster, fire or explosion, terrorism, pandemics, strikes, repairs or enhancements at our facilities, excessive demand, raw material shortages, or other reasons, could impair our ability, and that of our suppliers, to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, as well as require additional resources to restore our supply chain.
The materials used to produce our products are subject to price fluctuations that could increase costs of production and adversely affect our profitability.
The materials used to produce our products, especially copper and steel, are sourced on a global or regional basis and the prices of those materials are susceptible to price fluctuations due to supply and demand trends, transportation costs, government regulations and tariffs, changes in currency exchange rates, price controls, the economic climate and other unforeseen circumstances. From the first quarter of 2004 to the fourth quarter of 2013, the average price of copper and steel has increased approximately 153% and 75%, respectively. If we are unable to continue to pass a substantial portion of such price increases on to our customers on a timely basis, our future profitability may be materially adversely affected. In addition, passing through these costs to our customers may also limit our ability to increase our prices in the future.
We face potential product liability claims relating to products we manufacture or distribute, which could result in our having to expend significant time and expense to defend these claims and to pay material damages or settlement amounts.
We face a business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in injury or other adverse effects. We currently have several product liability claims against us with respect to our products. Although we currently maintain product liability insurance coverage, we may not be able to obtain such insurance on acceptable terms in the future, if at all, or obtain insurance that will provide adequate coverage against potential claims. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. An unsuccessful product liability defense could exceed any insurance that we maintain and could have a material adverse effect on our business, financial condition, results of operations or our ability to make payments under our debt obligations when due. In addition, we believe our business depends on the strong brand reputation we have developed. In the event that our reputation is damaged, we may face difficulty in maintaining our pricing positions with respect to some of our products, which would reduce our sales and profitability.
We also risk exposure to product liability claims in connection with products sold by businesses that we acquire. Although in some cases third parties have retained responsibility for product liabilities relating to products manufactured or sold prior to our acquisition of the relevant business and in other cases the persons from whom we have acquired a business may be required to indemnify us for certain product liability claims subject to certain caps or limitations on indemnification, we cannot assure you that those third parties will in fact satisfy their obligations to us with respect to liabilities retained by them or their indemnification obligations. If those third parties become unable to or otherwise do not comply with their respective obligations including indemnity obligations, or if certain product liability claims for which we are obligated were not retained by third parties or are not subject to these indemnities, we could become subject to significant liabilities or other adverse consequences. Moreover, even in cases where third parties retain responsibility for product liabilities or are required to indemnify us, significant claims arising from products that we have acquired could have a material adverse effect on our ability to realize the benefits from an acquisition, could result in our reducing the value of
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goodwill that we have recorded in connection with an acquisition, or could otherwise have a material adverse effect on our business, financial condition, or operations.
We may be subject to work stoppages at our facilities, or our customers may be subjected to work stoppages, which could seriously impact our operations and the profitability of our business.
As of December 31, 2013, we had 3,810 full-time employees, of whom approximately 51% were located in North America (primarily U.S.), 32% in Europe, and 17% in Asia and the rest of the world. Approximately 10% of our full-time factory U.S. employees are represented by labor unions. In addition, approximately 691 employees or 57% of our European employees are represented by labor unions or works councils. Approximately 66 employees in the Kilian production facilities in Toronto, Canada are unionized under a collective bargaining agreement. Approximately 25 employees in the Lamiflex production facilities in Brazil are represented by a works council. Additionally, approximately 47 employees in the TB Woods production facilities in Mexico are unionized under collective bargaining agreements that are subject to annual renewals.
We are a party to four U.S. collective bargaining agreements. The agreements will expire in June 2014, July 2014, October 2014 and October 2016. We may be unable to renew these agreements on terms that are satisfactory to us, if at all.
We are also party to a collective bargaining agreement with union employees at our Toronto, Canada manufacturing facility. That agreement will expire in July 2015.
One of the four U.S. collective bargaining agreements contains provisions for additional, potentially significant, lump-sum severance payments to all employees covered by that agreement who are terminated as the result of a plant closing and one of our collective bargaining agreements contains provisions restricting our ability to terminate or relocate operations
Our facilities in Europe and Brazil have employees who are generally represented by local or national social works councils. Social works councils meet with employer industry associations periodically to discuss employee wages and working conditions. Our facilities in France, Germany, Slovakia, and Brazil often participate in such discussions and adhere to any agreements reached.
If our unionized workers or those represented by a works council were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations. Such disruption could interfere with our ability to deliver products on a timely basis and could have other negative effects, including decreased productivity and increased labor costs. In addition, if a greater percentage of our work force becomes unionized, our business and financial results could be materially adversely affected. Many of our direct and indirect customers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or their suppliers could result in slowdowns or closures of assembly plants where our products are used and could cause cancellation of purchase orders with us or otherwise result in reduced revenues from these customers.
Changes in employment laws could increase our costs and may adversely affect our business.
Various federal, state and international labor laws govern our relationship with employees and affect operating costs. These laws include minimum wage requirements, overtime, unemployment tax rates, workers compensation rates paid, leaves of absence, mandated health and other benefits, and citizenship requirements. Significant additional government-imposed increases or new requirements in these areas could materially affect our business, financial condition, operating results or cash flow.
In the event our employee-related costs rise significantly, we may have to curtail the number of our employees or shut down certain manufacturing facilities. Any such actions would not only be costly but could also materially adversely affect our business.
We depend on the services of key executives, the loss of whom could materially harm our business.
Our senior executives are important to our success because they are instrumental in setting our strategic direction, operating our business, maintaining and expanding relationships with distributors, identifying,
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recruiting and training key personnel, identifying expansion opportunities and arranging necessary financing. Losing the services of any of these individuals could adversely affect our business until a suitable replacement could be found. We believe that our senior executives could not easily be replaced with executives of equal experience and capabilities. Although we have entered into employment agreements with certain of our key domestic executives, we cannot prevent our key executives from terminating their employment with us. We do not maintain key person life insurance policies on any of our executives.
If we lose certain of our key sales, marketing or engineering personnel, our business may be adversely affected.
Our success depends on our ability to recruit, retain and motivate highly skilled sales, marketing and engineering personnel. Competition for these persons in our industry is intense and we may not be able to successfully recruit, train or retain qualified personnel. If we fail to retain and recruit the necessary personnel, our business and our ability to obtain new customers, develop new products and provide acceptable levels of customer service could suffer. If certain of these key personnel were to terminate their employment with us, we may experience difficulty replacing them, and our business could be harmed.
We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses.
We are subject to a variety of federal, state, local, foreign and provincial environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes and the responsibility to investigate and cleanup contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Some of these laws and regulations require us to obtain permits, which contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and periodically may be subject to modification, renewal and revocation by issuing authorities. Fines and penalties may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. From time to time, our operations may not be in full compliance with the terms and conditions of our permits. We periodically review our procedures and policies for compliance with environmental laws and requirements. We believe that our operations generally are in material compliance with applicable environmental laws, requirements and permits and that any lapses in compliance would not be expected to result in us incurring material liability or cost to achieve compliance. Historically, the costs of achieving and maintaining compliance with environmental laws, and requirements and permits have not been material; however, the operation of manufacturing plants entails risks in these areas, and a failure by us to comply with applicable environmental laws, regulations, or permits could result in civil or criminal fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions. Moreover, if applicable environmental laws and regulations, or the interpretation or enforcement thereof, become more stringent in the future, we could incur capital or operating costs beyond those currently anticipated.
Certain environmental laws in the United States, such as the federal Superfund law and similar state laws, impose liability for the cost of investigation or remediation of contaminated sites upon the current or, in some cases, the former site owners or operators and upon parties who arranged for the disposal of wastes or transported or sent those wastes to an off-site facility for treatment or disposal, regardless of when the release of hazardous substances occurred or the lawfulness of the activities giving rise to the release. Such liability can be imposed without regard to fault and, under certain circumstances, can be joint and several, resulting in one party being held responsible for the entire obligation. As a practical matter, however, the costs of investigation and remediation generally are allocated among the viable responsible parties on some form of equitable basis. Liability also may include damages to natural resources. We have not been notified that we are a potentially responsible party in connection with any sites we currently or formerly owned or operated. From time to time, we are notified that we are a potentially responsible party and may have liability in connection with off-site disposal facilities. To date, we have generally resolved matters involving off-site disposal facilities for a nominal sum although there can be no assurance that we will be able to resolve pending and future matters in a similar fashion.
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However, there is contamination at some of our current facilities, primarily related to historical operations at those sites, for which we could be liable for the investigation and remediation under certain environmental laws. The potential for contamination also exists at other of our current or former sites, based on historical uses of those sites. We currently are not undertaking any remediation or investigations and our costs or liability in connection with potential contamination conditions at our facilities cannot be predicted at this time because the potential existence of contamination has not been investigated or not enough is known about the environmental conditions or likely remedial requirements. Currently, other parties with contractual liability are addressing or have plans or obligations to address those contamination conditions that may pose a material risk to human health, safety or the environment. In addition, while we attempt to evaluate the risk of liability associated with our facilities at the time we acquire them, there may be environmental conditions currently unknown to us relating to our prior, existing or future sites or operations or those of predecessor companies whose liabilities we may have assumed or acquired which could have a material adverse effect on our business.
We are being indemnified, or expect to be indemnified by third parties subject to certain caps or limitations on the indemnification, for certain environmental costs and liabilities associated with certain owned or operated sites. Accordingly, based on the indemnification and the experience with similar sites of the environmental consultants who we have hired, we do not expect such costs and liabilities to have a material adverse effect on our business, operations or earnings. We cannot assure you, however, that those third parties will in fact satisfy their indemnification obligations. If those third parties become unable to, or otherwise do not, comply with their respective indemnity obligations, or if certain contamination or other liability for which we are obligated is not subject to these indemnities, we could become subject to significant liabilities.
We may face additional costs associated with our post-retirement and post-employment obligations to employees which could have an adverse effect on our financial condition.
As part of the acquisition of our original core business through the acquisition of PTH from Colfax Corporation, the PTH Acquisition, we agreed to assume pension plan liabilities for active U.S. employees under the Retirement Plan for Power Transmission Employees of Colfax and the Ameridrives International Pension Fund for Hourly Employees Represented by United Steelworkers of America, Local 3199-10, collectively referred to as the Prior Plans. We have established a defined benefit plan, the Altra Industrial Motion, Inc. Retirement Plan or New Plan, mirroring the benefits provided under the Prior Plans. The New Plan accepted a spin-off of assets and liabilities from the Prior Plans, in accordance with Section 414(l) of the Internal Revenue Code, or the Code, with such assets and liabilities relating to active U.S. employees as of the closing of the PTH Acquisition. Given the funded status of the Prior Plans and the asset allocation requirements of Code Section 414(l), liabilities under the New Plan greatly exceeded the assets that were transferred from the Prior Plans at the time of transfer. The accumulated benefit obligation (not including accumulated benefit obligations of non-U.S. pension plans in the amount of $7.7 million) was approximately $24.5 million as of December 31, 2013 while the fair value of plan assets associated with these plans was approximately $23.9 million as of December 31, 2013. In the event of any future funding deficit, the cash funding requirements could have a material adverse effect on our financial condition. As of December 31, 2013, there are no minimum funding requirements for years 2014 and 2015, and $0.3 million annually for each year from 2016 through 2018. These amounts are based on actuarial assumptions and actual amounts could be materially different.
Additionally, as part of the PTH Acquisition and Bauer Acquisition, we agreed to assume certain pension plan liabilities related to non-U.S. employees. The accumulated benefit obligations of non-U.S. pension plans were approximately $7.7 million as of December 31, 2013. There are no assets associated with these plans.
Finally, as part of the PTH Acquisition, we also agreed to assume all post-employment and post-retirement welfare benefit obligations with respect to active U.S. employees. The benefit obligation for post-retirement benefits, which are not funded, was approximately $0.2 million as of December 31, 2013.
For a description of the post-retirement and post-employment costs, see Note 8 to our audited financial statements included elsewhere in this Form 10-K.
21
Our future success depends on our ability to integrate acquired companies and manage our growth effectively.
Our growth through acquisitions has placed, and will continue to place, significant demands on our management, operational and financial resources. Realization of the benefits of acquisitions often requires integration of some or all of the acquired companies sales and marketing, distribution, manufacturing, engineering, finance and administrative organizations. Integration of companies demands substantial attention from senior management and the management of the acquired companies. In addition, we will continue to pursue new acquisitions, some of which could be material to our business if completed. We may not be able to integrate successfully our recent acquisitions, or any future acquisitions, operate these acquired companies profitably, or realize the potential benefits from these acquisitions.
The market price of our common stock may decline as a result of acquisitions, including the Svendborg Acquisition, if, among other things, we are unable to achieve the expected growth in earnings, or if the operational cost savings estimates in connection with the integration of the acquired businesses are not realized, or if the transaction costs related to the acquisitions are greater than expected. The market price of our common stock also may decline if we do not achieve the perceived benefits of the acquisitions as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the acquisitions on our financial results is not consistent with the expectations of financial or industry analysts.
We may not be able to protect our intellectual property rights, brands or technology effectively, which could allow competitors to duplicate or replicate our technology and could adversely affect our ability to compete.
We rely on a combination of patent, trademark, copyright, and trade secret laws in the United States and other jurisdictions, as well as on license, non-disclosure, employee and consultant assignment and other agreements and domain names registrations in order to protect our proprietary technology and rights. Applications for protection of our intellectual property rights may not be allowed, and the rights, if granted, may not be maintained. In addition, third parties may infringe or challenge our intellectual property rights. In some cases, we rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. In addition, in the ordinary course of our operations, we pursue potential claims from time to time relating to the protection of certain products and intellectual property rights, including with respect to some of our more profitable products. Such claims could be time consuming, expensive and divert resources. If we are unable to maintain the proprietary nature of our technologies or proprietary protection of our brands, our ability to market or be competitive with respect to some or all of our products may be affected, which could reduce our sales and profitability.
Goodwill and indefinite-lived intangibles comprises a significant portion of our total assets, and if we determine that goodwill or indefinite-lived intangibles become impaired in the future, net income in such years may be materially and adversely affected.
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. Due to the acquisitions we have completed historically, goodwill comprises a significant portion of our total assets. We review goodwill and indefinite-lived intangibles annually for impairment and any excess in carrying value over the estimated fair value is charged to the results of operations. Our review of goodwill and indefinite-lived intangibles in December 2013 resulted in no reduction to the value of such assets in our financial statements. Future reviews of goodwill and indefinite-lived intangibles could result in reductions. Any reduction in net income resulting from the write down or impairment of goodwill and indefinite-lived intangibles could adversely affect our financial results. If economic conditions deteriorate we may be required to impair goodwill and indefinite-lived intangibles in future periods.
Unplanned repairs or equipment outages could interrupt production and reduce income or cash flow.
Unplanned repairs or equipment outages, including those due to natural disasters, could result in the disruption of our manufacturing processes. Any interruption in our manufacturing processes would interrupt our production of products, reduce our income and cash flow and could result in a material adverse effect on our business and financial condition.
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Our operations are highly dependent on information technology infrastructure and failures could significantly affect our business.
We depend heavily on our information technology, or IT, infrastructure in order to achieve our business objectives. If we experience a problem that impairs this infrastructure, such as a computer virus, a problem with the functioning of an important IT application, or an intentional disruption of our IT systems by a third party, the resulting disruptions could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on our business in the ordinary course. Any such events could cause us to lose customers or revenue and could require us to incur significant expense to eliminate these problems and address related security concerns.
Computer viruses, malware, and other hacking programs and devices may cause significant damage, delays or interruptions to our systems and operations or to certain of the products that we sell resulting in damage to our reputation and brand names.
Computer viruses, malware, and other hacking programs and devices may attack our infrastructure, industrial machinery, software or hardware causing significant damage, delays or other service interruptions to our systems and operations. Hacking involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions, loss or corruption of data, software, hardware or other computer equipment. In addition, increasingly sophisticated malware may target real-world infrastructure or product components, including certain of the products that we currently or may in the future sell by attacking, disrupting, reconfiguring and/or reprogramming industrial control software. Hacking, computer viruses, and other malware could result in significant damage to our infrastructure, industrial machinery, systems, or databases. We may incur significant costs to protect our systems and equipment against the threat of, and to repair any damage caused by, computer viruses and hacking. Moreover, if a computer virus or hacking affects our systems or products, our reputation and brand names could be materially damaged and use of our products may decrease.
If we are unable to successfully implement our new ERP system across the Company or such implementation is delayed, our operations may be disrupted or become less efficient.
We are in the process of implementing a new Enterprise Resource Planning system entitled SAP worldwide, with the aim of enabling management to achieve better control over the Company through: improved quality, reliability and timeliness of information; improved integration and visibility of information stemming from different management functions and countries; and optimization and global management of corporate processes. The adoption of the new SAP system, which will replace the existing accounting and management systems, poses several challenges relating to, among other things, training of personnel, communication of new rules and procedures, changes in corporate culture, migration of data, and the potential instability of the new system. In order to mitigate the impact of such critical issues, the Company decided to implement the new SAP system on a step-by-step basis, both geographically and in terms of processes. If implementation of the SAP system is delayed, in whole or in part, we would continue to use our current systems which may not be sufficient to support our planned operations and significant upgrades to the current systems may be warranted or required to meet our business needs pending SAP implementation. In addition, we rely on third-party vendors to provide long-term software maintenance support and hosting services for our information systems. Software vendors may decide to discontinue further development, integration or long-term software maintenance support for our information systems, which may increase our operational expense as well as disrupt the management of our business operations. In addition, we do not control the operation of any third party hosting facilities. These facilities are vulnerable to damage or interruption from natural disasters, fires, power loss, telecommunications failures and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of any of these disasters or other unanticipated problems with our third party hosting vendors could disrupt the management of, and have a material adverse effect on, our business operations. However, there can be no assurance that the new SAP system will be successfully implemented and failure to do so could have a material adverse effect on the Companys operations.
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Our leverage could adversely affect our financial health and make us vulnerable to adverse economic and industry conditions.
We have incurred indebtedness that is substantial relative to our stockholders investment. As of December 31, 2013, we had approximately $294.4 million of gross indebtedness outstanding including (i) a principal balance of $85.0 million outstanding under our Convertible Senior Notes (as defined herein); (ii) $41.2 million outstanding and $149.0 million available under our Revolving Credit Facility (as defined herein); and (iii) $94.4 million and 50.0 million outstanding under our Term Loan Facility. Our indebtedness has important consequences; for example, it could:
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make it more challenging for us to obtain additional financing to fund our business strategy and acquisitions, debt service requirements, capital expenditures and working capital; |
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increase our vulnerability to interest rate changes and general adverse economic and industry conditions; |
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require us to dedicate a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the availability of our cash flow to finance acquisitions and to fund working capital, capital expenditures, research and development efforts and other general corporate activities; |
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make it difficult for us to fulfill our obligations under our credit and other debt agreements; |
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limit our flexibility in planning for, or reacting to, changes in our business and our markets; and |
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place us at a competitive disadvantage relative to our competitors that have less debt. |
Substantially all of the domestic personal property of Altra Industrial Motion Corp. and its domestic subsidiaries and certain shares of certain non-domestic subsidiaries have been pledged as collateral against any outstanding borrowings under the credit agreement (the Credit Agreement) governing our Revolving Credit Facility and Term Loan Facility. In addition, the Credit Agreement requires us to maintain specified financial ratios and satisfy certain financial condition tests, which may require that we take action to reduce our debt or to act in a manner contrary to our business objectives.
In the future, the then current economic and credit market conditions may limit our access to additional capital, to the extent that the Credit Agreement would otherwise permit additional financing, or may preclude our ability to refinance our existing indebtedness. There can be no assurance that there will not be a deterioration in the credit markets, a deterioration in the financial condition of our lenders or their ability to fund their commitments or, if necessary, that we will be able to find replacement financing, if need be, on similar or acceptable terms. An inability to access sufficient financing or capital could have an adverse impact on our operations and thus on our operating results and financial position.
Our Credit Agreement imposes significant operating and financial restrictions, which may prevent us from pursuing our business strategies or favorable business opportunities.
Subject to a number of important exceptions, the Credit Agreement may limit our ability to:
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incur more debt; |
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pay dividends or make other distributions; |
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redeem stock; |
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issue stock of subsidiaries; |
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make certain investments; |
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create liens; |
|
reorganize our corporate structure; |
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enter into transactions with affiliates; |
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|
merge or consolidate; and |
|
transfer or sell assets. |
The restrictions contained in the Credit Agreement may prevent us from taking actions that we believe would be in the best interest of our business, and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. A breach of any of these covenants or the inability to comply with the required financial ratios could result in a default under the Credit Agreement. If any such default occurs, the lenders under the Credit Agreement may elect to declare all of the outstanding debt, under the Credit Agreement together with accrued interest and other amounts payable thereunder, to be immediately due and payable. The lenders under the Credit Agreement also have the right in those circumstances to terminate any commitments they have to provide further borrowings. In addition, following an event of default under the Credit Agreement, the lenders under the Credit Agreement will have the right to proceed against the collateral described above that secures the debt. If the debt under the Credit Agreement were to be accelerated, we may not have the ability to refinance that debt, and if we can, the terms of such refinancing may be less favorable than the current financing terms under the Credit Agreement. In the event that the indebtedness is accelerated, our assets may not be sufficient to repay in full all of our debt.
We face risks associated with our exposure to variable interest rates and foreign currency exchange rates
We are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes and foreign currency exchange rate fluctuations. Some of our indebtedness bears interest at variable rates, generally linked to market benchmarks such as LIBOR. Any increase in interest rates would increase our finance expenses relating to our variable rate indebtedness and increase the costs of refinancing our existing indebtedness and issuing new debt. A portion of our indebtedness is also euro denominated. In addition, we conduct our business and incur costs in the local currency of the countries in which we operate. As we continue expanding our business into markets such as Europe, China, Australia and South America, we expect that an increasing percentage of our revenue and cost of sales will be denominated in currencies other than the U.S. Dollar, our reporting currency. As a result, we are subject to currency translation risk, whereby changes in exchange rates between the dollar and the other currencies in which we borrow and do business could result in foreign exchange losses and have a material adverse effect on our results of operations.
We are exposed to swap counterparty credit risk that could materially and adversely affect its business, operating results, and financial condition.
From time to time, we rely on interest rate swap contracts and hedging arrangements to effectively manage our interest rate risk. We entered into an interest rate swap in 2013 to hedge exposure to variable rate interest rates payable on $92.5 million of our outstanding borrowings under the Credit Agreement. Failure to perform under a derivatives contract by one or more of our counterparties could disrupt our hedging operations, particularly if we were entitled to a termination payment under the terms of the contract that we did not receive, if we had to make a termination payment upon default of the counterparty, or if we were unable to reposition the swap with a new counterparty.
Our stockholders may experience dilution upon the conversion of our Convertible Notes.
Our Convertible Notes are convertible into shares of our common stock beginning March 1, 2030 or, under certain circumstances including where our stock trades above 130% of the conversion price for a specified period of time as set forth in the Convertible Notes, earlier. Upon conversion, we must deliver shares of our common stock or cash. The conversion rate of our Convertible Notes was initially 36.0985 shares of our common stock per $1,000 principal amount of our convertible notes (equivalent to a conversion price of approximately $27.70 per share of common stock), and as of December 31, 2013 is 36.91 shares of our common stock per $1,000 principal amount of our convertible notes (equivalent to a conversion price of approximately $27.09 per share of common stock), subject to adjustment in certain circumstances. Based on the current conversion rate, the maximum number of shares of common stock that would be issued upon conversion of the $85.0 million convertible debt currently outstanding is 3,137,351. In addition, our stockholders will experience dilution in their ownership percentage of our common stock upon our issuance of common stock in connection with the
25
conversion of our convertible notes and any dividends paid on our common stock will also be paid on shares issued in connection with such conversion after such issuance. At such time as our Convertible Notes become convertible, we will be required to include the maximum number of shares of common stock that would be issued upon conversion in our calculation of diluted weighted average shares outstanding which will have the effect of decreasing our earnings per share.
We are subject to tax laws and regulations in many jurisdictions and the inability to successfully defend claims from taxing authorities related to our current or acquired businesses could adversely affect our operating results and financial position.
We conduct business in many countries, which requires us to interpret the income tax laws and rulings in each of those taxing jurisdictions. Due to the subjectivity of tax laws between those jurisdictions as well as the subjectivity of factual interpretations, our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to these differences could have an adverse impact on our operating results and financial position.
Certain of our businesses are exposed to renewable energy markets which depend significantly on the availability and size of government subsidies and economic incentives.
Certain of our businesses sell product to customers within the renewable energy market, which among other energy sources includes wind energy and solar energy. At present, the cost of many forms of renewable energy exceeds the cost of conventional power generation in many locations around the world. Various governments have used different policy initiatives to encourage or accelerate the development and adoption of renewable energy sources such as wind energy and solar energy. Renewable energy policies are in place in the European Union, certain countries in Asia, including China, Japan and South Korea, and many of the states in Australia and the United States. Examples of government- sponsored financial incentives include capital cost rebates, feed-in tariffs, tax credits, net metering and other incentives to end-users, distributors, system integrators and manufacturers of renewable energy products to promote the use of renewable energy and to reduce dependency on other forms of energy. Governments may decide to reduce or eliminate these economic incentives for political, financial or other reasons. Reductions in, or eliminations of, government subsidies and economic incentives before renewable energy markets reach a sufficient scale to be cost-effective in a non-subsidized marketplace could reduce demand for our products and adversely affect our business prospects and results of operations.
New regulations related to conflict minerals could adversely impact our business
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo (DRC) and adjoining countries. As a result, in August 2012 the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals mined from the DRC and adjoining countries in their products. These new requirements will require country of origin inquiries and potentially due diligence, with initial disclosure requirements beginning in May 2014 relating to activities in 2013. There will be costs associated with complying with these disclosure requirements, including for country of origin inquiries and due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering conflict free conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.
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Continued extreme volatility and disruption in global financial markets could significantly impact our customers, suppliers, weaken the markets we serve and harm our operations and financial performance.
Our financial performance depends, in large part, on conditions in the markets that we serve and on the U.S. and global economies in general. As widely reported, U.S. and global financial markets have been experiencing extreme disruption in recent years, including, among other things, concerns regarding the stability and viability of major financial institutions, the weak state of the housing markets, a severe tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in credit and equity markets. Further, economic conditions in the European Union have deteriorated and, with the Bauer Acquisition and the Svendborg Acquisition, our exposure to European markets has increased. Given the significance and widespread nature of these nearly unprecedented circumstances, the U.S., European, and global economies could remain significantly challenged in a recessionary state for an indeterminate period of time. While currently these conditions have not impaired our ability to access credit markets and finance our operations, there can be no assurance that there will not be a further deterioration in financial markets and confidence in major economies. In addition, the tight credit market may adversely affect the ability of our customers to obtain financing for significant purchases and operations and could result in a decrease in or cancellation of orders for our products and services as well as impact the ability of our customers to make payments. Similarly, this tight credit market may adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. These conditions would harm our business by adversely affecting our sales, results of operations, profitability, cash flows, financial condition and long-term anticipated growth rate, which could result in potential impairment of certain long-term assets including goodwill.
We may not realize the expected benefits of the Svendborg Acquisition and the Lamiflex Acquisition because of integration difficulties and other challenges.
The success of the Lamiflex Acquisition and the Svendborg Acquisition will depend, in part, on our ability to realize the anticipated benefits from integrating the Lamiflex and Svendborg businesses with our existing businesses. The integration process may be complex, costly and time-consuming. The difficulties of integrating the operations of the Lamiflex and Svendborg businesses include, among others:
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failure to implement our business plan for the combined business; |
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unanticipated issues in integrating manufacturing, logistics, information, communications and other systems; |
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possible inconsistencies in standards, controls, procedures and policies, and compensation structures; |
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unanticipated changes in applicable laws and regulations; |
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failure to retain key employees; |
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failure to retain key customers; |
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operating risks inherent in the Lamiflex business, the Svendborg business and our business; |
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the impact on our internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002; and |
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unanticipated issues, expenses and liabilities. |
We may not be able to maintain the levels of revenue, earnings or operating efficiency that each of Altra, Lamiflex and Svendborg had achieved or might achieve separately. In addition, we may not accomplish the integration of the Lamiflex and Svendborgs businesses smoothly, successfully or within the anticipated costs or timeframe.
We face risks associated with the Purchase Agreement in connection with the Svendborg Acquisition.
In connection with the Svendborg Acquisition, we are subject to substantially all of the liabilities of Svendborg that were not satisfied on or prior to the closing date. There may be liabilities that we underestimated
27
or did not discover in the course of performing our due diligence investigation of Svendborg. Under the Purchase Agreement, the seller agreed to provide us with a limited set of representations and warranties, including with respect to outstanding and potential liabilities. Claims for a breach of a representation or warranty are secured by a limited escrow and warranty and indemnity insurance. There can be no assurance, however, that this limited security will be adequate or available to satisfy potential claims. Damages resulting from a breach of a representation or warranty could have a material and adverse effect on our financial condition and results of operations, and there is no guarantee that we would actually be able to recover all or any portion of the sums payable to us in connection with such breach.
We may not realize the expected growth and production savings from Construction of our new China facility.
We have recently completed the construction of a plant in Changzhou, China. There are numerous risks and uncertainties that may prevent us from achieving the revenues we currently anticipate from this facility. Some of these risks and uncertainties relate to our ability to: offer new and innovative products to attract and retain a larger customer base; attract additional customers; undertake more contracted projects; maintain effective control of our costs and expenses; respond to evolving social, economic and political changes in China; respond to competitive market conditions; manage risks associated with intellectual property rights; and attract, retain and motivate qualified personnel. If we are unsuccessful in addressing any of these risks and uncertainties and such growth or production savings do not materialize, or should the timeline for full production at the facility be delayed, we may be unable to achieve our expected investment return, which could adversely affect our results of operations and financial condition.
Item 1B. | Unresolved Staff Comments. |
None.
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Item 2. | Properties. |
In addition to our leased headquarters in Braintree, Massachusetts, we maintain 34 production facilities, fifteen of which are located in the United States, one in Canada, twelve in Europe, two in Brazil, three in China, and one in Mexico. The following table lists all of our facilities, other than sales offices and distribution centers, as of December 31, 2013, indicating the location, principal use and whether the facilities are owned or leased.
Location |
Brand | Major Products | Sq. Ft. |
Type of
Possession |
Expiration | |||||||||
United States |
||||||||||||||
Chambersburg, Pennsylvania |
TB Woods |
Belted Drives, Couplings,
Castings |
440,000 | Owned | N/A | |||||||||
South Beloit, Illinois (1) |
Warner Electric |
Electromagnetic Clutches &
Brakes |
104,288 | Owned | N/A | |||||||||
Syracuse, New York |
Kilian |
Engineered Bearing
Assemblies |
97,000 | Owned | N/A | |||||||||
Wichita Falls, Texas |
Wichita Clutch |
Heavy Duty Clutches and
Brakes |
90,400 | Owned | N/A | |||||||||
Warren, Michigan |
Formsprag, Marland | Overrunning Clutches | 79,000 | Owned | N/A | |||||||||
Erie, Pennsylvania |
Ameridrives | Engineered Couplings | 76,200 | Owned | N/A | |||||||||
Scotland, Pennsylvania |
TB Woods |
Portion of the space is leased to
a third party |
42,385 | Owned | N/A | |||||||||
San Marcos, Texas |
TB Woods | Engineered Couplings | 51,000 | Owned | N/A | |||||||||
Columbia City, Indiana |
Warner Electric |
Electromagnetic Clutches &
Brakes & Coils |
51,699 | Leased | April 30, 2014 | |||||||||
Columbia City, Indiana |
Warner Electric |
Electromagnetic Clutches &
Brakes & Coils |
96,000 | Leased | September 1, 2028 | |||||||||
Columbia City, Indiana |
Warner Electric |
Electromagnetic Clutches &
Brakes & Coils |
36,000 | Owned | N/A | |||||||||
Charlotte, North Carolina |
Boston Gear |
Gearing & Power Transmission
Components |
193,000 | Leased | February 28, 2017 | |||||||||
Niagara Falls, New York |
Nuttall Gear | Gearing | 155,509 | Leased | March 31, 2018 | |||||||||
New Hartford, Connecticut |
Inertia Dynamics,
Warner Electric |
Electromagnetic Clutches &
Brakes |
81,491 | Leased | July 30, 2024 | |||||||||
Braintree, Massachusetts (2) |
Altra | | 13,804 | Leased | November 30, 2016 | |||||||||
Belvidere, Illinois |
Warner Linear | Linear Actuators | 21,000 | Leased | June 30, 2015 | |||||||||
Green Bay, Wisconsin |
Ameridrives | Engineered Couplings | 85,250 | Leased | March 31, 2016 | |||||||||
International |
||||||||||||||
Heidelberg, Germany |
Stieber | Overrunning Clutches | 57,609 | Owned | N/A | |||||||||
Saint Barthelemy, France |
Warner Electric |
Electromagnetic Clutches &
Brakes |
50,129 | Owned | N/A | |||||||||
Bedford, England |
Wichita Clutch, Twiflex |
Heavy Duty Clutches and
Brakes |
49,000 | Owned | N/A | |||||||||
Allones, France |
Warner Electric |
Electromagnetic Clutches &
Brakes |
38,751 | Owned | N/A | |||||||||
Toronto, Canada |
Kilian |
Engineered Bearing
Assemblies |
29,000 | Owned | N/A | |||||||||
Dewsbury, England |
Bibby Transmissions |
Engineered Couplings Power
Transmission Components |
26,100 | Owned | N/A | |||||||||
Shenzhen, China |
Warner Electric |
Electromagnetic Clutches &
Brakes Precision Components |
72,000 | Leased | April 30, 2017 | |||||||||
San Luis Potosi, Mexico |
TB Woods | Couplings and Belted Drives | 71,800 | Leased | June 8, 2014 | |||||||||
Brechin, Scotland |
Matrix | Clutch Brakes, Couplings | 27,889 | Leased | February 24, 2022 | |||||||||
Garching, Germany |
Stieber | Overrunning Clutches | 32,292 | Leased | (3) | |||||||||
Hertford, England |
Huco Dynatork |
Couplings, Power Transmission
Components |
13,565 | Leased | December 19, 2017 | |||||||||
Esslingen, Germany |
Bauer Gear Motor | Gear motors | 18,114 | Leased | Various | |||||||||
Esslingen, Germany |
Bauer Gear Motor | Gear motors | 43,648 | Owned | N/A | |||||||||
Zlate Moravce, Slovakia |
Bauer Gear Motor | Gear motors | 41,499 | Leased | (4) | |||||||||
Changzhou, China |
Ameridrives | Engineered Couplings | 107,348 | Owned | N/A | |||||||||
Sao Paulo, Brazil |
Lamiflex | Engineered Couplings | 10,764 | Leased | N/A (5) | |||||||||
Cotia, Brazil |
Lamiflex | Engineered Couplings | 26,910 | Owned | N/A (6) | |||||||||
Vejstrup, Denmark |
Svendborg Brakes |
Heavy Duty Clutches and
Brakes |
18,525 | Owned | N/A | |||||||||
Shanghai, China |
Svendborg Brakes |
Heavy Duty Clutches and
Brakes |
13,024 | Leased |
September 30,
2014 |
(1) | Shared services center, selective engineering functions as well as limited production facility |
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(2) | Corporate headquarters and selective customer service functions. |
(3) | Must give the lessor twelve months notice for termination. |
(4) | Indefinite lease; lease cancelable with 2 year notice given. |
(5) | Month to month lease. Must give lessor 30 days notice for termination. |
(6) | The company expects to occupy and begin manufacturing upon receipt of required governmental permits. |
Item 3. | Legal Proceedings. |
We are, from time to time, party to various legal proceedings arising out of our business. These proceedings primarily involve commercial claims, product liability claims, intellectual property claims, environmental claims, personal injury claims and workers compensation claims. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of any currently existing proceedings should not have a material adverse effect on our business, financial condition and results of operations.
Item 4. | Mine Safety Disclosures. |
Not applicable
Item 5. | Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
Our common stock trades on the NASDAQ Global Market under the symbol AIMC. As of February 19, 2014, the number of holders of record of our common stock was approximately 63.
The following table sets forth, for the periods indicated, the high and low sales price for our common stock as reported on The NASDAQ Global Market. Our common stock commenced trading on the NASDAQ Global Market on December 15, 2006.
U.S. Dollars | ||||||||
High | Low | |||||||
Fiscal year ended December 31, 2013 |
||||||||
Fourth Quarter |
$ | 34.54 | $ | 25.70 | ||||
Third Quarter |
$ | 31.34 | $ | 24.31 | ||||
Second Quarter |
$ | 30.10 | $ | 24.59 | ||||
First Quarter |
$ | 28.13 | $ | 21.89 | ||||
Fiscal year ended December 31, 2012 |
||||||||
Fourth Quarter |
$ | 22.18 | $ | 15.78 | ||||
Third Quarter |
$ | 20.34 | $ | 14.55 | ||||
Second Quarter |
$ | 19.65 | $ | 14.71 | ||||
First Quarter |
$ | 22.18 | $ | 17.03 |
Dividends
The Company declared dividends of $0.38 per share of common stock for the year ended December 31, 2013. On October 29, 2013, the Company declared a dividend of $0.10 per share for the quarter ended December 31, 2013, payable on January 3, 2014 to shareholders of record as of December 18, 2013. The Company declared and paid dividends of $0.05 per share for the quarters ended June 30, 2012 and September 29,
30
2012. The Company declared and paid a dividend of $0.06 per share for the quarter ended December 31, 2012. There were no dividends declared or paid during the quarter ended March 31, 2012. The Company has declared a dividend of $0.10 per share for the quarter ended March 31, 2014, payable on April 3, 2014 to shareholders of record as of March 18, 2014. See Notes 10 and 16 to the consolidated financial statements.
Future declarations of quarterly cash dividends are subject to approval by the Board of Directors and to the Boards continuing determination that the declaration of dividends are in the best interest of the Companys stockholders and are in compliance with all laws and agreements of the Company applicable to the declaration and payment of cash dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information concerning our equity compensation plans:
Plan category |
Number of Securities to
be Issued Upon Exercise of Outstanding Options, Warrants and Rights(a) |
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights(b) |
Number of Securities
Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))(c) |
|||||||
Equity compensation plans approved by security holders(1) |
| $ | | 750,576 | ||||||
Equity compensation plans not approved by security holders |
n/a | n/a | n/a | |||||||
Total |
| $ | | 750,576 |
(1) | The equity compensation plans were approved by the Companys shareholders prior to the initial public offering. Additional shares under the plan were approved by the Companys shareholders at its 2012 annual meeting. |
Issuer Repurchases of Equity Securities
Approximate Period |
Total Number
of Shares Purchased (1) |
Average
Price Paid per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs |
Dollar Value of
Shares That May Yet be Purchased Under The Plans or Programs |
||||||||||||
September 29, 2013 to October 26, 2013 |
187 | $ | 25.76 | | $ | | ||||||||||
October 27, 2013 to November 23, 2013 |
| $ | | | $ | | ||||||||||
November 24, 2013 to December 31, 2013 |
81 | $ | 32.32 | | $ | |
(1) | We repurchased these shares of common stock in connection with the vesting of certain stock awards to cover minimum statutory withholding taxes. |
31
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock for the 5 year period from December 31, 2008, through December 31, 2013, with the cumulative total return on shares of companies comprising the S&P Small Cap 600 index and a special Peer Group Index, in each case assuming an initial investment of $100, assuming dividend reinvestment.
12/31/2008 | 3/31/2009 | 6/30/2009 | 9/30/2009 | 12/31/2009 | 3/31/2010 | 6/30/2010 | 9/30/2010 | 12/31/2010 | 3/31/2011 | 6/30/2011 | 9/30/2011 | |||||||||||||||||||||||||||||||||||||
Altra Industrial Motion Corp. |
-41.41% | -71.26% | -44.52% | -17.11% | -8.52% | 1.70% | -3.56% | 9.11% | 47.11% | 74.96% | 77.70% | -14.30% | ||||||||||||||||||||||||||||||||||||
S&P Small Cap 600 |
-33.33% | -44.81% | -33.66% | -22.21% | -17.48% | -10.61% | -18.63% | -11.04% | 3.14% | 10.81% | 10.33% | -11.83% | ||||||||||||||||||||||||||||||||||||
Peer Group |
-50.58% | -60.90% | -50.42% | -43.61% | -38.71% | -30.56% | -30.49% | -27.65% | -16.91% | -8.75% | -13.43% | -35.20% | ||||||||||||||||||||||||||||||||||||
12/31/2011 | 3/31/2012 | 6/30/2012 | 9/30/2012 | 12/31/2012 | 3/31/2013 | 6/30/2013 | 9/30/2013 | 12/31/2013 | ||||||||||||||||||||||||||||||||||||||||
Altra Industrial Motion Corp. |
39.48% | 42.22% | 16.59% | 34.81% | 63.33% | 101.63% | 102.81% | 99.33% | 153.48% | |||||||||||||||||||||||||||||||||||||||
S&P Small Cap 600 |
2.98% | 14.98% | 10.51% | 16.11% | 18.24% | 31.84% | 36.59% | 50.79% | 65.12% | |||||||||||||||||||||||||||||||||||||||
Peer Group |
-24.21% | -9.42% | -10.11% | 0.63% | 2.29% | -4.30% | -15.10% | -3.79% | 5.02% |
The Peer Group Index consists of the following publicly traded companies: Franklin Electric Co. Inc., RBC Bearings, Inc., and Regal Beloit Corp.
32
Item 6. Selected Financial Data.
The following table contains our selected historical financial data for the years ended December 31, 2013, 2012, 2011, 2010, and 2009. The following should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes included elsewhere in this Form 10-K.
Altra Industrial Motion Corp.
Amounts in thousands, except per share data |
||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Net sales |
$ | 722,218 | $ | 731,990 | $ | 674,812 | $ | 520,162 | $ | 452,846 | ||||||||||
Cost of sales |
506,837 | 513,442 | 478,394 | 366,151 | 329,825 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
215,381 | 218,548 | 196,418 | 154,011 | 123,021 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative expenses |
130,155 | 127,044 | 113,375 | 89,478 | 81,117 | |||||||||||||||
Research and development expenses |
12,536 | 11,457 | 10,609 | 6,731 | 6,261 | |||||||||||||||
Restructuring costs |
1,111 | 3,196 | | 2,726 | 7,286 | |||||||||||||||
Gain on curtailment of post-employment benefit plans |
| | | | (1,467 | ) | ||||||||||||||
Loss on disposal of assets |
| | | | 545 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
143,802 | 141,697 | 123,984 | 98,935 | 93,742 | ||||||||||||||||
Income from operations |
71,579 | 76,851 | 72,434 | 55,076 | 29,279 | |||||||||||||||
Other non-operating income and expense: |
||||||||||||||||||||
Interest expense, net |
10,586 | 40,790 | 24,035 | 19,638 | 32,976 | |||||||||||||||
Other non-operating expense (income), net |
1,657 | 1,702 | (32 | ) | 909 | 981 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
12,243 | 42,492 | 24,003 | 20,547 | 33,957 | ||||||||||||||||
Income (loss) from continuing operations before income taxes |
59,336 | 34,359 | 48,431 | 34,529 | (4,678 | ) | ||||||||||||||
Provision (benefit) for income taxes |
19,151 | 10,154 | 10,756 | 10,004 | (2,364 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
40,185 | 24,205 | 37,675 | 24,525 | (2,314 | ) | ||||||||||||||
Net loss attributable to non-controlling interest |
90 | 88 | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to Altra Industrial Motion Corp. |
$ | 40,275 | $ | 24,293 | $ | 37,675 | $ | 24,525 | $ | (2,314 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other Financial Data: |
||||||||||||||||||||
Depreciation and amortization |
$ | 27,924 | $ | 27,376 | $ | 24,683 | $ | 20,036 | $ | 22,072 | ||||||||||
Purchases of fixed assets |
27,823 | 31,346 | 22,242 | 17,295 | 9,194 | |||||||||||||||
Cash flow provided by (used in): |
||||||||||||||||||||
Operating activities |
89,625 | 59,918 | 46,901 | 42,764 | 59,388 | |||||||||||||||
Investing activities |
(130,005 | ) | (38,770 | ) | (89,887 | ) | (17,827 | ) | (9,194 | ) | ||||||||||
Financing activities |
17,991 | (29,880 | ) | 64,765 | (3,359 | ) | (54,016 | ) | ||||||||||||
Weighted average shares, basic |
26,766 | 26,656 | 26,526 | 26,399 | 25,945 | |||||||||||||||
Weighted average shares, diluted |
26,841 | 26,756 | 26,689 | 26,535 | 25,945 | |||||||||||||||
Earnings (loss) per share: |
||||||||||||||||||||
Net income (loss) attributable to Altra Industrial Motion Corp. |
$ | 1.50 | $ | 0.91 | $ | 1.42 | $ | 0.93 | $ | (0.09 | ) | |||||||||
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|
|
|
|
|
|
|
|
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Diluted earnings (loss) per share: |
||||||||||||||||||||
Net income (loss) attributable to Altra Industrial Motion Corp. |
$ | 1.50 | $ | 0.91 | $ | 1.41 | $ | 0.92 | $ | (0.09 | ) | |||||||||
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|
|
|
|
|
|
|
|
|||||||||||
Cash dividend declared |
$ | 0.38 | $ | 0.16 | $ | | $ | | $ | |
Altra Industrial Motion Corp.
December 31, |
||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 63,604 | $ | 85,154 | $ | 92,515 | $ | 72,723 | $ | 51,497 | ||||||||||
Total assets |
735,676 | 633,039 | 629,985 | 508,102 | 465,199 | |||||||||||||||
Total long-term debt, net of unaccredited discount |
278,272 | 247,595 | 264,049 | 216,502 | 217,549 | |||||||||||||||
Long-term liabilities, excluding long-term debt |
261,348 | 55,428 | 56,122 | 43,349 | 41,907 |
Comparability of the information included in the selected financial data has been impacted by the acquisitions of Bauer in 2011, Lamiflex in 2012 and Svendborg in 2013.
33
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Companys current estimates, expectations and projections about the Companys future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning the Companys possible future results of operations including revenue, costs of goods sold, and gross margin, future profitability, future economic improvement, business and growth strategies, financing plans, the Companys competitive position and the effects of competition, the projected growth of the industries in which we operate, and the Companys ability to consummate strategic acquisitions and other transactions. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as anticipate, believe, could, estimate, expect, intend, plan, may, should, will, would, project, and similar expressions. These forward-looking statements are based upon information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause the Companys actual results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause the Companys actual results to differ materially from the results referred to in the forward-looking statements the Company makes in this report include:
|
the effects of intense competition in the markets in which we operate; |
|
the cyclical nature of the markets in which we operate; |
|
changes in market conditions in which we operate that would influence the value of the Companys stock; |
|
the Companys ability to achieve its business plans, including with respect to an uncertain economic environment; |
|
the risks associated with international operations, including currency risks; |
|
the Companys ability to retain existing customers and our ability to attract new customers for growth of our business; |
|
the effects of the loss or bankruptcy of or default by any significant customer, suppliers, or other entity relevant to the Companys operations; |
|
the Companys ability to complete cost reduction actions and risks associated with such actions; |
|
the Companys ability to control costs; |
|
political and economic conditions nationally, regionally, and in the markets in which we operate; |
|
natural disasters, war, civil unrest, terrorism, fire, floods, tornadoes, earthquakes, hurricanes, or other matters beyond the Companys control; |
|
the Companys risk of loss not covered by insurance; |
|
the accuracy of estimated forecasts of OEM customers and the impact of the current global and European economic environment on our customers; |
|
the risks association with certain minimum purchase agreements we have with suppliers; |
|
fluctuations in the costs of raw materials used in our products; |
|
the outcome of litigation to which the Company is a party from time to time, including product liability claims; |
|
work stoppages and other labor issues; |
34
|
changes in employment, environmental, tax and other laws and changes in the enforcement of laws; |
|
the Companys ability to attract and retain key executives and other personnel; |
|
changes in the Companys pension and retirement liabilities; |
|
the Companys ability to successfully pursue the Companys development activities and successfully integrate new operations and systems, including the realization of revenues, economies of scale, cost savings, and productivity gains associated with such operations; |
|
the Companys ability to obtain or protect intellectual property rights; |
|
the risks associated with the portion of the Companys total assets comprised of goodwill and indefinite lived intangibles; |
|
changes in market conditions that would result in the impairment of goodwill or other assets of the Company; |
|
changes in accounting rules and standards, audits, compliance with the Sarbanes-Oxley Act, and regulatory investigations; |
|
the effects of unanticipated deficiencies, if any, in the disclosure controls and internal controls of Svendborg; |
|
the effects of changes to critical accounting estimates; changes in volatility of the Companys stock price and the risk of litigation following a decline in the price of the Companys stock; |
|
failure of the Companys operating equipment or information technology infrastructure; |
|
the Companys ability to implement our new ERP system; |
|
the Companys access to capital, credit ratings, indebtedness, and ability to raise additional capital and operate under the terms of the Companys debt obligations; |
|
the risks associated with our debt; |
|
the risks associated with the Companys exposure to variable interest rates and foreign currency exchange rates; |
|
the risks associated with interest rate swap contracts; |
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the risks related to our outstanding convertible bonds; |
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the risks associated with the Companys exposure to renewable energy markets; |
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the risks related to regulations regarding conflict minerals; |
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the risks associated with the global recession and European economic downturn and volatility and disruption in the global financial markets; |
|
the Companys ability to successfully execute, manage and integrate key acquisitions and mergers, including the Lamiflex Acquisition and the Svendborg Acquisition; |
|
the risks associated with the Companys investment in a new manufacturing facility in China; and |
|
other factors, risks, and uncertainties referenced in the Companys filings with the Securities and Exchange Commission, including the Risk Factors set forth in this document |
ALL FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS REPORT. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS REPORT OR TO REFLECT
35
THE OCCURRENCE OF UNANTICIPATED EVENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR ANY PERSON ACTING ON THE COMPANYS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION AND IN OUR RISK FACTORS SET FORTH IN PART I, ITEM 1A OF THIS FORM 10-K AND IN OTHER REPORTS FILED WITH THE SEC BY THE COMPANY.
The following discussion of the financial condition and results of operations of Altra Industrial Motion Corp. and its subsidiaries should be read together with the Selected Historical Financial Data, and the consolidated financial statements of Altra Industrial Motion Corp. and its subsidiaries and related notes included elsewhere in this Form 10-K. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ materially from the results referred to in the forward-looking statements, see Forward-Looking Statements and Risk Factors. Unless the context requires otherwise, the terms Altra, Altra Industrial Motion, the Company, we, us and our refer to Altra Industrial Motion Corp. and its subsidiaries.
General
We are a leading global designer, producer and marketer of a wide range of electromechanical power transmission products with a presence in over 70 countries. Our global sales and marketing network includes over 1,000 direct OEM customers and over 3,000 distributor outlets. Our product portfolio includes industrial clutches and brakes, enclosed gear drives, open gearing, couplings, engineered bearing assemblies, linear components, gear motors, and other related products. Our products serve a wide variety of end markets including energy, general industrial, material handling, mining, transportation and turf and garden. We primarily sell our products to a wide range of OEMs and through long-standing relationships with industrial distributors such as Motion Industries, Applied Industrial Technologies, Kaman Industrial Technologies and W.W. Grainger.
While the power transmission industry has undergone some consolidation, we estimate that in 2013 the top five broad-based electromechanical power transmission companies represented approximately 20% of the U.S. power transmission market. The remainder of the power transmission industry remains fragmented with many small and family-owned companies that cater to a specific market niche often due to their narrow product offerings. We believe that consolidation in our industry will continue because of the increasing demand for global distribution channels, broader product mixes and better brand recognition to compete in this industry.
Business Outlook
Our future financial performance depends, in large part, on conditions in the markets that we serve and on the U.S., European, and global economies in general. Although we have recently seen modest improvement in certain end markets, the current demand environment generally remains flat across many of our early and late cycle end markets and, assuming this trend continues, we do not expect substantial end market growth in 2014.
However, even in a very slow growth environment, we expect to continue steady progress on our margin initiatives. In addition, we expect our full-year 2014 results will significantly benefit from the Svendborg acquisition. We continue to maintain a strong balance sheet and ample liquidity to pursue strategic acquisitions should appropriate opportunities arise during 2014.
Critical Accounting Policies
The methods, estimates and judgments we use in applying our critical accounting policies have a significant impact on the results we report in our financial statements. We evaluate our estimates and judgments on an on-going basis. Our estimates are based upon historical experience and assumptions that we believe are reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what our management anticipates and different assumptions or estimates about the future could change our reported results.
36
We believe the following accounting policies are the most critical in that they are important to the financial statements and they require the most difficult, subjective or complex judgments in the preparation of the financial statements.
Inventory. Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method for all of our subsidiaries except TB Woods. TB Woods inventory is stated at the lower of current cost or market, principally using the last-in, first-out (LIFO) method. Inventory stated using the LIFO method approximates 7.5% of total inventory. We state inventories acquired by us through acquisitions at their fair values at the date of acquisition as determined by us based on the replacement cost of raw materials, the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts, and for work-in-process the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts and costs to complete.
We periodically review our quantities of inventories on hand and compare these amounts to the historical and expected usage of each particular product or product line. We record as a charge to cost of sales any amounts required to reduce the carrying value of inventories to net realizable value.
Business Combinations . Business combinations are accounted for at fair value. Acquisition costs are generally expensed as incurred and recorded in selling, general and administrative expenses; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets and liabilities acquired. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on managements estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets
Goodwill, Intangibles and other long-lived assets. In connection with our acquisitions, goodwill and intangible assets were identified and recorded at their fair value. We recorded intangible assets for customer relationships, trade names and trademarks, product technology, patents and goodwill. In valuing the customer relationships, trade names, and trademarks, we utilized variations of the income approach. The income approach was considered the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income. The income approach relies on historical financial and qualitative information, as well as assumptions and estimates for projected financial information. Projected financial information is subject to risk if our estimates are incorrect. The most significant estimate relates to our projected revenues and profitability. If we do not meet the projected revenues and profitability used in the valuation calculations then the intangible assets could be impaired. In determining the value of customer relationships, we reviewed historical customer attrition rates which were determined to be approximately 5% per year. Most of our customers tend to be long-term customers with very little turnover. While we do not typically have long-term contracts with customers, we have established long-term relationships with customers which make it difficult for competitors to displace us. Additionally, we assessed historical revenue growth within our industry and customers industries in determining the value of customer relationships. The value of our customer relationships intangible asset could become impaired if future results differ significantly from any of the underlying assumptions. This could include a higher customer attrition rate or a change in industry trends such as the use of long-term contracts which we may not be able to obtain successfully. Customer relationships and product technology and patents are considered finite-lived assets, with estimated lives ranging from 8 years to 17 years. The estimated lives were determined by calculating the number of years necessary to obtain 95% of the value of the discounted cash flows of the respective intangible asset.
Goodwill and trade names and trademarks are considered indefinite lived assets. Other intangible assets include trade names and trademarks that identify us and differentiate us from competitors, and therefore competition does not limit the useful life of these assets. Additionally, we believe that our trade names and trademarks will continue to generate product sales for an indefinite period.
37
Accounting standards require that an annual goodwill impairment assessment be conducted at the reporting unit level using either a quantitative or qualitative approach. As part of the annual goodwill impairment assessment we performed a quantitative assessment and estimated the fair value of each of our five reporting units using an income approach. We forecasted future cash flows by reporting unit for each of the next five years and applied a long term growth rate to the final year of forecasted cash flows. The cash flows were then discounted using our estimated discount rate. The forecasts of revenue and profitability growth for use in the long-range plan and the discount rate were the key assumptions in our goodwill fair value analysis
We review the difference between the estimated fair value and net book value of each reporting unit. If the excess is less than $1.0 million, the reporting unit could be required to perform a step two goodwill impairment analysis in a future period, if the estimated profitability decreased by 10% when compared to our forecasts to determine what amount of goodwill is potentially impaired. As of December 31, 2013, each of our reporting units had estimated fair values that were at least $1.0 million greater than the net book value.
Management believes the preparation of revenue and profitability growth rates for use in the long-range plan and the discount rate requires significant use of judgment. If any of our operating segments do not meet our forecasted revenue and/or profitability estimates, we could be required to perform an interim goodwill impairment analysis in future periods. In addition, if our discount rate increases, we could be required to perform an interim goodwill impairment analysis. We performed a sensitivity analysis on the estimated fair value of our reporting units by decreasing profitability by 5% and 10% in each of the following 5 years leaving all other assumptions constant and increasing the discount rate by 5% and 10% leaving all other assumptions constant. We did not identify any reporting unit that would be required to perform a step 2 goodwill impairment analysis as the fair value of our reporting units are substantially in excess of their carrying value.
For our indefinite lived intangible assets, mainly trademarks, we estimated the fair value first by estimating the total revenue attributable to the trademarks for each of the reporting units. Second, we estimated an appropriate royalty rate using the return on assets method by estimating the required financial return on our assets, excluding trademarks, less the overall return generated by our total asset base. The return as a percentage of revenue provides an indication of our royalty rate (between 1.0% and 1.5%). We compared the estimated fair value of our trademarks with the carrying value of the trademarks and did not identify any impairment.
Long-lived assets, including definite-lived intangible assets, are reviewed for impairment when events or circumstances indicate that the carrying amount of a long-lived asset may not be recovered. Long-lived assets are considered to be impaired if the carrying amount of the asset exceeds the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value, and is charged to results of operations at that time. No impairment indicators were noted in 2011, 2012 or 2013.
In 2011, 2012, and 2013 the Company did not identify any impairments related to goodwill, definite-lived intangible assets or indefinite lived intangible assets as the fair value of our reporting units and definite lived intangible assets were substantially in excess of their carrying value.
Income Taxes. We record income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. We evaluate the potential realization of our net deferred tax assets and assess the need for a valuation allowance on a quarterly basis. The future benefit to be derived from our deferred tax assets is dependent upon our ability to generate sufficient future taxable income to realize the assets. We record a valuation allowance to reduce our net deferred tax assets to the amount that may be more likely than not to be realized. To the extent we establish a valuation allowance, an expense will be recorded within the provision for income taxes line on the statement of operations. In periods subsequent to establishing a valuation allowance, if we were to determine that we would be able to realize our net deferred tax assets in excess of our net recorded amount, an adjustment to the valuation allowance would be recorded as a reduction to income tax expense in the period such determination was made.
38
Results of Operations.
Amounts in thousands
Year ended
December 31, 2013 |
Year ended
December 31, 2012 |
Year ended
December 31, 2011 |
||||||||||
Net sales |
$ | 722,218 | $ | 731,990 | $ | 674,812 | ||||||
Cost of sales |
506,837 | 513,442 | 478,394 | |||||||||
|
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|
|
|
|
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Gross profit |
215,381 | 218,548 | 196,418 | |||||||||
Gross profit percentage |
29.82 | % | 29.86 | % | 29.11 | % | ||||||
Selling, general and administrative expenses |
130,155 | 127,044 | 113,375 | |||||||||
Research and development expenses |
12,536 | 11,457 | 10,609 | |||||||||
Restructuring costs |
1,111 | 3,196 | | |||||||||
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Income from operations |
71,579 | 76,851 | 72,434 | |||||||||
Interest expense, net |
10,586 | 40,790 | 24,035 | |||||||||
Other non-operating (income) expense, net |
1,657 | 1,702 | (32 | ) | ||||||||
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Income before income taxes |
59,336 | 34,359 | 48,431 | |||||||||
Provision for income taxes |
19,151 | 10,154 | 10,756 | |||||||||
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Net income |
40,185 | 24,205 | 37,675 | |||||||||
Net loss attributable to non-controlling interest |
90 | 88 | | |||||||||
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Net income attributable to Altra Industrial Motion Corp. |
$ | 40,275 | $ | 24,293 | $ | 37,675 | ||||||
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Year Ended December 31, 2013 Compared with Year Ended December 31, 2012
Amounts in thousands, except pecentage data | Year Ended | |||||||||||||||
December 31,
2013 |
December 31,
2012 |
Change | % | |||||||||||||
Net sales |
$ | 722,218 | $ | 731,990 | $ | (9,772 | ) | -1.3 | % |
Net Sales. Sales decreased in 2013 primarily due to lower sales levels across all operating segments due to weak demand in all geographies as well as a decline in the mining, energy and metals industries. The decrease was offset by the positive impact of foreign exchange rate changes in the amount of $2.5 million primarily related to changes in Euro and British Pound Sterling exchange rates compared to 2012. We forecast that sales will increase in 2014 primarily due to the full year effect of the acquisition of Svendborg, and a modest increase from the introduction of new products and price increases.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2013 |
December 31,
2012 |
Change | % | |||||||||||||
Gross Profit |
$ | 215,381 | $ | 218,548 | $ | (3,167 | ) | -1.4 | % | |||||||
Gross Profit as a percent of sales |
29.8 | % | 29.9 | % |
Gross profit. Gross profit decreased in 2013 primarily due to the decrease in sales volume. The decrease was offset by the positive impact of foreign exchange rate changes in the amount of $0.7 million. We forecast that 2014 gross profit as a percentage of sales will increase modestly when compared to 2013 due to price increases and as we continue to focus on improving operational efficiency. We expect Svendborg to have a higher gross profit as a percentage of sales than that of the Company as a whole.
39
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2013 |
December 31,
2012 |
Change | % | |||||||||||||
Selling, general and administrative expense (SG&A) |
$ | 130,155 | $ | 127,044 | $ | 3,111 | 2.4 | % | ||||||||
SG&A as a percent of sales |
18.0 | % | 17.4 | % |
Selling, general and administrative expenses. The vast majority of the increase in SG&A, approximately $3.1 million, was due to the acquisition cost related to the Svendborg acquisition. Acquisition costs for the year were $2.5 million. Increased acquisition costs were offset by the favorable effect of foreign exchange rates in the amount of $0.8 million. We forecast increases to our SG&A costs as a result of a full year of Svendborg and general wage and benefit cost increases. We expect Svendborg to have higher SG&A expenses as a percentage of sales than the Company as a whole. We plan to leverage these costs on increased sales from Svendborg and as we invest in resources to enable us to grow faster in emerging markets and strategic industries in 2014.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2013 |
December 31,
2012 |
Change | % | |||||||||||||
Research and development expenses (R&D) |
$ | 12,536 | $ | 11,457 | $ | 1,079 | 9.4 | % |
Research and development expenses. R&D expenses increased due to increased R&D efforts as well as headcount additions. We do not forecast significant variances in 2014 as a percentage of sales.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2013 |
December 31,
2012 |
Change | % | |||||||||||||
Interest Expense, net |
$ | 10,586 | $ | 40,790 | $ | (30,204 | ) | -74.0 | % |
Interest expense. Net interest expense decreased due to our debt refinancing in November 2012 and lower average outstanding balances in 2013. The Company refinanced its debt at much lower rates than were in effect during 2012. In 2012, we paid additional premium related to the redemption of our Senior Secured Notes of $11.4 million, and wrote off the unamortized costs associated with the issuance of the Senior Secured Notes, in the amount of $4.4 million. In conjunction with the 2012 refinancing, we wrote off the deferred financing costs associated with the prior 2009 revolving credit agreement in the amount of $3.0 million, which appears as interest expense in our Consolidated Statements of Comprehensive Income. We expect interest expense in 2014 to be similar to 2013.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2013 |
December 31,
2012 |
Change | % | |||||||||||||
Other non-operating (income) expense, net |
$ | 1,657 | $ | 1,702 | $ | (45 | ) | -2.6 | % |
Other non-operating (income) expense. Other non-operating expense in each period relates to changes in foreign currency, primarily the changes in the British Pound Sterling and Euro.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2013 |
December 31,
2012 |
Change | % | |||||||||||||
Restructuring Expense |
$ | 1,111 | $ | 3,196 | $ | (2,085 | ) | -65.2 | % |
Restructuring expense. In the quarter ended December 31, 2012, we adopted a restructuring plan (the 2012 Altra Plan) to improve profitability in Europe. These actions included reducing headcount, moving and relocating equipment and limiting discretionary spending. The Company does not expect to incur additional expenses during 2014 associated with the 2012 Altra Plan.
40
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2013 |
December 31,
2012 |
Change | % | |||||||||||||
Provision for income taxes |
$ | 19,151 | $ | 10,154 | $ | 8,997 | 88.6 | % | ||||||||
Provision for income taxes as a % of income before taxes |
32.3 | % | 29.6 | % |
Provision for income taxes. The 2013 provision for income taxes, as a percentage of income before taxes, was higher than that of 2012. This increase was primarily due to certain favorable discrete items in 2012 including the settlement of a tax matter with the State of New York for which the company was fully indemnified. Domestic income as a percentage of total income increased 10% from 2012 to 2013. Income is taxed at a higher rate domestically as compared to internationally.
During 2012, the Company settled a tax matter with the State of New York for which the Company was fully indemnified. Upon completion of the settlement, the Company released its reserve for $3.1 million of tax, interest and penalties combined, related to the unrecognized tax benefit. In addition, the Company recognized a benefit of $0.4 million related to the completion of the 2010 limited scope audit, and the completion of the 2007 audit by the Internal Revenue Service.
On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012. Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2011. The 2012 Taxpayer Relief Act extends the research credit for two years to December 31, 2013. The extension of the research credit is retroactive and includes amounts paid or incurred after December 31, 2011. As a result of the retroactive extension, we recognized a benefit of approximately $0.3 million for qualifying amounts incurred in 2012. This benefit was recognized as a discrete item in the period of enactment, the first quarter of 2013.
We expect our tax rate for the full year to be between approximately 31% to 33%, before discrete items.
Year Ended December 31, 2012 Compared with Year Ended December 31, 2011
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2012 |
December 31,
2011 |
Change | % | |||||||||||||
Net sales |
$ | 731,990 | $ | 674,812 | $ | 57,178 | 8.5 | % |
Net Sales. Sales increased in 2012 primarily due to the full year effect of the acquisition of Bauer as well as the acquisition of Lamiflex in July of 2012. Of the increase in sales, approximately $40.6 million were additional sales related to the acquisition of Bauer and $2.7 million were additional sales related to the acquisition of Lamiflex, with the majority of the remaining increase attributable to modest increases in sales in North America and the rest of the world, partially offset by the impact related to the economic downturn in Europe and $11.0 million related to the negative impact of foreign exchange rate changes primarily attributed to the Euro and British Pound Sterling rates compared to 2011.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2012 |
December 31,
2011 |
Change | % | |||||||||||||
Gross Profit |
$ | 218,548 | $ | 196,418 | $ | 22,130 | 11.3 | % | ||||||||
Gross Profit as a percent of sales |
29.9 | % | 29.1 | % |
Gross profit. Of the increase in gross profit, approximately $12.8 million was related to the acquisitions of Bauer and Lamiflex. In addition, price increases implemented during 2012, profit and productivity improvements and low cost country sourcing resulted in improved gross profit margins compared to prior year. These factors were offset by the negative impact of foreign exchange rate changes primarily related to the Euro and British Pound Sterling compared to 2011 of $3.2 million.
41
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2012 |
December 31,
2011 |
Change | % | |||||||||||||
Selling, general and administrative expense (SG&A) |
$ | 127,044 | $ | 113,375 | $ | 13,669 | 12.1 | % | ||||||||
SG&A as a percent of sales |
17.4 | % | 16.8 | % |
Selling, general and administrative expenses. The vast majority of the increase in SG&A, approximately $13.9 million, was due to the acquisitions of Bauer and Lamiflex. Increased costs associated with wage increases of $4.1 million were offset by the favorable effect of foreign exchange of $2.1 million and a decrease in acquisition related expense of $2.5 million. SG&A as a percentage of sales increased as a result of the acquisition of Bauer.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2012 |
December 31,
2011 |
Change | % | |||||||||||||
Research and development expenses (R&D) |
$ | 11,457 | $ | 10,609 | $ | 848 | 8.0 | % |
Research and development expenses. R&D expenses increased on an absolute dollar basis but maintained a level of approximately 1.5% of sales in both periods. $0.9 million of the increase in R&D expense in 2012 was related to the full year effect of the acquisition of Bauer, which occurred in May 2011. Increased R&D activities as well as headcount additions also contributed to the increase in R&D expense.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2012 |
December 31,
2011 |
Change | % | |||||||||||||
Interest Expense, net |
$ | 40,790 | $ | 24,035 | $ | 16,755 | 69.7 | % |
Interest expense. Net interest expense increased due to the additional premium paid related to the redemption of our Senior Secured Notes in July 2012, additional premium paid related to the subsequent refinancing of the remaining outstanding Senior Secured Notes in late 2012 and the expensing of unamortized costs associated with the issuance of the Senior Secured Notes and premium paid, for a total of $14.6 million. In conjunction with the refinancing, we wrote off the deferred financing costs associated with the old revolving credit agreement, which appears as interest expense in our Consolidated Statements of Comprehensive Income.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2012 |
December 31,
2011 |
Change | % | |||||||||||||
Other non-operating (income) expense, net |
$ | 1,702 | $ | (32 | ) | $ | 1,734 | 5419 | % |
Other non-operating (income) expense. Other non-operating (income) expense in 2012 related primarily to the settlement of a tax matter with the State of New York for which we were fully indemnified by a third party. The settlement was for less than the indemnification receivable we had recorded, resulting in a an expense of $0.9 million. We recorded an offsetting benefit in the 2012 tax provision as a result of the settlement. The remainder of expense in 2012, and income in 2011, relates to changes in foreign currency, primarily the British Pound Sterling and Euro.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2012 |
December 31,
2011 |
Change | % | |||||||||||||
Restructuring Expense |
$ | 3,196 | $ | | $ | 3,196 | (100 | )% |
42
Restructuring expense. In the quarter ended December 31, 2012, we adopted a restructuring plan (the 2012 Altra Plan) to improve profitability in Europe. These actions included reducing headcount, moving and relocating equipment and limiting discretionary spending.
Amounts in thousands, except percentage data | Year Ended | |||||||||||||||
December 31,
2012 |
December 31,
2011 |
Change | % | |||||||||||||
Provision for income taxes |
$ | 10,154 | $ | 10,756 | $ | (602 | ) | 5.6 | % | |||||||
Provision for income taxes as a % of income before taxes |
29.6 | % | 22.2 | % |
Provision for income taxes. The 2012 provision for income taxes, as a percentage of income before taxes, was higher than that of 2011 primarily due to 2011 favorable discrete items including a tax benefit for the reduction of the Companys reserve for uncertain tax positions due to a favorable New Jersey Supreme Court ruling in a case that did not involve the Company. The reserve amount released as a result of the ruling consisted of approximately $2.3 million of tax, $1.8 million accrued interest and $0.5 million of penalties. In addition, in 2011, the Company reversed $1.4 million of deferred tax assets related to the federal benefit of the accrued state reserve. The net benefit to the Company was approximately $3.2 million. Finally, during 2011 the Company released $0.7 million of a valuation allowance against state income tax attributes.
Discrete tax items that occurred in 2012 partially offset the 2011 discrete tax items. During 2012, the Company settled a tax matter with the State of New York for which the Company was fully indemnified. Upon completion of the settlement, the Company released its reserve for $3.1 million of tax, interest and penalties combined, related to the unrecognized tax benefit. In addition, the Company recognized a benefit of $0.4 million related to the completion of the 2010 limited scope audit, and the completion of the 2007 audit by the Internal Revenue Service, and recorded a related change in tax rates in certain jurisdictions of $0.4 million. This was offset by the impact of the 2011 tax return filings in certain foreign jurisdictions which resulted in additional tax expense.
Liquidity and Capital Resources
Overview
We finance our capital and working capital requirements through a combination of cash flows from operating activities and borrowings under our Revolving Credit Facility. We expect that our primary ongoing requirements for cash will be for working capital, debt service, capital expenditures, acquisitions, pensions and dividends. In the event additional funds are needed for operations, we could borrow additional funds available under our existing Revolving Credit Facility, request an expansion by up to $150,000,000 of the amount available to be borrowed under the Credit Agreement, attempt to secure new debt, attempt to refinance our loans under the Credit Agreement, or attempt to raise capital in the equity markets. Presently, we have the ability under our Revolving Credit Facility to borrow an additional $149.0 million, based on current availability calculations. There can be no assurance however that additional debt financing will be available on commercially acceptable terms, if at all. Similarly, there can be no assurance that equity financing will be available on commercially acceptable terms, if at all.
Credit Agreement
On December 6, 2013, we entered into an Amended and Restated Credit Agreement (Credit Agreement) between certain of our domestic subsidiaries, including Altra Power Transmission, Inc. (APT), and Altra Industrial Motion Netherlands, B.V. (Altra Netherlands), one of our foreign subsidiaries, (collectively, the Borrowers), the lenders party to the Amended and Restated Credit Agreement from time to time (collectively, the Lenders), J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, and KeyBanc Capital Markets, Inc., as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent), to be guaranteed through a Guarantee Agreement by certain domestic subsidiaries (each a Guarantor and collectively the Guarantors; the Guarantors collectively with the Borrowers, the Loan Parties), and which may be amended from time to time. The Credit Agreement amends
43
and restates our former Credit Agreement, dated as of November 20, 2012, as amended (the Former Credit Agreement), between certain of its domestic subsidiaries, including APT, the lenders party to the Amended and Restated Credit Agreement from time to time (the Former Lenders), J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, and KeyBanc Capital Markets, Inc., as joint lead arrangers and joint bookrunners, and the Administrative Agent, guaranteed by certain domestic subsidiaries, pursuant to which the Former Lenders made available to the Borrowers an initial term loan facility of $100,000,000 and an initial Revolving Credit Facility, as defined below, of $200,000,000.
Pursuant to the Credit Agreement, the Lenders made an additional term loan of 50,000,000 (the Additional Term Loan) to Altra Netherlands. The Credit Agreement keeps in effect the balance (approximately $94,375,000) of the existing term loan facility (the Initial Term Loan) made to the domestic Borrowers under the Former Credit Agreement (collectively, the two term loans are referred to as the Term Loan Facility), as well as the Revolving Credit Facility of $200,000,000 made under the Former Credit Agreement (the Revolving Credit Facility). The Credit Agreement continues, even after the making of the Additional Term Loan, to provide for a possible expansion of the credit facilities by an additional $150,000,000, which can be allocated as additional term loans and/or additional revolving credit loans. The amounts available under the Term Loan Facility were used, and amounts available under the Revolving Credit Facility can be used, for general corporate purposes, including acquisitions, and to repay existing indebtedness. The stated maturity of these credit facilities is December 6, 2018, and there are scheduled quarterly principal payments due on the outstanding amount of the Term Loan Facility. With respect to the Initial Term Loan, the scheduled quarterly principal payments due on the outstanding amount have been reamortized in accordance with the new December 6, 2018 maturity date. The previous maturity of the Revolving Credit Facility and the Initial Term Loan had been November 20, 2017.
The amounts available under the Revolving Credit Facility may be drawn upon in accordance with the terms of the Credit Agreement. All amounts outstanding under the credit facilities are due on the stated maturity or such earlier time, if any, required under the Credit Agreement. The amounts owed under either of the credit facilities may be prepaid at any time, subject to usual notification and breakage payment provisions. Interest on the amounts outstanding under the credit facilities is calculated using either an ABR Rate or Eurodollar Rate, plus the applicable margin. The applicable margins for Eurodollar Loans are between 1.375% to 1.875%, and for ABR Loans are between 0.375% and 0.875%. The amounts of the margins are calculated based on either a consolidated total net leverage ratio (as defined in the Credit Agreement), or the then applicable rating(s) of the Companys debt if and then to the extent as provided in the Credit Agreement. A portion of the Revolving Credit Facility may also be used for the issuance of letters of credit, and a portion of the amount of the Revolving Credit Facility is available for borrowings in certain agreed upon foreign currencies.
The Credit Agreement contains various affirmative and negative covenants and restrictions, which among other things, will require the Borrowers to provide certain financial reports to the Lenders, require the Company to maintain certain financial covenants relating to consolidated leverage and interest coverage, limit maximum annual capital expenditures, and limit the ability of the Company and its subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, purchase or redeem capital stock or debt, make certain investments, sell assets, engage in certain transactions, and effect a consolidation or merger. The Credit Agreement also contains customary events of default.
As of December 31, 2013, we had $41.2 million outstanding on our Revolving Credit Facility, $163.2 million outstanding under our Term Loan Facility and $9.8 million in letters of credit outstanding.
Pledge and Security Agreement; Trademark Security Agreement; Patent Security Agreement.
Pursuant to an Omnibus Reaffirmation and Ratification of Collateral Documents entered into on December 6, 2013 in connection with the Credit Agreement by and among the Company, the Loan Parties and the Administrative Agent (the Ratification Agreement), the Loan Parties (exclusive of the foreign subsidiary Borrower) have reaffirmed their obligations to the Lenders under the Pledge and Security Agreement dated November 20, 2012 (the Pledge and Security Agreement), pursuant to which each Loan Party pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all personal property, whether now owned by or owing to, or
44
after acquired by or arising in favor of such Loan Party (including under any trade name or derivations), and whether owned or consigned by or to, or leased from or to, such Loan Party, and regardless of where located, except for specific excluded personal property identified in the Pledge and Security Agreement (collectively, the Collateral). Notwithstanding the foregoing, the Collateral does not include, among other items, more than 65% of the capital stock of the first tier foreign subsidiaries of the Company. The Pledge and Security Agreement contains other customary representations, warranties and covenants of the parties. The Credit Agreement provides that the obligation to grant the security interest can cease upon the obtaining of certain corporate family credit ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the Credit Agreement.
Pursuant to the Ratification Agreement, the Loan Parties (other than the foregoing subsidiary Borrower) have also reaffirmed their obligations under each of the Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent dated November 20, 2012 pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties.
On November 20, 2012, the Loan Parties and the Administrative Agent entered into a Pledge and Security Agreement (the Pledge and Security Agreement), pursuant to which each Loan Party pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all personal property, whether now owned by or owing to, or after acquired by or arising in favor of such Loan Party (including under any trade name or derivations), and whether owned or consigned by or to, or leased from or to, such Loan Party, and regardless of where located, except for specific excluded personal property identified in the Pledge and Security Agreement (collectively, the Collateral). Notwithstanding the foregoing, the Collateral does not include, among other items, more than 65% of the capital stock of the first tier foreign subsidiaries of the Company. The Pledge and Security Agreement contains other customary representations, warranties, and covenants of the parties. The Credit Agreement provides that the obligation to grant the security interest can cease upon the obtaining of certain corporate family ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the Credit Agreement.
In connection with the Pledge and Security Agreement, certain of the Loan Parties delivered a Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties.
We were in compliance in all material respects with all covenants of the indenture governing the Credit Agreement at December 31, 2013.
Convertible Senior Notes
In March 2011, the Company issued Convertible Senior Notes (the Convertible Notes) due March 1, 2031. The Convertible Notes are guaranteed by the Companys U.S. domestic subsidiaries. Interest on the Convertible Notes is payable semi-annually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%. Proceeds from the offering were $81.3 million, net of fees and expenses that were capitalized.
We were in compliance in all material respects with all covenants of the indenture governing the Convertible Notes at December 31, 2013.
45
Borrowings
Amounts in millions | ||||||||
December 31,
2013 |
December 31,
2012 |
|||||||
Debt: |
||||||||
Revolving Credit Facility |
$ | 41.2 | $ | 79.3 | ||||
Convertible Notes |
85.0 | 85.0 | ||||||
Term Loan Facility |
163.2 | 100.0 | ||||||
Equipment Loan |
4.1 | 1.1 | ||||||
Mortgages |
0.7 | 1.0 | ||||||
Capital leases |
0.2 | 0.1 | ||||||
Other |
| 0.4 | ||||||
|
|
|
|
|||||
Total Debt |
$ | 294.4 | $ | 266.9 | ||||
|
|
|
|
Cash and Cash Equivalents
Amounts in thousands, except percentage data | ||||||||||||
2013 | 2012 | Change | ||||||||||
Cash and cash equivalents at the beginning of the period |
85,154 | 92,515 | (7,361 | ) | ||||||||
Cash flows from operating activities |
89,625 | 59,918 | 29,707 | |||||||||
Cash flows from investing activities |
(130,005 | ) | (38,770 | ) | (91,235 | ) | ||||||
Cash flows from financing activities |
17,991 | (29,880 | ) | 47,871 | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
839 | 1,371 | (532 | ) | ||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at the end of the period |
$ | 63,604 | $ | 85,154 | $ | (21,550 | ) | |||||
|
|
|
|
|
|
Cash Flows for 2013
Funds provided by operating activities totaled approximately $89.6 million for fiscal 2013 a significant portion of which resulted from cash provided by net income of $40.2 million. In addition, net impact of the add-back of certain items including non-cash depreciation, amortization, stock-based compensation, accretion of debt discount, deferred financing costs, provision for deferred taxes, and non-cash loss on foreign currency was approximately $39.5 million. Also included in the cash flows provided by operating activities is a net decrease in current assets and liabilities of approximately $10.0 million.
The change in cash flows from operating activities in 2013 as compared to 2012 related to an increase in cash provided by net income of $16.0 million as well as a decrease in accounts receivable and inventory. Accounts Receivable balances have decreased due to more timely collections. Inventory balances have decreased due to planned inventory management efforts that have positively impacted our inventory levels. While a variety of factors can influence our ability to project future cash flow, we expect to see positive cash flows from operating activities during 2014 due to income from operations, the add-back of non-cash expenses and a continued decrease in working capital.
The change in net cash used in investing activities was primarily due to the acquisition of Svendborg in December 2013 for $94.6 million.
The change in net cash from financing activities was primarily due to additional borrowing in the form of a 50.0 million term loan as well as additional borrowings under our Revolving Credit Facility offset by payments on the Credit Facility.
46
We intend to use our remaining existing cash and cash equivalents and cash flow from operations to provide for our working capital needs, to fund potential future acquisitions, to service our debt, including principal payments, and for capital expenditures, for pension funding, and to pay dividends to our stockholders. We have approximately $47.1 million of cash and cash equivalents held by foreign subsidiaries that are generally subject to U.S. income taxation on repatriation to the U.S. We believe our future operating cash flows will be sufficient to meet our future operating and investing cash needs. Furthermore, the existing cash balances and the availability of additional borrowings under our Revolving Credit Facility provide additional potential sources of liquidity should they be required.
Cash Flows for 2012
Amounts in thousands, except percentage data
2012 | 2011 | Change | ||||||||||
Cash and cash equivalents at the beginning of the period |
$ | 92,515 | $ | 72,723 | $ | 19,792 | ||||||
Cash flows from operating activities |
59,918 | 46,901 | 13,017 | |||||||||
Cash flows from investing activities |
(38,770 | ) | (89,887 | ) | 51,117 | |||||||
Cash flows from financing activities |
(29,880 | ) | 64,765 | (94,645 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents |
1,371 | (1,987 | ) | 3,358 | ||||||||
Cash and cash equivalents at the end of the period |
$ | 85,154 | $ | 92,515 | $ | (7,361 | ) |
The primary sources of funds provided from operating activities of approximately $59.9 million for fiscal 2012 resulted from cash provided from net income of $24.2 million. The net impact of the add-back of certain items including non-cash depreciation, amortization, stock-based compensation, accretion of debt discount, deferred financing costs, and non-cash loss on foreign currency was approximately $40.8 million. This amount was offset by a net increase in current assets and liabilities of approximately $4.6 million.
The change in cash flows from operating activities in 2012 as compared to 2011 related to a decrease in accounts receivable and inventory. Due to the focus on the integration of Bauer, and the inclusion of an additional $15.5 million of accounts receivables in 2011, the cash collection of those receivables in 2011 was not as timely as it was during 2012. Inventory balances have decreased due to planned inventory management efforts that have positively impacted our inventory levels.
The change in net cash used in investing activities was primarily due to the acquisition of Bauer in May 2011 for $69.5 million. This was offset in 2012 by capital expenditures to fund our plant construction in ChangZhou, China of $6.7 million and the acquisition of Lamiflex for $7.4 million.
The change in net cash from financing activities was primarily due to the issuance of $85.0 million of Convertible Notes in March 2011. The cash used in financing activities in 2012 was primarily used to retire $198.0 million of 8 1/8% Senior Secured Notes, to redeem $3.0 million in variable rate demand revenue bonds related to our San Marcos facility and to make $4.3 million of dividend payments. This was partially offset by the funds provided under the new Credit Facility of $179.3 million.
Capital Expenditures
We made capital expenditures of approximately $27.8 million and $31.3 million in the years ended December 31, 2013 and December 31, 2012, respectively. These capital expenditures will support on-going business needs. Additionally, in 2013, we purchased a portion of the land and building in Esslingen, Germany in which our Bauer business operates. In 2014, we forecast capital expenditures to be in the range of $28.0 million to $30.0 million.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that provide liquidity, capital resources, market or credit risk support that expose us to any liability that is not reflected in our consolidated financial statements.
47
Contractual Obligations
The following table is a summary of our contractual cash obligations as of December 31, 2013 (in thousands):
Payments Due by Period | ||||||||||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||||||||||||||||||
Term Loan Facility (1) |
$ | 12,245 | $ | 16,323 | $ | 16,323 | $ | 20,405 | $ | 97,949 | $ | | $ | 163,245 | ||||||||||||||
Convertible Notes (2) |
| | | | | 85,000 | 85,000 | |||||||||||||||||||||
Operating leases |
7,618 | 6,225 | 4,847 | 2,594 | 1,892 | 6,970 | 30,146 | |||||||||||||||||||||
Capital leases |
147 | 28 | 8 | 6 | | | 189 | |||||||||||||||||||||
Mortgage (3) |
393 | 199 | | | | | 592 | |||||||||||||||||||||
Revolving Credit Facility (4) |
| | | | 41,198 | | 41,198 | |||||||||||||||||||||
Equipment loan (5) |
1,583 | | 2,572 | | | | 4,155 | |||||||||||||||||||||
Minimum Purchase Contracts (6) |
4,896 | 4,896 | | | | | 9,792 | |||||||||||||||||||||
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|
|
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|
|
|
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Total contractual cash obligations |
$ | 26,882 | $ | 27,671 | $ | 23,750 | $ | 23,005 | $ | 141,039 | $ | 91,970 | $ | 334,317 | ||||||||||||||
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(1) | We have monthly and/or quarterly cash interest requirements due on the Term Loan Facility payable at variable rates which are not included in the above table. |
(2) | We have semi-annual cash interest requirements due on the Convertible Notes with $2.3 million payable in 2013 through 2017, and $0.4 million due thereafter which are not included in the above table. |
(3) | In June, 2006, our German subsidiary entered into a mortgage on its building in Heidelberg, Germany, with a local bank. The mortgage has an outstanding principal balance of 0.5 million ($0.7 million) as of December 31, 2013, an interest rate of 5.75% and is payable in monthly installments over the next 2 years. |
(4) | We have up to $200.0 million of total borrowing capacity, through December 6, 2018, under our Revolving Credit Facility of which $149.0 million is currently available. As of December 31, 2013, there were $9.8 million of outstanding letters of credit under our Revolving Credit Facility. We have variable monthly and/or quarterly cash interest requirements due on the Revolving Credit Facility through 2018, which are not included in the above table. |
(5) | The Company has up to a 38.5 million RMB ($6.3 million) Equipment Loan with a Chinese bank to furnish its facility in Changzhou, China with equipment. The loan had a principal balance of 25.4 million RMB ($4.1 million) at December 31, 2013. Interest is payable monthly at interest rates between 5.04% and 6.69%. |
(6) | The Company has minimum purchase contracts for inventory of 3.6 million ($4.9 million) for years 2014 and 2015. |
From time to time, we may have cash funding requirements associated with our pension plan. As of December 31, 2013, there were no requirements for 2014 or 2015 and requirements of $0.3 million annually from 2016 to 2018, which are not included in the above table. These amounts are based on actuarial assumptions and actual amounts could be materially different.
We may be required to make cash outlays related to our unrecognized tax benefits. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits of $1.0 million as of December 31, 2013, have been excluded from the contractual obligations table above. For further information on unrecognized tax benefits, see Note 7 to the consolidated financial statements.
Stock-based Compensation
In January 2005, we established our 2004 Equity Incentive Plan that provides for various forms of stock based compensation to our officers and senior level employees.
48
As of December 31, 2013, there were 149,635 shares of unvested restricted stock outstanding under the plan. The remaining compensation cost to be recognized through 2016 is $3.0 million. Based on the stock price at December 31, 2013, of $34.22 per share, the intrinsic value of these awards as of December 31, 2013, was $5.1 million.
Income Taxes
We are subject to taxation in multiple jurisdictions throughout the world. Our effective tax rate and tax liability will be affected by a number of factors, such as the amount of taxable income in particular jurisdictions, the tax rates in such jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds between jurisdictions and repatriate income, and changes in law. Generally, the tax liability for each legal entity is determined either (a) on a non-consolidated and non-combined basis or (b) on a consolidated and combined basis only with other eligible entities subject to tax in the same jurisdiction, in either case without regard to the taxable losses of non-consolidated and non-combined affiliated entities. As a result, we may pay income taxes to some jurisdictions even though on an overall basis we incur a net loss for the period.
Seasonality
We experience seasonality in our turf and garden business, which in recent years has represented approximately 7.4% of our net sales. As our large OEM customers prepare for the spring season, our shipments generally start increasing in December, peak in February and March, and begin to decline in April and May. This allows our customers to have inventory in place for the peak consumer purchasing periods for turf and garden products. The June-through-November period is typically the low season for us and our customers in the turf and garden market. Seasonality is also affected by weather and the level of housing starts.
Inflation
Inflation can affect the costs of goods and services we use. The majority of the countries that are of significance to us, from either a manufacturing or sales viewpoint, have in recent years enjoyed relatively low inflation. The competitive environment in which we operate inevitably creates pressure on us to provide our customers with cost-effective products and services.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to various market risk factors such as fluctuating interest rates, changes in foreign currency rates and changes in commodity prices. At present, we do not utilize derivative instruments to manage these risks.
Currency translation. The results of operations of our foreign subsidiaries are translated into U.S. Dollars at the average exchange rates for each period concerned. The balance sheets of foreign subsidiaries are translated into U.S. Dollars at the exchange rates in effect at the end of each period. Any adjustments resulting from the translation are recorded as other comprehensive income. As of December 31, 2013 and 2012, the aggregate total assets (based on book value) of foreign subsidiaries were $387.3 million and $262.1 million, respectively, representing approximately 52.6% and 41.4%, respectively, of our total assets (based on book value). Our foreign currency exchange rate exposure is primarily with respect to the Euro and British Pound Sterling. The approximate exchange rates in effect at December 31, 2013 and 2012, were $1.38 and $1.32, respectively to the Euro. The approximate exchange rates in effect at December 31, 2013 and 2012 were $1.64 and $1.62, respectively to the British Pound Sterling.
Currency transaction exposure. Currency transaction exposure arises where actual sales, purchases and financing transactions are made by a business or company in a currency other than its own functional currency. Any transactional differences at an international location are recorded in net income on a monthly basis.
Interest rate risk. We are subject to market exposure to changes in interest rates on some of our financing activities. This exposure relates to borrowings under our Term Loan Facility and our Revolving Credit Facility. Interest on the amounts outstanding under the credit facilities is calculated using either an ABR Rate or
49
Eurodollar rate, plus the applicable margin. The applicable margins for Eurodollar Loans are between 1.375% to 1.875%, and for ABR Loans are between 0.375% and 0.875%. As of December 31, 2013, we had $41.2 million in borrowings under our Revolving Credit Facility and $9.8 million of outstanding letters of credit under our Revolving Credit Facility. A hypothetical change in interest rates of 1% on our outstanding variable rate debt would increase our annual interest expense by approximately $1.2 million. We rely on interest rate swap contracts and hedging arrangements to effectively manage our interest rate risk. We entered into an interest rate swap in 2013 to hedge exposure to variable rate interest rate payable on a portion of our outstanding borrowings, currently $92.5 million, under the Credit Facility. We are exposed to credit loss in the event of non-performance by the swap counterparty. Hedge ineffectiveness, if any, associated with the swap will be reported by the Company as interest expense. With other variables held constant, a hypothetical 50 basis point decrease in the LIBOR yield curve would have resulted in a decrease of approximately $1.3 million in the fair value of the interest rate swap.
Commodity price exposure. We have exposure to changes in commodity prices principally related to metals including steel, copper and aluminum. From the first quarter of 2004 to the fourth quarter of 2013, the average price of copper and steel has increased approximately 153% and 75%, respectively. We primarily mange our risk associated with such increases through the use of surcharges or general pricing increases for the related products. We do not engage in the use of financial instruments to hedge our commodities price exposure.
50
Item 8. | Financial Statements and Supplementary Data |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of:
Altra Industrial Motion Corp.
Braintree, Massachusetts
We have audited the accompanying consolidated balance sheets of Altra Industrial Motion Corp., formerly Altra Holdings, Inc., and subsidiaries (the Company), as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive income, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Altra Industrial Motion Corp. and subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal ControlIntegrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2014 expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 26, 2014
51
ALTRA INDUSTRIAL MOTION CORP.
Consolidated Balance Sheets
Amounts in thousands, except share amounts
The accompanying notes are an integral part of these consolidated financial statements.
52
ALTRA INDUSTRIAL MOTION CORP.
Consolidated Statements of Comprehensive Income
Amounts in thousands, except per share data
December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Net sales |
$ | 722,218 | $ | 731,990 | $ | 674,812 | ||||||
Cost of sales |
506,837 | 513,442 | 478,394 | |||||||||
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|
|||||||
Gross profit |
215,381 | 218,548 | 196,418 | |||||||||
Operating expenses: |
||||||||||||
Selling, general and administrative expenses |
130,155 | 127,044 | 113,375 | |||||||||
Research and development expenses |
12,536 | 11,457 | 10,609 | |||||||||
Restructuring costs |
1,111 | 3,196 | | |||||||||
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|
|
|
|
|||||||
143,802 | 141,697 | 123,984 | ||||||||||
Income from operations |
71,579 | 76,851 | 72,434 | |||||||||
Other non-operating income and expense: |
||||||||||||
Interest expense, net |
10,586 | 40,790 | 24,035 | |||||||||
Other non-operating expense (income), net |
1,657 | 1,702 | (32 | ) | ||||||||
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|
|
|
|||||||
12,243 | 42,492 | 24,003 | ||||||||||
Income before income taxes |
59,336 | 34,359 | 48,431 | |||||||||
Provision for income taxes |
19,151 | 10,154 | 10,756 | |||||||||
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|
|||||||
Net income |
40,185 | 24,205 | 37,675 | |||||||||
Net loss attributable to non-controlling interest |
90 | 88 | | |||||||||
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|
|||||||
Net income attributable to Altra Industrial Motion Corp. |
$ | 40,275 | $ | 24,293 | $ | 37,675 | ||||||
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Consolidated Statement of Comprehensive Income |
||||||||||||
Pension liability adjustment, net of tax |
1,474 | (2,122 | ) | (1,603 | ) | |||||||
Change in fair value of interest rate swap, net of tax |
135 | | | |||||||||
Foreign currency translation adjustment, net of tax |
3,398 | 3,795 | (8,802 | ) | ||||||||
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|
|||||||
Total Comprehensive income |
45,192 | 25,966 | 27,270 | |||||||||
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Comprehensive loss attributable to non-controlling interest |
248 | | | |||||||||
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|
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Comprehensive income attributable to Alta Industrial Motion Corp. |
$ | 45,440 | $ | 25,966 | $ | 27,270 | ||||||
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|
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Weighted average shares, basic |
26,766 | 26,656 | 26,526 | |||||||||
Weighted average shares, diluted |
26,841 | 26,756 | 26,689 | |||||||||
Earnings per share: |
||||||||||||
Basic net income attributable to Altra Industrial Motion Corp. |
$ | 1.50 | $ | 0.91 | $ | 1.42 | ||||||
Diluted net income attributable to Altra Industrial Motion Corp. |
$ | 1.50 | $ | 0.91 | $ | 1.41 | ||||||
Cash dividend declared |
$ | 0.38 | $ | 0.16 | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
53
ALTRA INDUSTRIAL MOTION CORP.
Consolidated Statements of Stockholders Equity
Amounts in thousands
Common
Stock |
Shares |
Additional
Paid in Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Loss |
Total |
Redeemable
Non- Controlling Interest |
||||||||||||||||||||||||
Balance at December 31, 2010 |
$ | 26 | 26,466 | $ | 133,861 | $ | 45,536 | $ | (14,671 | ) | $ | 164,752 | $ | | ||||||||||||||||
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Stock-based compensation and vesting of restricted stock |
1 | 134 | 1,819 | | | 1,820 | | |||||||||||||||||||||||
Net income |
| | | 37,675 | | 37,675 | | |||||||||||||||||||||||
Convertible Notes |
| | 24,510 | | 24,510 | | ||||||||||||||||||||||||
Deferred taxes on Convertible Notes |
| | (8,966 | ) | | (8,966 | ) | | ||||||||||||||||||||||
Deferred financing costs on Convertible Notes |
| | (990 | ) | | | (990 | ) | | |||||||||||||||||||||
Cumulative foreign currency translation adjustment, net of $731 of tax expense |
| | | | (8,802 | ) | (8,802 | ) | | |||||||||||||||||||||
Minimum Pension adjustment, net of $868 tax expense |
| | | | (1,603 | ) | (1,603 | ) | | |||||||||||||||||||||
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Balance at December 31, 2011 |
$ | 27 | 26,600 | $ | 150,234 | $ | 83,211 | $ | (25,076 | ) | $ | 208,396 | $ | | ||||||||||||||||
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Stock-based compensation and vesting of restricted stock |
| 124 | 1,954 | | | 1,954 | | |||||||||||||||||||||||
Net income attibutable to Altra Industrial Motion Corp. |
| | | 24,293 | | 24,293 | | |||||||||||||||||||||||
Net loss attributable to non-controlling interest |
| | | | | | (88 | ) | ||||||||||||||||||||||
Fair value of non-controlling interest at acquisition |
| | | | | | 1,327 | |||||||||||||||||||||||
Dividends declared |
| | | (4,304 | ) | | (4,304 | ) | ||||||||||||||||||||||
Minimum Pension adjustment, net of $1,388 tax expense |
| | | | (2,122 | ) | (2,122 | ) | | |||||||||||||||||||||
Cumulative foreign currency translation adjustment, net of $994 tax expense |
| | | | 3,795 | 3,795 | | |||||||||||||||||||||||
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Balance at December 31, 2012 |
$ | 27 | 26,724 | $ | 152,188 | $ | 103,200 | $ | (23,403 | ) | $ | 232,012 | $ | 1,239 | ||||||||||||||||
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Stock-based compensation and vesting of restricted stock |
| 96 | 2,283 | | | 2,283 | | |||||||||||||||||||||||
Net income attibutable to Altra Industrial Motion Corp. |
| | | 40,275 | | 40,275 | | |||||||||||||||||||||||
Net loss attributable to non-controlling interest |
| | | | | | (90 | ) | ||||||||||||||||||||||
Dividends declared |
| | | (10,244 | ) | | (10,244 | ) | ||||||||||||||||||||||
Change in fair value of interest rate swap, net of $78 tax expense |
| | | | 135 | 135 | | |||||||||||||||||||||||
Minimum Pension adjustment, net of $800 tax expense |
| | | | 1,474 | 1,474 | | |||||||||||||||||||||||
Cumulative foreign currency translation adjustment, net of $50 tax expense |
| | | | 3,398 | 3,398 | (158 | ) | ||||||||||||||||||||||
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|
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Balance at December 31, 2013 |
$ | 27 | 26,820 | $ | 154,471 | $ | 133,231 | $ | (18,396 | ) | $ | 269,333 | $ | 991 | ||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
54
ALTRA INDUSTRIAL MOTION CORP.
Consolidated Statements of Cash Flows
Amounts in thousands
Year ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Cash flows from operating activities |
||||||||||||
Net income |
$ | 40,185 | $ | 24,205 | $ | 37,675 | ||||||
Adjustments to reconcile net income to net cash flows provided by operating activities: |
||||||||||||
Depreciation |
21,419 | 20,537 | 18,403 | |||||||||
Amortization of intangible assets |
6,505 | 6,839 | 6,280 | |||||||||
Amortization and write-offs of deferred loan costs |
873 | 6,006 | 1,833 | |||||||||
(Gain) loss on foreign currency, net |
742 | (125 | ) | 843 | ||||||||
Accretion and write-off of debt discount and premium |
3,143 | 4,869 | 2,696 | |||||||||
Loss on disposal/impairment of fixed assets |
147 | 251 | 287 | |||||||||
Amortization of inventory fair value adjustment |
| 122 | 581 | |||||||||
Stock-based compensation |
3,173 | 2,696 | 2,471 | |||||||||
Provision (benefit) for deferred taxes |
3,464 | (625 | ) | 4,879 | ||||||||
Changes in assets and liabilities: |
||||||||||||
Trade receivables |
5,791 | 836 | (9,379 | ) | ||||||||
Inventories |
6,412 | 4,084 | (19,948 | ) | ||||||||
Accounts payable and accrued liabilities |
(708 | ) | (6,640 | ) | 8,839 | |||||||
Other current assets and liabilities |
2,156 | 726 | (1,344 | ) | ||||||||
Other operating assets and liabilities |
(3,677 | ) | (3,863 | ) | (7,215 | ) | ||||||
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|
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|
|||||||
Net cash provided by operating activities |
89,625 | 59,918 | 46,901 | |||||||||
|
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|
|
|
|||||||
Cash flows from investing activities |
||||||||||||
Purchase of property, plant and equipment |
(27,823 | ) | (31,346 | ) | (22,242 | ) | ||||||
Proceeds from sale of Stratford Facility |
| | 331 | |||||||||
Proceeds from sale of Chattanooga Facility |
| | 1,484 | |||||||||
Proceeds from sale of Mt. Pleasant Facility |
578 | | | |||||||||
Acquisition of Svendborg, net of $7.5 million cash received |
(94,613 | ) | | | ||||||||
Cash paid to escrow agent for Svendborg Transfer Pricing Claim liability |
(8,147 | ) | ||||||||||
Acquisition of Lamiflex, net of $68 cash received |
| (7,424 | ) | | ||||||||
Acquisition of Bauer, net of $41 cash received |
| | (69,460 | ) | ||||||||
|
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|
|||||||
Net cash used in investing activities |
(130,005 | ) | (38,770 | ) | (89,887 | ) | ||||||
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|
|||||||
Cash flows from financing activities |
||||||||||||
Payment of debt issuance costs |
(670 | ) | (2,454 | ) | (3,674 | ) | ||||||
Redemption of variable rate demand revenue bonds related to the Chattanooga facility |
| | (2,290 | ) | ||||||||
Redemption of variable rate demand revenue bonds related to the San Marcos Facility |
| (3,000 | ) | |||||||||
Purchase of 8 1 / 8 % Senior Secured Notes |
| (198,045 | ) | (11,955 | ) | |||||||
Payment on mortgages and other debt |
(756 | ) | (1,199 | ) | (547 | ) | ||||||
Borrowing under Revolving Credit Facility |
21,198 | | | |||||||||
Borrowing under Additional Term Loan |
68,871 | |||||||||||
Proceeds from issuance of Convertible Notes |
| | 85,000 | |||||||||
Payments on Former Term Loan Facility |
(5,625 | ) | ||||||||||
Payments on Former Revolving Credit Facility |
(59,304 | ) | ||||||||||
Proceeds from Former Term Loan Facility and Revolving Credit Facility |
| 179,304 | | |||||||||
Proceeds from Equipment Loan |
2,999 | 1,100 | | |||||||||
Shares surrendered for tax withholding |
(1,174 | ) | (949 | ) | (944 | ) | ||||||
Dividend payments |
(7,548 | ) | (4,304 | ) | | |||||||
Net payments on capital leases |
| (333 | ) | (825 | ) | |||||||
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|
|||||||
Net cash provided by financing activities |
17,991 | (29,880 | ) | 64,765 | ||||||||
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|
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Effect of exchange rate changes on cash and cash equivalents |
839 | 1,371 | (1,987 | ) | ||||||||
|
|
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|
|
|
|||||||
Net change in cash and cash equivalents |
(21,550 | ) | (7,361 | ) | 19,792 | |||||||
Cash and cash equivalents at beginning of year |
85,154 | 92,515 | 72,723 | |||||||||
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|
|
|||||||
Cash and cash equivalents at end of period |
$ | 63,604 | $ | 85,154 | $ | 92,515 | ||||||
|
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|
|
|
|
|||||||
Cash paid during the period for: |
||||||||||||
Interest |
$ | 6,704 | $ | 30,891 | $ | 18,724 | ||||||
Income taxes |
$ | 13,398 | $ | 12,397 | $ | 11,860 | ||||||
Non-cash Financing and Investing: |
||||||||||||
Acquisition of property, plant and equipment included in accounts payable |
$ | 1,179 | $ | 574 | $ | 577 | ||||||
Dividend accrued |
$ | 2,696 | $ | | $ | | ||||||
Mortgage receivable on sale of Stratford facility |
$ | | $ | | $ | 623 |
The accompanying notes are an integral part of these consolidated financial statements.
55
ALTRA INDUSTRIAL MOTION CORP.
Notes to Consolidated Financial Statements
Amounts in thousands (unless otherwise noted)
1. Description of Business and Summary of Significant Accounting Policies
Basis of Preparation and Description of Business
Headquartered in Braintree, Massachusetts, Altra Industrial Motion Corp. (the Company), through its wholly-owned subsidiary Altra Power Transmissions, Inc. (APT), is a leading multi-national designer, producer and marketer of a wide range of electro-mechanical power transmission products. The Company brings together strong brands covering over 40 product lines with production facilities in eleven countries. Altras leading brands include Ameridrives Couplings, Bauer Gear Motor, Bibby Turboflex, Boston Gear, Delroyd Worm Gear, Formsprag Clutch, Huco, Industrial Clutch, Inertia Dynamics, Kilian Manufacturing, Lamiflex Couplings, Marland Clutch, Matrix, Nuttall Gear, Stieber Clutch, Svendborg Brakes, TB Woods, Twiflex, Warner Electric, Warner Linear, and Wichita Clutch.
In November 2013, Altra Holdings, Inc. changed its name to Altra Industrial Motion Corp., and Altra Industrial Motion, Inc., the Companys wholly owned subsidiary, changed its name to Altra Power Transmission, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Net Income Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common equivalent shares outstanding. Common equivalent shares are included in the per share calculations when the effect of their inclusion would be dilutive.
The following is a reconciliation of basic to diluted net income per share:
Year Ended December, 31 | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Net income attributable to Altra Industrial Motion Corp. |
$ | 40,275 | $ | 24,293 | $ | 37,675 | ||||||
Shares used in net income per common share basic |
26,766 | 26,656 | 26,526 | |||||||||
Incremental shares of unvested restricted common stock |
75 | 100 | 163 | |||||||||
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Shares used in net income per common share diluted |
26,841 | 26,756 | 26,689 | |||||||||
Earnings per share: |
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Basic net income attributable to Altra Industrial Motion Corp. |
$ | 1.50 | $ | 0.91 | $ | 1.42 | ||||||
Diluted net income attributable to Altra Industrial Motion Corp. |
$ | 1.50 | $ | 0.91 | $ | 1.41 |
The Company excluded 3,137,351 shares in 2013, 3,094,706 shares in 2012 and 784,980 shares in 2011 (amounts not in thousands) related to the Convertible Notes (See Note 9) from the above earnings per share calculation as these shares were anti-dilutive.
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Fair Value of Financial Instruments
The carrying values of financial instruments, including accounts receivable, cash equivalents, accounts payable, and other accrued liabilities are carried at cost, which approximates fair value. Debt under the Companys Credit Agreement with certain financial institutions including a Term Loan Facility, as defined below, of $163,245,000 (the Term Loan Facility) and a Revolving Credit Facility, as defined below, of $200,000,000 approximate the fair values due to the variable rate nature at current market rates.
The carrying amount of the 2.75% Convertible Notes (the Convertible Notes) was $85.0 million at December 31, 2013 and 2012. The estimated fair value of the Convertible Notes at December 31, 2013 and 2012 was $116.5 million and $94.3 million, respectively, based on inputs other than quoted prices that are observable for the Convertible Notes (level 2).
Included in cash and cash equivalents as of December 31, 2013 and December 31, 2012 are money market fund investments of $16.6 million and $30.3 million, respectively, which are reported at fair value based on quoted market prices for such investments (level 1).
The estimated fair value of the Companys interest rate swap agreement with certain financial institutions (Interest Rate Swap) at December 31, 2013 was $0.2 million, based on inputs other than quoted prices that are observable for the Interest Rate Swap (level 2). Inputs include present value of fixed and projected floating rate cash flows over the term of the swap contract. There was no Interest Rate Swap at December 31, 2012.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the financial statements. Actual results could differ from those estimates.
Non-controlling Interest
On July 11, 2012, the Company acquired 85% of privately held Lamiflex do Brasil Equipamentos Industriais Ltda. (Lamiflex).
The Company recorded the redeemable non-controlling interest from its acquisition of an 85% ownership interest of Lamiflex at fair value at the date of acquisition. In connection with this acquisition, the Company entered into put and call option agreements with the minority shareholders for the potential purchase of the non-controlling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the non-controlling interest is considered redeemable and is classified as temporary equity on the Companys consolidated balance sheet. The non-controlling interest is reviewed at each subsequent reporting period and adjusted, as needed, to reflect its then redemption value.
Foreign Currency Translation
Assets and liabilities of subsidiaries operating outside of the United States with a functional currency other than the U.S. Dollar are translated into U.S. Dollars using exchange rates at the end of the respective period. Revenues and expenses are translated at average exchange rates effective during the respective period.
Foreign currency translation adjustments are included in accumulated other comprehensive income as a separate component of stockholders equity. Net foreign currency transaction gains and losses are included in the results of operations in the period incurred and included in other non-operating expense (income), net in the accompanying statements of comprehensive income.
Trade Receivables
An allowance for doubtful accounts is recorded for estimated collection losses that will be incurred in the collection of receivables. Estimated losses are based on historical collection experience, as well as a review by management of the status of all receivables. Collection losses have been within the Companys expectations.
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Inventories
Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method for all entities excluding one of the Companys subsidiaries, TB Woods. TB Woods inventory is stated at the lower of cost or market, principally using the last-in, first-out (LIFO) method. Inventory stated using the LIFO method approximates 7.5% and 10% of total inventory at December 31, 2013 and 2012, respectively.
The cost of inventories acquired by the Company in its acquisitions reflect their fair values at the date of acquisition as determined by the Company based on the replacement cost of raw materials, the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts, and for work-in-process the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts and costs to complete.
The Company periodically reviews its quantities of inventories on hand and compares these amounts to the expected usage of each particular product or product line. The Company records a charge to cost of sales for any amounts required to reduce the carrying value of inventories to its estimated net realizable value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation.
Depreciation of property, plant and equipment, including capital leases is provided using the straight-line method over the estimated useful life of the asset, as follows:
Buildings and improvements |
15 to 45 years | |||
Machinery and equipment |
2 to 15 years | |||
Capital lease |
Life of lease |
Leasehold improvements are depreciated on a straight-line basis over the estimated life of the asset or the life of the lease, if shorter.
Improvements and replacements are capitalized to the extent that they increase the useful economic life or increase the expected economic benefit of the underlying asset. Repairs and maintenance expenditures are charged to expense as incurred.
Intangible Assets
Intangibles represent product technology, patents, tradenames, trademarks and customer relationships. Product technology, patents and customer relationships are amortized on a straight-line basis over 8 to 17 years, which approximates the period of economic benefit. The tradenames and trademarks are considered indefinite-lived assets and are not being amortized. Intangibles are stated at fair value on the date of acquisition. At December 31, 2013 and 2012, intangibles are stated net of accumulated amortization incurred since the date of acquisition and any impairment charges.
Goodwill
Goodwill represents the excess of the purchase price paid by the Company over the fair value of the net assets acquired in each of the Companys acquisitions.
Impairment of Goodwill and Indefinite-Lived Intangible Assets
The Company conducts an annual impairment review of goodwill and indefinite-lived intangible assets in December of each year, unless events occur which trigger the need for an interim impairment review.
In connection with the Companys annual impairment review, goodwill is assessed for impairment by comparing the fair value of the reporting unit to the carrying value using a two-step approach. In the first step, the Company estimates future cash flows based upon historical results and current market projections, discounted at a market comparable rate. If the carrying amount of the reporting unit exceeds the estimated fair value, impairment may be present, the Company would then be required to perform a second step in its impairment analysis. In the second step, the Company would evaluate impairment losses based upon the fair value of the
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underlying assets and liabilities of the reporting unit, including any unrecognized intangible assets, and estimate the implied fair value of the goodwill. An impairment loss is recognized to the extent that a reporting units recorded value of the goodwill asset exceeded its calculated fair value. In addition, to the extent the implied fair value of any indefinite-lived intangible asset is less than the assets carrying value, an impairment loss is recognized on those assets. The Company did not identify any impairment of goodwill in 2013, 2012 or 2011.
For our indefinite-lived intangible assets, mainly trademarks, we estimated the fair value first by estimating the total revenue attributable to the trademarks for each of the reporting units. Second, we estimated an appropriate royalty rate using the return on assets method by estimating the required financial return on our
assets, excluding trademarks, less the overall return generated by our total asset base. The return as a percentage of revenue provides an indication of our royalty rate (between 1.0% and 1.5%). We compared the estimated fair value of our trademarks with the carrying value of the trademarks and did not identify any impairment.
Preparation of forecasts of revenue and profitability growth for use in the long-range plan and the discount rate require significant use of judgment. Changes to the discount rate and the forecasted profitability could affect the estimated fair value of one or more of the Companys reporting units and could result in a goodwill impairment charge in a future period.
Impairment of Long-Lived Assets Other Than Goodwill and Indefinite-Lived Intangible Assets
Long-lived assets, including definite-lived intangible assets, are reviewed for impairment when events or circumstances indicate that the carrying amount of a long-lived asset may not be recovered. Long-lived assets are considered to be impaired if the carrying amount of the asset exceeds the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value, and is charged to results of operations at that time.
The Company did not identify any impairment of long-lived assets in 2013 or 2012. In relation to the sale of the Stratford facility in 2011, the Company identified and recorded an impairment with respect to the facility in the amount of $0.1 million based on their fair market value (Note 4).
Determining fair values based on discounted cash flows requires management to make significant estimates and assumptions, including forecasting of revenue and profitability growth for use in the long-range plan and estimating appropriate discount rates. Changes to the discount rate and the forecasted profitability could affect the estimated fair value of one or more of the Companys indefinite-lived intangible assets and could result in an impairment charge in a future period.
Debt Issuance Costs
Costs directly related to the issuance of debt are capitalized, included in other non-current assets and amortized using the effective interest method over the term of the related debt obligation. The net carrying value of debt issuance costs was approximately $4.1 million and $4.3 million at December 31, 2013 and 2012, respectively.
Revenue Recognition
Product revenues are recognized, net of sales tax collected, at the time title and risk of loss pass to the customer, which generally occurs upon shipment to the customer. Product return reserves are accrued at the time of sale based on the historical relationship between shipments and returns, and are recorded as a reduction of net sales.
Certain large distribution customers receive annual volume discounts, which are estimated at the time the sale is recorded based on the estimated annual sales.
Shipping and Handling Costs
Shipping and handling costs associated with sales are classified as a component of cost of sales.
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Warranty Costs
Estimated expenses related to product warranties are accrued at the time products are sold to customers. Estimates are established using historical information as to the nature, frequency, and average costs of warranty claims. See Note 6 to the consolidated financial statements.
Self-Insurance
Certain exposures are self-insured up to pre-determined amounts, above which third-party insurance applies, for medical claims, workers compensation, vehicle insurance, product liability costs and general liability exposure. The accompanying balance sheets include reserves for the estimated costs associated with these self-insured risks, based on historic experience factors and managements estimates for known and anticipated claims. A portion of medical insurance costs are offset by charging employees a premium equivalent to group insurance rates.
Research and Development
Research and development costs are expensed as incurred.
Advertising
Advertising costs are charged to selling, general and administrative expenses as incurred and amounted to approximately $2.5 million, $2.1 million and $1.5 million, for the years ended December 31, 2013, 2012, and 2011, respectively.
Stock-Based Compensation
The Company established the 2004 Equity Incentive Plan, as amended, that provides for various forms of stock-based compensation to officers, directors, key employees and others who make significant contributions to the success of the Company. The Company recognizes stock based compensation expense on a straight line basis for shares vesting ratably under the plan and uses the graded-vesting method of recognizing stock-based compensation expense for performance share awards based on the probability of the specific performance metrics being achieved over the requisite service period.
Income Taxes
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company evaluates the realizability of its net deferred tax assets and assesses the need for a valuation allowance on a quarterly basis. The future benefit to be derived from its deferred tax assets is dependent upon the Companys ability to generate sufficient future taxable income to realize the assets. The Company records a valuation allowance to reduce its net deferred tax assets to the amount that may be more likely than not to be realized.
To the extent the Company establishes a valuation allowance on net deferred tax assets generated from operations, an expense will be recorded within the provision for income taxes. In periods subsequent to establishing a valuation allowance on net deferred assets from operations, if the Company were to determine that it would be able to realize its net deferred tax assets in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded as a reduction to income tax expense in the period such determination was made.
We assess our income tax positions and record tax benefits for all years subject to examination, based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, we record the amount that has a greater than 50% likelihood of being realized upon settlement with the taxing authority that has full knowledge of all relevant information. Interest and penalties are accrued, where applicable. If we do not believe that it is more likely than not that a tax benefit will be sustained, no tax benefit is recognized.
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Changes in Accumulated Other Comprehensive Loss by Component
The following is a reconciliation of changes in Accumulated Other Comprehensive Loss by Component for the periods presented:
Cash Flow
Hedges |
Defined
Benefit Pension Plans |
Cumulative
Foreign Currency Translation |
Total | |||||||||||||
Accumulated Other Comprehensive Loss by Component, January 1, 2012 |
$ | | $ | (2,485 | ) | $ | (22,591 | ) | $ | (25,076 | ) | |||||
Net current-period Other Comprehensive Income Loss |
| (2,122 | ) | 3,795 | 1,673 | |||||||||||
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Accumulated Other Comprehensive Loss by component, January 1, 2013 |
$ | | $ | (4,607 | ) | $ | (18,796 | ) | $ | (23,403 | ) | |||||
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Net current-period Other Comprehensive Income |
135 | 1,474 | 3,398 | 5,007 | ||||||||||||
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Accumulated Other Comprehensive Income (Loss) by component, December 31, 2013 |
$ | 135 | $ | (3,133 | ) | $ | (15,398 | ) | $ | (18,396 | ) | |||||
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2. Acquisitions
In December 2013, the Company consummated an agreement to acquire all of the issued and outstanding shares of Svendborg Brakes A/S and S.B. Patent Holding ApS (together Svendborg) for cash consideration of 80.1 million ($110.2 million), less the cash remaining on the balance sheet at close of 5.4 million ($7.5 million). This transaction is referred to as the Svendborg Acquisition. Through the Svendborg Acquisition, the Company acquired the leading global manufacturer of premium quality caliper brakes. With the Svendborg Acquisition, in addition to a presence in Denmark, the Company acquired Denmarks well-established sales network in 7 additional countries in Western Europe, China, South America, Australia and the United States as well as a manufacturing facility in China.
Altra financed the transaction through a combination of cash and additional borrowings under its Credit Agreement. Under the Purchase Agreement, the seller agreed to provide the Company with a limited set of representations and warranties, including with respect to outstanding and potential liabilities. Claims for a breach of a representation or warranty are secured by a limited escrow and warranty and indemnity insurance. Damages resulting from a breach of a representation or warranty could have a material and adverse effect on the Companys financial condition and results of operations, and there is no guarantee that the Company would actually be able to recover all or any portion of the sums payable in connection with such breach.
Under the Purchase Agreement, the seller agreed to provide the Company with an indemnification for certain tax liabilities related to transfer pricing (the Transfer Pricing Claims) identified as part of an ongoing tax audit in Denmark. As part of the Purchase Agreement, an escrow in the amount of approximately 8.5 million ($11.6 million) was established for the Transfer Pricing Claims. The Company estimated this liability to be $8.1 million and as a result has recorded a liability included in taxes payable and an escrow receivable in other current assets. The purchase price in the reconciliation below represents cash consideration less the estimated escrow receivable for which the Company expects to be indemnified.
The closing date of the Svendborg Acquisition was December 17, 2013, and as a result, the Companys consolidated financial statements reflect Svendborgs results of operations from the beginning of business on December 17, 2013 forward.
As of December 31, 2013, the allocation of the purchase price for the Svendborg Acquisition is preliminary. The fair value of all the acquired identifiable assets and liabilities summarized below is provisional pending finalization of the Companys acquisition accounting. Measurement period adjustments reflect new
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information obtained about facts and circumstances that existed as of the acquisition date. The Company believes that such preliminary allocations provide a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize fair value.
Purchase price, excluding acquisition costs of approximately $2.5 million |
$ | 102,096 | ||
Cash and cash equivalents |
7,483 | |||
Trade receivables, net of amounts pledged |
21,575 | |||
Inventories |
25,452 | |||
Prepaid and other |
5,511 | |||
Property, plant and equipment |
12,216 | |||
Other assets |
1,133 | |||
Intangible assets |
48,893 | |||
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Total assets acquired |
$ | 122,263 | ||
Accounts payable |
4,833 | |||
Accrued expenses and other current liabilities |
9,620 | |||
Taxes payable |
10,254 | |||
Deferred tax liability |
11,483 | |||
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Total liabilities assumed |
$ | 36,190 | ||
Net assets acquired |
86,073 | |||
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Excess of purchase price over fair value of net assets acquired |
$ | 16,023 | ||
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The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. This goodwill is not deductible for income tax purposes. The Company expects to develop synergies, such as lower cost country sourcing, global procurement, the ability to cross-sell product, and the ability to penetrate certain geographic areas, as a result of the acquisition of Svendborg.
The amounts recorded as intangible assets consist of the following:
Customer relationships, subject to amortization |
$ | 40,050 | ||
Trade names and trademarks, not subject to amortization |
8,500 | |||
Patents |
343 | |||
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Total intangible assets |
$ | 48,893 | ||
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Customer relationships are subject to amortization which will be straight-lined over their estimated useful lives of 17 years, which represents the anticipated period over which the Company estimates it will benefit from the acquired assets.
In July 2012, the Company consummated an agreement to acquire 85% of privately held Lamiflex do Brasil Equipamentos Industrias Ltda. now known as Lamiflex Do Brasil Equipamentos Industriais S.A. This transaction is known as the Lamiflex Acquisition. The Company acquired 85% of the stock of Lamiflex for 17.4 million Reais ($8.6 million), which was subject to a reduction of 2.1 million Reais ($1.1 million) for estimated net debt at closing.
The closing date of the Lamiflex Acquisition was July 11, 2012, and as a result, the Companys consolidated financial statements reflect Lamiflexs results of operations from the beginning of business on July 11, 2012 forward.
The Company has completed the valuation of customer relationships, trademarks and deferred tax assets and liabilities and fixed assets and has recorded them as part of its balance sheet. The purchase price allocation
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was calculated as if the Company had acquired 100% of Lamiflex. The purchase price allocation as of the acquisition date is as follows:
Total Assumed purchase price, excluding acquisition costs of approximately $0.4 million |
$ | 8,820 | ||
Less: Redeemable noncontrolling interest |
1,327 | |||
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Total purchase price paid at closing |
7,493 | |||
Cash and cash equivalents |
68 | |||
Trade receivables, net of amounts pledged |
606 | |||
Inventories |
726 | |||
Prepaid and other |
48 | |||
Property, plant and equipment |
3,027 | |||
Other assets |
108 | |||
Intangible assets |
4,912 | |||
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Total assets acquired |
$ | 9,495 | ||
Accounts payable |
550 | |||
Accrued expenses and other current liabilities |
867 | |||
Deferred tax liability |
1,934 | |||
Other liabilities, including long-term debt |
976 | |||
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Total liabilities assumed |
$ | 4,327 | ||
Net assets acquired |
5,168 | |||
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Excess of purchase price over fair value of net assets acquired |
3,652 | |||
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The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. This goodwill is deductible for income tax purposes. The Company expects to develop synergies, such as the ability to cross-sell product and to penetrate into certain geographic areas, as a result of the acquisition of Lamiflex.
The Company recorded a redeemable non-controlling interest from its acquisition of an 85% ownership interest of Lamiflex at fair value at the date of acquisition. In connection with the Lamiflex Acquisition, the Company entered into put and call option agreements with the minority shareholders for the potential purchase of the non-controlling interest at a future date at a value based on a contractually determined formula. As a result of the option agreements, the non-controlling interest is considered redeemable and is classified as temporary equity on the Companys Consolidated Balance Sheet.
The estimated amounts recorded as intangible assets in connection with the Lamiflex Acquisition consist of the following:
Customer relationships, subject to amortization |
$ | 4,552 | ||
Trade names and trademarks, not subject to amortization |
360 | |||
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Total intangible assets |
$ | 4,912 | ||
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Customer relationships are subject to amortization which will be straight-lined over their estimated useful lives of 13 years, which represents the anticipated period over which the Company estimates it will benefit from the acquired assets.
The following table sets forth the unaudited pro forma results of operations of the Company for the year to date periods ended December 31, 2013, 2012 and 2011 as if the Company had acquired Lamiflex and Bauer at January 1, 2011, and Svendborg at January 1, 2012. The pro forma information contains the actual operating
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results of the Company, including Bauer, Lamiflex, and Svendborg adjusted to include the pro forma impact of (i) additional depreciation expense as a result of estimated depreciation based on the fair value of fixed assets; (ii) additional expense as a result of the estimated amortization of identifiable intangible assets (iii) additional interest expense associated with the Convertible Notes issued on March 7, 2011 in connection with the Bauer Acquisition; (iv) elimination of certain acquisition related costs; (v) the elimination of additional expense as a result of fair value adjustment to inventory recorded in connection with the Lamiflex and Bauer Acquisitions; and (vi) additional interest expense for borrowings under the Credit Agreement associated with the Svendborg Acquisition. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred at the beginning of the period or that may be obtained in the future.
2013 | 2012 | 2011 | ||||||||||
Total revenues |
$ | 803,467 | $ | 818,956 | $ | 732,837 | ||||||
Net income attributable to Altra Industrial Motion Corp. |
$ | 37,750 | $ | 22,373 | $ | 41,718 | ||||||
Basic earnings per share: |
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Net income attributable to Altra Industrial Motion Corp. |
$ | 1.41 | $ | 0.84 | $ | 1.57 | ||||||
Diluted earnings per share: |
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Net income attributable to Altra Industrial Motion Corp. |
$ | 1.41 | $ | 0.84 | $ | 1.56 |
3. Inventories
Inventories are generally stated at the lower of cost or market, using the first-in, first-out (FIFO) method. Inventories located at certain subsidiaries acquired in connection with the TB Woods acquisition are stated at the lower of current cost or market, principally using the last-in, first-out (LIFO) method. The cost of inventory includes direct materials, direct labor, and production overhead. Market is defined as net realizable value. Inventories at December 31, 2013 and 2012 consisted of the following:
December 31,
2013 |
December 31,
2012 |
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Raw materials |
$ | 56,824 | $ | 39,902 | ||||
Work in process |
18,432 | 21,199 | ||||||
Finished goods |
68,409 | 62,675 | ||||||
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Inventories, net |
$ | 143,665 | $ | 123,776 | ||||
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Approximately 7.5% of total inventories at December 31, 2013, were valued using the LIFO method. The Company recorded as a component of cost of sales, a $0.7 million, and a $0.4 million provision in the years ended December 31, 2013 and 2012, respectively. If the LIFO inventory was accounted for using the FIFO method, the inventory balance at December 31, 2013 and 2012, would be $1.6 million higher and $0.9 million higher, respectively.
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4. Property, Plant and Equipment
Property, plant and equipment at December 31, 2013 and 2012, consisted of the following:
2013 | 2012 | |||||||
Land |
$ | 20,803 | $ | 13,565 | ||||
Buildings and improvements |
53,078 | 38,942 | ||||||
Machinery and equipment |
207,193 | 190,809 | ||||||
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281,074 | 243,316 | |||||||
Less-Accumulated depreciation |
(123,539 | ) | (105,222 | ) | ||||
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$ | 157,535 | $ | 138,094 | |||||
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In 2011, the Company sold its Stratford, Ontario, Canada facility for approximately $0.9 million. Cash was received for $0.3 million and a note receivable was established for $0.6 million, which has a term of 10 years and accrues interest at 6% annually. In 2013, the note receivable was paid in full.
In 2013, the Company sold its Mt. Pleasant, Michigan facility and received cash consideration of approximately $0.6 million. The cash consideration was equal to the net book value and therefore no impairment was recorded.
The Company recorded $21.4 million, $20.5 million and $18.4 million of depreciation expense in the years ended December 31, 2013, 2012, and 2011, respectively.
5. Goodwill and Intangible Assets
Changes in goodwill during the year ended December 31, 2013 and 2012 were as follows:
2013 | 2012 | |||||||
Gross goodwill balance as of January 1 |
$ | 120,035 | $ | 115,609 | ||||
Adjustments related to the acquisition of Svendborg in 2013 and Lamiflex in 2012 |
16,023 | 3,652 | ||||||
Impact of changes in foreign currency and other |
91 | 774 | ||||||
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Gross goodwill balance as of December 31 |
136,149 | 120,035 | ||||||
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Accumulated impairment, January 1 |
(31,810 | ) | (31,810 | ) | ||||
Impairment charge during period |
| | ||||||
Accumulated impairment, December 31 |
(31,810 | ) | (31,810 | ) | ||||
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Net goodwill balance December 31 |
$ | 104,339 | $ | 88,225 | ||||
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Intangibles and related accumulated amortization consisted of the following:
December 31, 2013 | December 31, 2012 | |||||||||||||||
Cost |
Accumulated
Amortization |
Cost |
Accumulated
Amortization |
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Intangible Assets |
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Intangible assets not subject to amortization: |
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Tradenames and trademarks |
$ | 42,985 | $ | | $ | 34,485 | $ | | ||||||||
Intangible assets subject to amortization: |
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Customer relationships |
118,914 | 42,645 | 78,864 | 36,202 | ||||||||||||
Product technology and patents |
6,062 | 5,719 | 5,719 | 5,657 | ||||||||||||
Impact of changes in foreign currency |
(829 | ) | | (1,111 | ) | | ||||||||||
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Total intangible assets |
$ | 167,132 | $ | 48,364 | $ | 117,957 | $ | 41,859 | ||||||||
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The Company recorded $6.5 million, $6.8 million, and $6.3 million of amortization for the years ended December 31, 2013, 2012 and 2011, respectively.
Customer relationships, product technology and patents are amortized over their useful lives ranging from 8 to 17 years. The weighted average estimated useful life of intangible assets subject to amortization is approximately 11 years.
The estimated amortization expense for intangible assets is approximately $8.8 million in 2014, $8.8 million in each of the next four years and then $31.8 million thereafter.
6. Warranty Costs
The Companys wholly owned subsidiaries manufacture various products. The contractual warranty period generally ranges from three months to two years with certain warranties extending for longer periods based on the product and application of the product. Estimated expenses related to product warranties are accrued at the time products are sold to customers and are recorded in accruals and other current liabilities on the consolidated balance sheet. Estimates are established using historical information as to the nature, frequency and average costs of warranty claims. Changes in the carrying amount of accrued product warranty costs for each of the years ended December 31, 2013, 2012, and 2011 are as follows:
December 31,
2013 |
December 31,
2012 |
December 31,
2011 |
||||||||||
Balance at beginning of period |
$ | 5,625 | $ | 4,898 | $ | 3,583 | ||||||
Accrued current period warranty costs |
2,573 | 2,386 | 2,374 | |||||||||
Acquired warranty reserves |
3,420 | | 1,720 | |||||||||
Payments and adjustments |
(2,879 | ) | (1,659 | ) | (2,779 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
$ | 8,739 | $ | 5,625 | $ | 4,898 | ||||||
|
|
|
|
|
|
66
7. Income Taxes
Income before income taxes by domestic and foreign locations consists of the following:
December 31, | December 31, | December 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||||
Domestic |
$ | 37,640 | $ | 18,083 | $ | 34,034 | ||||||
Foreign |
21,696 | 16,276 | 14,397 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 59,336 | $ | 34,359 | $ | 48,431 | ||||||
|
|
|
|
|
|
The components of the provision (benefit) for income taxes consist of the following:
December 31,
2013 |
December 31,
2012 |
December 31,
2011 |
||||||||||
Current: |
||||||||||||
Federal |
$ | 8,917 | $ | 8,370 | $ | 4,506 | ||||||
State |
698 | (3,597 | ) | (3,686 | ) | |||||||
Non-US |
6,072 | 6,006 | 5,057 | |||||||||
|
|
|
|
|
|
|||||||
$ | 15,687 | $ | 10,779 | $ | 5,877 | |||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
Federal |
$ | 3,533 | $ | (915 | ) | $ | 7,949 | |||||
State |
378 | 1,756 | (861 | ) | ||||||||
Non-US |
(447 | ) | (1,466 | ) | (2,209 | ) | ||||||
|
|
|
|
|
|
|||||||
3,464 | (625 | ) | 4,879 | |||||||||
|
|
|
|
|
|
|||||||
Provision (benefit) for income taxes |
$ | 19,151 | $ | 10,154 | $ | 10,756 | ||||||
|
|
|
|
|
|
A reconciliation from tax at the U.S. federal statutory rate to the Companys provision (benefit) for income taxes is as follows:
December 31,
2013 |
December 31,
2012 |
December 31,
2011 |
||||||||||
Tax at US federal income tax rate |
$ | 20,767 | $ | 12,026 | $ | 16,957 | ||||||
State taxes, net of federal income tax effect |
905 | 67 | 1,050 | |||||||||
Change in tax rate |
(354 | ) | (267 | ) | (236 | ) | ||||||
Foreign taxes |
(224 | ) | 781 | 709 | ||||||||
Adjustments to accrued income tax liabilities and uncertain tax positions |
(52 | ) | (1,289 | ) | (3,413 | ) | ||||||
Valuation allowance |
120 | 506 | (1,644 | ) | ||||||||
Intercompany interest |
(986 | ) | (1,676 | ) | (1,178 | ) | ||||||
Tax credits and incentives |
(816 | ) | (291 | ) | (1,243 | ) | ||||||
Domestic Manufacturing Deduction |
(839 | ) | (566 | ) | (544 | ) | ||||||
Other |
630 | 863 | 298 | |||||||||
|
|
|
|
|
|
|||||||
Provision (benefit) for income taxes |
$ | 19,151 | $ | 10,154 | $ | 10,756 | ||||||
|
|
|
|
|
|
The Company and its subsidiaries file a consolidated federal income tax return in the United States, as well as consolidated and separate income tax returns in various states. The Company and its subsidiaries also file consolidated and separate income tax returns in various non-U.S. jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in all of these jurisdictions. With the exception of
67
certain foreign jurisdictions, the Company is no longer subject to income tax examinations for the tax years prior to 2010. Svendborg is currently subject to an audit in Denmark for the years 2007-2011. As set forth in Note 2 above, the seller agreed to provide the Company with an indemnification for certain tax liabilities related to transfer pricing (the Transfer Pricing Claims) identified as part of the audit in Denmark. As part of the Purchase Agreement, an escrow in the amount of approximately 8.5 million ($11.6 million) was established for the Transfer Pricing Claims. The Company estimated this liability to be $8.1 million and as a result has recorded a liability in taxes payable. Additionally, the Company has indemnification agreements with the sellers of the Colfax PTH, Kilian, Bauer, Svendborg, and Hay Hall entities that provide for reimbursement to the Company for payments made in satisfaction of tax liabilities relating to pre-acquisition periods.
A reconciliation of the gross amount of unrecognized tax benefits excluding accrued interest and penalties is as follows:
December 31,
2013 |
December 31,
2012 |
December 31,
2011 |
||||||||||
Balance at beginning of period |
$ | 747 | $ | 3,523 | $ | 6,338 | ||||||
Increases related to prior year tax positions |
| | | |||||||||
Decreases related to prior year tax positions |
(33 | ) | | (2,289 | ) | |||||||
Increases related to current year tax positions |
| | | |||||||||
Settlements |
| (2,689 | ) | | ||||||||
Lapse of statute of limitations |
(87 | ) | (87 | ) | (526 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
$ | 627 | $ | 747 | $ | 3,523 | ||||||
|
|
|
|
|
|
In 2012, the Company recognized a $2.5 million tax benefit for the reduction of the Companys reserve for uncertain tax positions due to a settlement with the State of New York for which the Company was fully indemnified.
In 2011, the Company recognized a tax benefit for the reduction of the Companys reserve for uncertain tax positions due to a favorable New Jersey Supreme Court ruling in a case that did not involve the Company. The reserve consisted of approximately $2.3 million of tax, $1.8 million of accrued interest and $0.5 million of penalties. In addition, the Company reversed $1.4 million of deferred tax assets related to the federal benefit of the accrued state reserve. The net benefit to the Company was approximately $3.2 million
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statement of Comprehensive Income. The Company accrued interest and penalties of $0.1 million (off-set by a $0.1 million benefit of interest and penalties primarily related to the lapse of the applicable statute of limitations), $0.2 million, and $0.6 million during the years ended December 31, 2013, 2012 and 2011, respectively. The total gross amount of interest and penalties related to uncertain tax positions at December 31, 2013, 2012, and 2011 was $0.4 million, $0.4 million, $2.7 million, respectively. Although it is reasonably possible that a change in the balance of unrecognized tax benefits might occur within the next twelve months, at this time it is not possible to estimate the range of change due to the uncertainty of the potential outcomes.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
68
Significant components of the deferred tax assets and liabilities as of December 31, 2013 and 2012 are as follows:
2013 | 2012 | |||||||
Deferred tax assets: |
||||||||
Post-retirement obligations |
$ | 1,565 | $ | 3,157 | ||||
Tax credits |
2,165 | 2,040 | ||||||
Expenses not currently deductible |
11,788 | 11,598 | ||||||
Net operating loss carryover |
6,376 | 6,435 | ||||||
Other |
546 | 790 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
22,440 | 24,020 | ||||||
Valuation allowance for deferred tax assets |
(5,577 | ) | (5,426 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
16,863 | 18,594 | ||||||
Deferred tax liabilities: |
||||||||
Property, plant and equipment |
20,065 | 19,892 | ||||||
Intangible assets |
25,090 | 14,969 | ||||||
Basis difference - convertible debt |
11,064 | 10,212 | ||||||
Goodwill |
3,813 | 2,308 | ||||||
|
|
|
|
|||||
Total deferred liabilities |
60,032 | 47,381 | ||||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | 43,169 | $ | 28,787 | ||||
|
|
|
|
On December 31, 2013 the Company had state net operating loss (NOL) carry forwards of $28.1 million, which expire between 2018 and 2032, and non U.S. NOL carryforwards of $22.7 million, of which substantially all have an unlimited carryforward period. The NOL carryforwards available are subject to limitations on their annual usage. The Company also has federal and state tax credits of $2.4 million available to reduce future income taxes that expire between 2014 and 2028.
Valuation allowances are established for deferred tax assets that management believes may not be realized. The Company continually reviews the adequacy of its valuation allowances and recognizes tax benefits only as reassessments indicate that it is more likely than not the benefits will be realized. Valuation allowances of $5.6 million and $5.4 million as of December 31, 2013 and December 31, 2012, respectively, have been established due to the uncertainty of realizing the benefits of certain net operating losses, tax credits, and other tax attributes. The valuation allowances are primarily related to certain non-U.S. NOL carryforwards, capital loss carryforwards, and U.S. federal foreign tax credits.
A provision has not been made for U.S. or additional non-U.S. taxes on $59.9 million of undistributed earnings of international subsidiaries that could be subject to taxation if remitted to the U.S. because the Company plans to keep these amounts permanently reinvested outside the U.S. except for instances where the Company has already been subject to tax in the U.S. It is not practicable to determine the amount of deferred income taxes not provided on these earnings.
8. Pension and Other Employee Benefits
Defined Benefit (Pension)
The Company sponsors various defined benefit (pension) plans for certain, primarily unionized, active employees (those in the employment of the Company at, and certain employees hired since, November 30, 2004).
69
The following tables represent the reconciliation of the benefit obligation, fair value of plan assets and funded status of the respective defined benefit (pension) plans as of December 31, 2013 and 2012:
Pension Benefits | ||||||||
Year Ended
December 31, 2013 |
Year Ended
December 31, 2012 |
|||||||
Change in benefit obligation: |
||||||||
Obligation at beginning of period |
$ | 34,629 | $ | 29,415 | ||||
Assumed Bauer pension liability |
| | ||||||
Service cost |
248 | 179 | ||||||
Interest cost |
1,250 | 1,381 | ||||||
Curtailments, settlements and special termination benefits |
| | ||||||
Actuarial (gains) losses |
(2,969 | ) | 4,574 | |||||
Foreign exchange effect |
343 | 153 | ||||||
Benefits paid |
(1,286 | ) | (1,073 | ) | ||||
|
|
|
|
|||||
Obligation at end of period |
$ | 32,215 | $ | 34,629 | ||||
|
|
|
|
|||||
Change in plan assets: |
||||||||
Fair value of plan assets, beginning of period |
$ | 20,100 | $ | 16,519 | ||||
Assumed Bauer plan assets |
| | ||||||
Actual return on plan assets |
182 | 2,035 | ||||||
Employer contributions |
5,194 | 2,619 | ||||||
Benefits paid |
(1,286 | ) | (1,073 | ) | ||||
|
|
|
|
|||||
Fair value of plan assets, end of period |
$ | 24,190 | $ | 20,100 | ||||
|
|
|
|
|||||
Funded status |
$ | (8,025 | ) | $ | (14,529 | ) | ||
|
|
|
|
|||||
Amounts Recognized in the balance sheet consist of: |
||||||||
Non current assets |
$ | | $ | | ||||
Current liabilities |
| | ||||||
Non-current liabilities |
(8,025 | ) | (14,529 | ) | ||||
|
|
|
|
|||||
Total |
$ | (8,025 | ) | $ | (14,529 | ) | ||
|
|
|
|
For all pension plans presented above, the accumulated and projected benefit obligations exceed the fair value of plan assets. The accumulated benefit obligation at December 31, 2013 and 2012 was $32.2 million and $34.6 million, respectively. Non-U.S. pension liabilities recognized in the amounts presented above are $7.7 million and $7.6 million at December 31, 2013 and 2012, respectively.
Included in accumulated other comprehensive loss at December 31, 2013 and 2012, is $1.5 million (net of $0.8 million in taxes) and $2.1 million (net of $1.4 million in taxes), respectively, of unrecognized actuarial losses that have not yet been recognized in net periodic pension cost.
The discount rate used in the computation of the respective benefit obligations at December 31, 2013 and 2012, presented above are as follows:
2013 | 2012 | |||||||
Pension benefits |
4.60 | % | 3.75 | % |
70
The following table represents the components of the net periodic benefit cost associated with the respective plans:
Pension Benefits | ||||||||||||
Year Ended
December 31, 2013 |
Year Ended
December 31, 2012 |
Year Ended
December 31, 2011 |
||||||||||
Service cost |
$ | 248 | $ | 179 | $ | 167 | ||||||
Interest cost |
1,250 | 1,381 | 1,389 | |||||||||
Recognized net actuarial loss |
| | | |||||||||
Expected return on plan assets |
(1,080 | ) | (1,083 | ) | (1,050 | ) | ||||||
Settlement/Curtailment/
|
| | | |||||||||
Amortization |
175 | 105 | 39 | |||||||||
|
|
|
|
|
|
|||||||
Net periodic benefit (income) cost |
$ | 593 | $ | 582 | $ | 545 | ||||||
|
|
|
|
|
|
The key economic assumptions used in the computation of the respective net periodic benefit cost for the periods presented above are as follows:
Pension Benefits | ||||||||||||
Year Ended
December 31, 2013 |
Year Ended
December 31, 2012 |
Year Ended
December 31, 2011 |
||||||||||
Discount rate |
3.75 | % | 4.75 | % | 5.50 | % | ||||||
Expected return on plan assets |
5.25 | % | 6.25 | % | 7.75 | % | ||||||
Compensation rate increase |
N/A | N/A | N/A |
The expected long-term rate of return on assets assumption is 5.25%. The assumption represents the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the benefit obligation. The assumption reflects expectations regarding future rates of return for the investment portfolio, with consideration given to the distribution of investments by asset class and historical rates of return for each individual asset class.
71
Fair Value of Plan Assets
The fair value of the Companys pension plan assets at December 31, 2013 and 2012 by asset category is as follows:
2013 | 2012 | |||||||
Asset Category |
||||||||
Equity (Level 1) |
||||||||
U.S. companies |
$ | | $ | 4,522 | ||||
International companies |
| 297 | ||||||
|
|
|
|
|||||
Total equity |
| 4,819 | ||||||
Fixed income (Level 1) |
||||||||
U.S. government |
2,787 | 820 | ||||||
Corporate bonds |
||||||||
Investment grade |
17,091 | 8,738 | ||||||
High yield |
3,634 | 3,151 | ||||||
Other credit |
| 1,632 | ||||||
|
|
|
|
|||||
Total fixed income |
23,512 | 14,341 | ||||||
Other (Level 2) |
338 | 328 | ||||||
Cash and cash equivalents (Level 1) |
340 | 612 | ||||||
|
|
|
|
|||||
Total assets at fair value |
$ | 24,190 | $ | 20,100 | ||||
|
|
|
|
The asset allocations for the Companys funded retirement plan at December 31, 2013 and 2012, respectively, and the target allocation for 2013, by asset category, are as follows:
Allocation Percentage of
Plan Assets at Year-End |
||||||||||
2013
Actual |
2013
Target |
2012
Actual |
||||||||
Asset Category |
||||||||||
Global Developed Equity |
0 | % | 0% | 5 | % | |||||
Investment Grade Bonds |
84 | % | 20% - 100% | 48 | % | |||||
High Yield Bonds |
15 | % | 0% - 25% | 16 | % | |||||
Cash |
1 | % | 0% - 5% | 3 | % | |||||
Emerging Market Debt |
0 | % | 0% | 3 | % | |||||
Dynamic Asset Allocation/Alternatives |
0 | % | 0% | 25 | % |
The investment strategy is to achieve a rate of return on the plans assets that meets the performance of liabilities as calculated using a banks Liability Index with appropriate adjustments for benefit payments, service cost and actuarial assumption changes. A determinant of the plans return is the asset allocation policy. The plans asset mix will be reviewed by the Company periodically, but at least quarterly, to rebalance within the target guidelines. The Company will also periodically review investment managers to determine if the respective manager has performed satisfactorily when compared to the defined objectives, similarly invested portfolios, and specific market indices.
Expected cash flows
The following table provides the amounts of expected benefit payments, which are made from the plans assets and includes the participants share of the costs, which is funded by participant contributions. The amounts
72
in the table are actuarially determined and reflect the Companys best estimate given its current knowledge; actual amounts could be materially different.
Pension
Benefits |
||||
Expected benefit payments (from plan assets) |
||||
2014 |
1,153 | |||
2015 |
1,309 | |||
2016 |
1,370 | |||
2017 |
1,399 | |||
2018 |
1,464 | |||
Thereafter |
7,895 |
The Company contributed $5.0 million to its U.S. pension plan in 2013. The Company has no minimum cash funding requirements associated with its pension plans for years 2014 and 2015, and $0.3 million for years 2016 through 2018.
Post Retirement Benefit Plans
Certain, primarily unionized, employees are entities to limited grandfathered postretirement benefits (medical, dental, and life insurance coverage). The accumulated benefit obligation for the post-retirement benefit plans, which are not funded, at December 31, 2013 and 2012 are $0.2 million and $0.2 million respectively. The balances are included within other long-term liabilities on the consolidated balance sheet. The Company recorded less than $0.1 million of income for of the years ended December 31, 2013, 2012 and 2011.
Defined Contribution Plans
Under the terms of the Companys defined contribution plans, eligible employees may contribute up to seventy-five percent of their compensation to the plan on a pre-tax basis, subject to annual IRS limitations. The Company makes matching contributions equal to half of the first six percent of salary contributed by each employee and made a unilateral contribution (including for non-contributing employees). The Companys expense associated with the defined contribution plans was $3.7 million and $3.5 million during the years ended December 31, 2013 and 2012, respectively.
73
9. Long-Term Debt
December 31, | December 31, | |||||||
2013 | 2012 | |||||||
Debt: |
||||||||
Revolving Credit Facility |
$ | 41,198 | $ | 79,304 | ||||
Convertible Notes |
85,000 | 85,000 | ||||||
Term Loan Facility |
163,245 | 100,000 | ||||||
Equipment Loan |
4,155 | 1,100 | ||||||
Mortgages |
659 | 963 | ||||||
Capital leases |
178 | 99 | ||||||
Other |
| 435 | ||||||
Total debt |
294,435 | 266,901 | ||||||
Less: debt discount, net of accretion |
(16,163 | ) | (19,306 | ) | ||||
|
|
|
|
|||||
Total debt, net of unaccreted discount |
$ | 278,272 | $ | 247,595 | ||||
|
|
|
|
|||||
Less current portion of long-term debt |
16,924 | 9,135 | ||||||
|
|
|
|
|||||
Total long-term debt |
$ | 261,348 | $ | 238,460 | ||||
|
|
|
|
Credit Agreement
In December 2013, the Company entered into an Amended and Restated Credit Agreement (the Credit Agreement). The Credit Agreement amends and restates the Companys Former Credit Agreement, dated November 20, 2012. Pursuant to the Former Credit Agreement, the former lenders made available to the Company an initial term loan facility of $100,000,000 and an initial revolving credit facility of $200,000,000.
Pursuant to the Credit Agreement, the lenders made an additional term loan of 50,000,000 (the Additional Term Loan) to Altra Industrial Motion Netherlands B.V. The Credit Agreement keeps in effect the balance (approximately $94,375,000) of the existing term loan facility (the Initial Term Loan) made to the domestic borrowers under the Former Credit Agreement (collectively, the two term loans are referred to as the Term Loan Facility), as well as the revolving credit facility of $200,000,000 made under the Former Credit Agreement (the Revolving Credit Facility). The Credit Agreement continues, even after the making of the Additional Term Loan, to provide for a possible expansion of the credit facilities by an additional $150,000,000, which can be allocated as additional term loans and/or additional revolving credit loans. The amounts available under the Term Loan Facility were used, and amounts available under the Revolving Credit Facility can be used, for general corporate purposes, including acquisitions, and to repay existing indebtedness. The stated maturity of these credit facilities is December 6, 2018, and there are scheduled quarterly principal payments due on the outstanding amount of the Term Loan Facility. With respect to the Initial Term Loan, the scheduled quarterly principal payments due on the outstanding amount have been reamortized in accordance with the new December 6, 2018 maturity date. The previous maturity of the Revolving Credit Facility and the Initial Term Loan was November 20, 2017.
The amounts available under the Revolving Credit Facility may be drawn upon in accordance with the terms of the Credit Agreement. All amounts outstanding under the credit facilities are due on the stated maturity or such earlier time, if any, required under the Credit Agreement. The amounts owed under either of the credit facilities may be prepaid at any time, subject to usual notification and breakage payment provisions. Interest on the amounts outstanding under the credit facilities is calculated using either an ABR Rate or Eurodollar Rate, plus the applicable margin. The applicable margins for Eurodollar Loans are between 1.375% to 1.875%, and for ABR Loans are between 0.375% and 0.875%. The amounts of the margins are calculated based on either a consolidated total net leverage ratio (as defined in the Credit Agreement), or the then applicable rating(s) of the Companys debt if and then to the extent as provided in the Credit Agreement. A portion of the Revolving Credit
74
Facility may also be used for the issuance of letters of credit, and a portion of the amount of the Revolving Credit Facility is available for borrowings in certain agreed upon foreign currencies.
As of December 31, 2013 and 2012, we had $41.2 million and $79.3 million outstanding on our Revolving Credit Facility, respectively. As of December 31, 2013 and 2012, we had $9.8 and $7.6 million in letters of credit outstanding, respectively. We had $149.0 million and $113.1 million available under the Revolving Credit Facility at December 31, 2013 and 2012, respectively.
The Credit Agreement contains various affirmative and negative covenants and restrictions, which among other things, will require the Company and certain Subsidiaries to provide certain financial reports to the Lenders, require the Company to maintain certain financial covenants relating to consolidated leverage and interest coverage, limit maximum annual capital expenditures, and limit the ability of the Company and its subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, purchase or redeem capital stock or debt stock or debt, make certain investments, sell assets, engage in certain transactions, and effect a consolidation or merger. The Credit Agreement also contains customary events of default.
Former Credit Agreement
In November 2012, the Company entered into a Credit Agreement (the Former Credit Agreement) with certain financial institutions (collectively, the Lenders), to be guaranteed by certain domestic subsidiaries of the Company (each a Guarantor and collectively the Guarantors). Pursuant to the Former Credit Agreement, the Lenders made available to the Company an initial term loan facility of $100,000,000 and an initial Revolving Credit Facility of $200,000,000.
Interest on the amounts outstanding under the credit facilities is calculated using either an ABR Rate or Eurodollar rate, plus the applicable margin. The applicable margins for Eurodollar Loans are between 1.375% to 1.875%, and for ABR Loans are between 0.375% and 0.875%. The Credit Agreement provides for a possible expansion of the facilities by an aggregate additional $150,000,000, which can be allocated as additional term loans and/or additional revolving credit loans. The amounts available under the Former Credit Agreement were to be available for general corporate purposes and to repay indebtedness. Under the Former Credit Agreement, the stated maturity of both of these credit facilities was November 20, 2017. A portion of the Revolving Credit Facility may be used for the issuance of letters of credit, and a portion of the amount of the Revolving Credit Facility is available for borrowings in certain agreed upon foreign currencies.
The proceeds of the Term Loan Facility and a portion of the proceeds of the Revolving Credit Facility, along with cash on hand, were used by the Company to contribute all funds necessary to redeem all of the Companys Senior Secured Notes in December 2012 (the Redemption). As of December 31, 2012, we had $79.3 million outstanding on our Revolving Credit Facility, $7.6 million in letters of credit outstanding, and $113.1 million available under the Revolving Credit Facility.
The Former Credit Agreement contained various affirmative and negative covenants and restrictions, which are largely identical to those of the Credit Agreement. The Company was in compliance in all material respects with all material covenants of the Credit Agreement at December 31, 2012.
Pledge and Security Agreement; Trademark Security Agreement; Patent Security Agreement.
Pursuant to an Omnibus Reaffirmation and Ratification of Collateral Documents entered into on December 6, 2013 in connection with the Credit Agreement by and among the Company, the Loan Parties and the Administrative Agent (the Ratification Agreement), the Loan Parties (exclusive of the foreign subsidiary Borrower) have reaffirmed their obligations to the Lenders under the Pledge and Security Agreement The Credit Agreement provides that the obligation to grant the security interest can cease upon the obtaining of certain corporate family credit ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the Credit Agreement.
Pursuant to the Ratification Agreement, the Loan Parties (other than the foregoing subsidiary Borrower) have also reaffirmed their obligations under each of the Patent Security Agreement and a Trademark Security Agreement.
75
Pursuant to the Former Credit Agreement, on November 20, 2012, the Loan Parties and the Administrative Agent entered into a Pledge and Security Agreement (the Pledge and Security Agreement), pursuant to which each Loan Party pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all personal property, whether now owned by or owing to, or after acquired by or arising in favor of such Loan Party (including under any trade name or derivations), and whether owned or consigned by or to, or leased from or to, such Loan Party, and regardless of where located, except for specific excluded personal property identified in the Pledge and Security Agreement (collectively, the Collateral). Notwithstanding the foregoing, the Collateral does not include, among other items, more than 65% of the capital stock of the first tier foreign subsidiaries of the Company. The Pledge and Security Agreement contains other customary representations, warranties and covenants of the parties. The Credit Agreement provides that the obligation to grant the security interest can cease upon the obtaining of certain corporate family ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the Credit Agreement.
In connection with the Pledge and Security Agreement, certain of the Loan Parties delivered a Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties.
Convertible Senior Notes
In March 2011, the Company issued Convertible Senior Notes (the Convertible Notes) due March 1, 2031. The Convertible Notes are guaranteed by the Companys U.S. domestic subsidiaries. Interest on the Convertible Notes is payable semi-annually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%. Proceeds from the offering were $81.3 million, net of fees and expenses that were capitalized. The proceeds from the offering were used to fund the Bauer Acquisition, as well as bolster the Companys cash position.
The Convertible Notes will mature on March 1, 2031, unless earlier redeemed, repurchased by the Company or converted, and are convertible into cash or shares, or a combination thereof, at the Companys election. The Convertible Notes are convertible into shares of the Companys common stock based on an initial conversion rate, subject to adjustment, of 36.0985 shares per $1,000 principal amount of notes (which represents an initial conversion price of approximately $27.70 per share of our common stock), in certain circumstances. The conversion price at December 31, 2013 is $27.09 per share. Prior to March 1, 2030, the Convertible Notes are convertible only in the following circumstances: (1) during any fiscal quarter commencing after June 30, 2011 if the last reported sale price of the Companys common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) during the five business day period after any 10 consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of notes for each trading day in the measurement period was less than 97% of the product of the last reported sale price of the Companys common stock and the conversion rate on such trading day; (3) if the Convertible Notes have been called for redemption; or (4) upon the occurrence of specified corporate transactions. On or after March 1, 2030, and ending at the close of business on the second business day immediately preceding the maturity date, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock, or a combination thereof, at the Companys election. The Company intends to settle the principal amount in cash and any additional amounts in shares of stock.
If a fundamental change occurs, the Convertible Notes are redeemable at a price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but excluding, the repurchase date. The Convertible Notes are also redeemable on each of March 1, 2018, March 1, 2021, and March 1, 2026 for cash at a price equal to 100% of the principal
76
amount of the notes to be repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but excluding, the option repurchase date.
On or after March 1, 2015, the Company may call all or part of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, plus a make-whole premium payment in cash, shares of the Companys common stock, or combination thereof, at the Companys option, equal to the sum of the present values of the remaining scheduled payments of interest on the Convertible Notes to be redeemed through March 1, 2018 to, but excluding, the redemption date, if the last reported sale price of the Companys common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day prior to the date the Company provides notice of redemption exceeds 130% of the conversion price in effect on each such trading day. On or after March 1, 2018, the Company may redeem for cash all or a portion of the notes at a redemption price of 100% of the principle amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest (including contingent and additional interest, if any) to, but not including, the redemption date.
The Company separately accounted for the debt and equity components of the Convertible Notes to reflect the issuers non-convertible debt borrowing rate, which interest costs are to be recognized in subsequent periods. The note payable principal balance at the date of issuance of $85.0 million was bifurcated into a debt component of $60.5 million and an equity component of $24.5 million. The difference between the note payable principal balance and the value of the debt component is being accreted to interest expense over the term of the notes. The debt component was recognized at the present value of associated cash flows discounted using a 8.25% discount rate, the borrowing rate at the date of issuance for a similar debt instrument without a conversion feature. The Company paid approximately $3.7 million of issuance costs associated with the Convertible Notes. The Company recorded $1.0 million of debt issuance costs as an offset to additional paid-in capital. The balance of $2.7 million of debt issuance costs is classified as other non-current assets and will be amortized over the term of the notes using the effective interest method.
The carrying amount of the principal amount of the liability component, the unamortized discount, and the net carrying amount are as follows as of December 31, 2013:
December 31,
2013 |
||||
Principal amount of debt |
$ | 85,000 | ||
Unamortized discount |
16,163 | |||
|
|
|||
Carrying value of debt |
$ | 68,837 | ||
|
|
Interest expense associated with the Convertible Notes consisted of the following for the year ended December 31, 2013:
December 31,
2012 |
||||
Contractual coupon rate of interest |
$ | 2,338 | ||
Accretion of Convertible Notes discount and amortization of deferred financing costs |
3,494 | |||
|
|
|||
Interest expense for the Convertible Notes |
$ | 5,832 | ||
|
|
The effective interest yield of the Convertible Notes due in 2031 is 8.5% at December 31, 2013 and the cash coupon interest rate is 2.75%.
Senior Secured Notes
In November 2009, the Company issued 8 1/8% Senior Secured Notes (the Senior Secured Notes) with a face value of $210 million. Interest on the Senior Secured Notes was payable semi-annually in arrears, on June 1 and December 1 of each year, commencing on June 1, 2010 at an annual rate of 8 1/8%. The effective
77
interest rate of the Senior Secured Notes was approximately 8.75% after consideration of the $6.7 million of deferred financing costs (included in other non-current assets which are being amortized over the term using the effective interest method). The principal balance of the Senior Secured Notes was scheduled to mature on December 1, 2016.
The Senior Secured Notes are guaranteed by the Companys U.S. domestic subsidiaries and were secured by a second priority lien, subject to first priority liens securing the Old Revolving Credit Agreement, on substantially all of the Companys assets and those of its domestic subsidiaries. The indenture governing the Senior Secured Notes contained covenants which restricted the Company and its subsidiaries. These restrictions limited or prohibited, among other things, the Companys ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay cash dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in our subsidiaries; and create liens on their assets. There are no financial covenants associated with the Senior Secured Notes.
During 2011, the Company repurchased $12.0 million of Senior Secured Notes. The Company repurchased the Senior Secured Notes at a premium of $0.3 million, which was recorded as part of interest expense in 2011. Due to the repurchase of the Senior Secured Notes, the Company also wrote-off a proportional amount of the deferred financing fees and original issue discount associated with the Senior Secured Notes totaling $0.4 million which was also recorded as part of interest expense in the Consolidated Statement of Operations and Other Comprehensive Income for 2011.
During 2012, the Company retired the remaining principal balance of the 8 1/8% Senior Secured Notes, of $198.0 million. In connection with the redemption, the Company incurred $11.4 million of pre-payment premiums and wrote-off the entire remaining balance of $4.4 million of deferred financing fees and original issue discount, which is recorded as interest expense in the Consolidated Statement of Comprehensive Income for 2012. The proceeds of the Term Loan Facility and a portion of the proceeds of the Revolving Credit Facility, along with cash on hand, were used by the Company to contribute all funds necessary to redeem all of the Companys Senior Secured Notes.
Equipment and Working Capital Notes
The Company entered into a loan with a bank to equip its new facility in Changzhou, China during 2013. The Company is allowed to borrow up to 90% of the amount of certain outstanding letters of credit issued by the Companys U.S. bank in favor of the lending bank in China. As of December 31, 2013, the total available to borrow was 38.5 million RMB ($6.3 million). The note is due in installments from 2014 through 2016, with interest varying between 5.04% and 6.69%. The Company has a 25.4 million RMB ($4.1 million) line of credit outstanding at December 31, 2013. The note is callable by the bank at its discretion and as such, has been included in the current portion of long-term debt in the balance sheet at December 31, 2013.
Mortgage
The Company has a mortgage with a bank on its facility in Heidelberg, Germany with an interest rate of 5.75% and is payable in monthly installments over the next three years. As of December 31, 2013 and 2012, the mortgage had a remaining principal balance of 0.5 million or $0.7 million, and 0.7 million or $1.0 million, respectively.
Capital Leases
The Company leases certain equipment under capital lease arrangements, whose obligations are included in both short-term and long-term debt. Capital lease obligations amounted to approximately $0.2 million and $0.1 million at December 31, 2013 and 2012, respectively. Assets subject to capital leases are included in property, plant and equipment with the related amortization recorded as depreciation expense.
Overdraft Agreements
Certain of our foreign subsidiaries maintain overdraft agreements with financial institutions. There were no borrowings as of December 31, 2013, 2012, or 2011 under any of the overdraft agreements.
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10. Stockholders Equity
Common Stock (amounts not in thousands)
As of December 31, 2013, there were 90,000,000 shares of common stock authorized and 26,819,795 outstanding.
Preferred Stock
On December 20, 2006, the Company amended and restated its certificate of incorporation authorizing 10,000,000 shares of undesignated Preferred Stock (Preferred Stock). The Preferred Stock may be issued from time to time in one or more classes or series, the shares of each class or series to have such designations and powers, preferences, and rights, and qualifications, limitations and restrictions as determined by the Companys Board of Directors. There was no Preferred Stock issued or outstanding at December 31, 2013 or 2012.
Restricted Common Stock
The Companys Board of Directors established the 2004 Equity Incentive Plan (as amended, the Plan) that provides for various forms of stock-based compensation to independent directors, officers and senior-level employees of the Company. The restricted shares issued pursuant to the Plan generally vest ratably over a period ranging from immediately to five years from the date of grant, provided, that the vesting of the restricted shares may accelerate upon the occurrence of certain liquidity events, if approved by the Board of Directors in connection with the transactions. Common stock awarded under the Plan is generally subject to restrictions on transfer, repurchase rights, and other limitations and rights as set forth in the applicable award agreements. The shares are valued based on the share price on the date of grant.
The Plan permits the Company to grant, among other things, restricted stock, restricted stock units, and performance share awards to key employees and other persons who make significant contributions to the success of the Company. The restrictions and vesting schedule for restricted stock granted under the Plan are determined by the Personnel and Compensation Committee of the Board of Directors. Compensation expense recorded (in selling, general and administrative expense) during the years ended December 31, 2013, 2012 and 2011 was $3.2 million ($2.9 million, net of tax), $2.7 million ($1.8 million, net of tax), and $2.5 million ($1.7 million, net of tax), respectively. The Company recognizes stock-based compensation expense on a straight-line basis for the shares vesting ratably under the plan and uses the graded-vesting method of recognizing stock-based compensation expense for the performance share awards based on the probability of the specific performance metrics being achieved over the requisite service period.
The following table sets forth the activity of the Companys restricted stock grants to date:
Amounts not in thousands |
Shares |
Weighted-
Average Grant Date Fair Value |
||||||
Restricted shares unvested January 1, 2013 |
162,586 | $ | 18.67 | |||||
Shares granted |
128,365 | $ | 24.58 | |||||
Shares for which restrictions lapsed |
(141,316 | ) | $ | 21.55 | ||||
|
|
|
|
|||||
Restricted shares unvested December 31, 2013 |
149,635 | $ | 23.02 | |||||
|
|
|
|
Total remaining unrecognized compensation cost is approximately $3.0 million as of December 31, 2013, and will be recognized over a weighted average remaining period of two years. Based on the stock price at December 31, 2013, of $34.22 per share, the intrinsic value of these awards as of December 31, 2013, was $5.1 million. The fair market value of the shares in which the restrictions have lapsed was $2.4 million, $3.2 million, and $3.3 million, during 2013, 2012, and 2011, respectively. Restricted shares granted are valued based on the fair market value of the stock on the date of grant.
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Dividends
The Company declared quarterly dividends of $0.38 per share of common stock for the year ended December 31, 2013. On October 29, 2013, the Company declared a cash dividend of $0.10 per share for the quarter ended December 31, 2013, payable on January 3, 2014 to shareholders of record as of December 18, 2013. The dividend of $2.7 million, paid on January 3, 2014, was accrued for in the balance sheet at December 31, 2013.
Future declarations of quarterly cash dividends are subject to approval by the Board of Directors and to the Boards continuing determination that the declaration of dividends are in the best interest of the Companys stockholders and are in compliance with all laws and agreements of the Company applicable to the declaration and payment of cash dividends.
11. Concentrations of Credit, Segment Data and Workforce
Financial instruments, which are potentially subject to counter party performance and concentrations of credit risk, consist primarily of trade accounts receivable. The Company manages these risks by conducting credit evaluations of customers prior to delivery or commencement of services. When the Company enters into a sales contract, collateral is normally not required from the customer. Payments are typically due within thirty days of billing. An allowance for potential credit losses is maintained, and losses have historically been within managements expectations. No customer represented greater than 10% of total sales for the years ended December 31, 2013, 2012 and 2011.
The Company is also subject to counter party performance risk of loss in the event of non-performance by counterparties to financial instruments, such as cash and investments. Cash and investments are held by well-established financial institutions and invested in AAA rated mutual funds or United States Government Securities. The Company is exposed to swap counterparty credit risk with financial institutions. The Companys counterparty is a well-established financial institution.
During the first quarter of 2013, the Company completed its review of its operating segments. The Company has three operating segments that are regularly reviewed by our chief operating decision maker. Each of these operating segments represents a unit that produces mechanical power transmission products. The Company aggregates all of the operating segments into one reportable segment. The three operating segments are expected to have similar long-term average gross profit margins. All of our products are sold by one global sales force and we have one global marketing function. Strategic markets and industries are determined for the entire company and then targeted by the brands. All of our operating segments have common manufacturing and production processes. Each operating segment includes a machine shop which uses similar equipment and manufacturing techniques. Each of our operating segments uses common raw materials, such as aluminum, steel and copper. The materials are purchased and procurement contracts are negotiated by one global purchasing function.
We serve the general industrial market by selling to original equipment manufacturers (OEM) and distributors. Our OEM and distributor customers serve the general industrial market. Resource allocation decisions such as capital expenditure requirements and headcount requirements are made at a consolidated level and allocated to the individual operating segments.
The following discussion of the Companys products does not include detailed product category revenue because such information is not individually tracked by the Companys financial reporting system and is not separately reported by the Companys general purpose financial statements. Conducting a detailed product revenue internal assessment and audit would involve unreasonable effort and expense as revenue information by
80
product line is not available. The Company maintains sales information by operating facility, but does not maintain any accounting sales data by product line.
Net Sales | Property, Plant and Equipment | |||||||||||||||||||
Year Ended | ||||||||||||||||||||
December 31,
2013 |
December 31,
2012 |
December 31,
2011 |
December 31,
2013 |
December 31,
2012 |
||||||||||||||||
North America |
$ | 454,115 | $ | 469,554 | $ | 442,931 | $ | 87,573 | $ | 88,051 | ||||||||||
Europe |
216,636 | 216,485 | 191,768 | 54,533 | 35,319 | |||||||||||||||
Asia and the rest of the world |
51,467 | 45,951 | 40,113 | 15,429 | 14,724 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 722,218 | $ | 731,990 | $ | 674,812 | $ | 157,535 | $ | 138,094 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Net sales to third parties are attributed to the geographic regions based on the country in which the shipment originates. Amounts attributed to the geographic regions for property, plant and equipment are based on the location of the entity, which holds such assets. The net assets of our foreign subsidiaries at December 31, 2013 and 2012 were $138.7 million and $117.0 million, respectively.
Approximately 23% of the Companys labor force (10% and 57% in the United States and Europe, respectively) is represented by collective bargaining agreements. The Company is a party to four U.S. collective bargaining agreements. The agreements will expire July 2014, October 2014, June 2014, and October 2016, respectively. The Company intends to renegotiate these contracts as they become due, though there is no assurance that this effort will be successful.
12. Restructuring, Asset Impairment, and Transition Expenses
In the quarter ended December 31, 2012, the Company adopted a restructuring plan (2012 Altra Plan) as a result of continued sluggish demand in Europe and general global economic conditions. The actions included in the 2012 Altra Plan include reducing headcount and limiting discretionary spending to improve profitability in Europe. The Company recorded $1.1 million and $3.2 million in restructuring charges associated with the 2012 Altra Plan in 2013 and 2012. The costs were primarily severance charges due in connection with the reduction of the workforce at our European locations.
The Companys total restructuring expense, by major component for the years ended December 31, 2013 and 2012, were as follows:
There was no restructuring expense for the year ended December 31, 2011.
Year Ended
December 31, 2013 |
Year Ended
December 31, 2012 |
|||||||
2012 Altra Plan | 2012 Altra Plan | |||||||
Expenses |
||||||||
Moving and relocation |
$ | (21 | ) | $ | 55 | |||
Severance |
1,103 | 2,934 | ||||||
Other |
29 | 207 | ||||||
|
|
|
|
|||||
Total cash expenses |
1,111 | 3,196 | ||||||
Loss on disposal of fixed assets |
| | ||||||
|
|
|
|
|||||
Total restructuring expenses |
$ | 1,111 | $ | 3,196 | ||||
|
|
|
|
81
The following is a reconciliation of the accrued restructuring costs between January 1, 2012 and December 31, 2013
All Plans | ||||
Balance at January 1, 2012 |
$ | 90 | ||
Restructuring expense incurred |
3,196 | |||
Cash payments |
(471 | ) | ||
Non-cash loss on impairment of fixed assets |
| |||
|
|
|||
Balance at December 31, 2012 |
$ | 2,815 | ||
|
|
|||
Restructuring expense incurred |
1,111 | |||
Cash payments |
(3,497 | ) | ||
Non-cash loss on impairment of fixed assets |
| |||
|
|
|||
Balance at December 31, 2013 |
$ | 429 | ||
|
|
The total restructuring reserve as of December 31, 2013 relates to severance costs to be paid to employees and is recorded in accruals and other current liabilities on the consolidated balance sheet. The Company does not expect to incur any more restructuring expenses in 2014 under the 2012 Altra Plan.
13. Derivative Financial Instruments
Interest Rate Swap
In April 2013, the Company entered into an interest rate swap agreement designed to fix the variable interest rate payable on a portion of its outstanding borrowings, currently $92.5 million, under the Credit Agreement, at 0.626% exclusive of the margin under the Former Credit Agreement. The interest rate swap agreement and its terms are also applicable to the variable interest rate borrowings under the current Credit Agreement.
The interest rate swap agreement was designed to manage exposure to interest rates on the Companys variable rate indebtedness. The Company recognizes all derivatives on its balance sheet at fair value. The Company has designated its interest rate swap agreement, which is forward-dated, as a cash flow hedge. Changes in the fair value of the swap are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swap will be reported by the Company in interest expense. There was no ineffectiveness associated with the swap during the year ended December 31, 2013, nor was any amount excluded from ineffectiveness testing for these periods.
The fair value of the swap recognized in other non-current assets and in other comprehensive income (loss) is as follows (in thousands):
Fair Value | ||||||||||||||||||||
Effective Date |
Notional
Amount |
Fixed
Rate |
Maturity |
December 31,
2013 |
December 31,
2012 |
|||||||||||||||
April, 30, 2013 |
$ | 92,500 | 0.626 | % | November 30, 2016 | $ | 213 | $ | |
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14. Commitments and Contingencies
Minimum Lease Obligations
The Company leases certain offices, warehouses, manufacturing facilities, automobiles and equipment with various terms that range from a month to month basis to ten year terms and which, generally, include renewal provisions. Future minimum rent obligations under non-cancelable operating and capital leases are as follows:
Year ending December 31: |
Operating Leases | Capital Leases | ||||||
2014 |
$ | 7,618 | $ | 147 | ||||
2015 |
6,225 | 28 | ||||||
2016 |
4,847 | 8 | ||||||
2017 |
2,594 | 6 | ||||||
2018 |
1,892 | | ||||||
Thereafter |
6,970 | | ||||||
|
|
|
|
|||||
Total lease obligations |
$ | 30,146 | $ | 189 | ||||
Less amounts representing interest |
(8 | ) | ||||||
|
|
|||||||
Present value of minimum capital lease obligations |
$ | 181 | ||||||
|
|
Net rent expense under operating leases for the years ended December 31, 2013, 2012, and 2011 was approximately $8.8 million, $7.8 million, $6.9 million, respectively.
The Company also has minimum purchase contracts for inventory of 3.6 million ($4.9 million) for years 2014 and 2015.
General Litigation
The Company is involved in various pending legal proceedings arising out of the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims, and workers compensation claims. With respect to these proceedings, management believes that the Company will prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adversely to the Company, there could be a material adverse effect on the results of operations, cash flows, or financial condition of the Company. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. For matters where a reserve has not been established and for which we believe a loss is reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, we believe that such losses, individually and in the aggregate, will not have a material effect on our consolidated financial statements.
Our estimates regarding potential losses and materiality are based on our judgment and assessment of the claims utilizing currently available information. Although we will continue to reassess our reserves and estimates based on future developments, our objective assessment of the legal merits of such claims may not always be predictive of the outcome and actual results may vary from our current estimates. We will continue to consider the applicable guidance in ASC 450-20, based on the facts known at the time of our future filings, as it relates to legal contingencies, and will adjust our disclosures as may be required under the guidance.
The Company also risks exposure to product liability claims in connection with products it has sold and those sold by businesses that the Company acquired. Although in some cases third parties have retained responsibility for product liability claims relating to products manufactured or sold prior to the acquisition of the relevant business and in other cases the persons from whom the Company has acquired a business may be
83
required to indemnify the Company for certain product liability claims subject to certain caps or limitations on indemnification, the Company cannot assure that those third parties will in fact satisfy their obligations with respect to liabilities retained by them or their indemnification obligations. If those third parties become unable to or otherwise do not comply with their respective obligations including indemnity obligations, or if certain product liability claims for which the Company is obligated were not retained by third parties or are not subject to these indemnities, the Company could become subject to significant liabilities or other adverse consequences. Moreover, even in cases where third parties retain responsibility for product liability claims or are required to indemnify the Company, significant claims arising from products that have been acquired could have a material adverse effect on the Companys ability to realize the benefits from an acquisition, could result in the reduction of the value of goodwill that the Company recorded in connection with an acquisition, or could otherwise have a material adverse effect on the Companys business, financial condition, or operations.
Environmental
There is contamination at some of the Companys current facilities, primarily related to historical operations at those sites, for which the Company could be liable for the investigation and remediation under certain environmental laws. The potential for contamination also exists at other of the Company current or former sites, based on historical uses of those sites. The Company currently is not undertaking any remediation or investigations and the costs or liability in connection with potential contamination conditions at these facilities cannot be predicted at this time because the potential existence of contamination has not been investigated or not enough is known about the environmental conditions or likely remedial requirements. Currently, other parties with contractual liability are addressing or have plans or obligations to address those contamination conditions that may pose a material risk to human health, safety or the environment. In addition, while the Company attempts to evaluate the risk of liability associated with these facilities at the time the Company acquired them, there may be environmental conditions currently unknown to the Company relating to prior, existing or future sites or operations or those of predecessor companies whose liabilities the Company may have assumed or acquired which could have a material adverse effect on the Companys business.
The Company is being indemnified, or expects to be indemnified by third parties subject to certain caps or limitations on the indemnification, for certain environmental costs and liabilities associated with certain owned or operated sites. Accordingly, based on the indemnification and the experience with similar sites of the environmental consultants who the Company has hired, the Company does not expect such costs and liabilities to have a material adverse effect on its business, operations or earnings. The Company cannot assure you, however, that those third parties will in fact satisfy their indemnification obligations. If those third parties become unable to, or otherwise do not, comply with their respective indemnity obligations, or if certain contamination or other liability for which the Company is obligated is not subject to these indemnities, the Company could become subject to significant liabilities.
From time to time, the Company is notified that it is a potentially responsible party and may have liability in connection with off-site disposal facilities. To date, the Company has generally resolved matters involving off-site disposal facilities for a nominal sum but there can be no assurance that the Company will be able to resolve pending or future matters in a similar fashion.
Other Matters
The state of New York Workers Compensation Board (the Compensation Board) has demanded payment from one of the Companys business units of certain amounts the Board alleges are owed in connection with that business units past participation in a workers compensation insurance trust. The Company has executed Settlement Agreements with the Compensation Board to resolve the matter pursuant to which the Company has agreed to pay an aggregate amount of $0.09 in exchange for full and final releases from the Compensation Board. The Company expects to receive, but has not yet received, the final releases from the Compensation Board to formally conclude the matter. If for some reason the settlement is not completed as expected the amount claimed would currently be immaterial and would be subject to further adjustment and proceedings. As a result, absent the settlement, the total amount of potential liability could not have been reasonably estimated as of December 31, 2013.
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15. Unaudited Quarterly Results of Operations:
Year ended December 31, 2013
Fourth
Quarter |
Third
Quarter |
Second
Quarter |
First
Quarter |
|||||||||||||
Net Sales |
$ | 180,530 | $ | 175,443 | $ | 181,095 | $ | 185,150 | ||||||||
Gross Profit |
51,805 | 53,658 | 54,419 | 55,499 | ||||||||||||
Net income attributable to Altra Industrial Motion Corp. |
7,205 | 10,501 | 10,689 | 11,880 | ||||||||||||
Earnings per share Basic attributable to Altra Industrial Motion Corp. |
||||||||||||||||
Net income |
$ | 0.27 | $ | 0.39 | $ | 0.40 | $ | 0.44 | ||||||||
Earnings per share Diluted attributable to Altra Industrial Motion Corp. |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 0.27 | $ | 0.39 | $ | 0.40 | $ | 0.44 | ||||||||
|
|
|
|
|
|
|
|
Year ended December 31, 2012
Fourth
Quarter |
Third
Quarter |
Second
Quarter |
First
Quarter |
|||||||||||||
Net Sales |
$ | 177,174 | $ | 174,488 | $ | 187,943 | $ | 192,385 | ||||||||
Gross Profit |
53,862 | 52,011 | 56,002 | 56,673 | ||||||||||||
Net income attributable to Altra |
(5,379 | ) | 8,547 | 10,609 | 10,516 | |||||||||||
Industrial Motion Corp. |
||||||||||||||||
Earnings per share Basic |
||||||||||||||||
Net income attributable to Altra Industrial Motion Corp. |
$ | (0.20 | ) | $ | 0.32 | $ | 0.40 | $ | 0.40 | |||||||
Earnings per share Diluted |
||||||||||||||||
|
|
|
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|||||||||
Net income attributable to Altra Industrial Motion Corp. |
$ | (0.20 | ) | $ | 0.32 | $ | 0.40 | $ | 0.39 | |||||||
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16. Subsequent Events
In February 2014, the Companys Board of Directors approved the grant of 92,470 shares of restricted common stock or in certain cases restricted stock units, under the Companys 2004 Equity Incentive Plan, as amended.
The Company has declared a dividend of $0.10 per share for the quarter ended March 31, 2014, payable on April 3, 2014 to shareholders of record as of March 18, 2014.
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9A. | Controls and Procedures |
1. Disclosure Controls and Procedures
As of December 31, 2013, or the Evaluation Date, our management, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act, such as this Form 10-K, is (i) recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and (ii) accumulated and communicated to management,
85
including the principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective at a reasonable assurance level.
2. Internal Control Over Financial Reporting
Note Regarding Acquisition
In making its assessment of disclosure controls and procedures and of changes in internal control over financial reporting as of December 31, 2013, management has excluded the operations of various legal entities which make up the Svendborg Acquisition (consolidated by the Company as of December 31, 2013). The Company is currently assessing the control environment of this acquired business.
The Companys consolidated financial statements reflect Svendborgs results of operations from the beginning of business on December 17, 2013 forward. The acquired businesses total revenue were less than .5% of the Companys total revenue and 17% of the Companys total assets at December 31, 2013.
(a) Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and chief financial officer, and implemented by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:
|
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets; |
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2013 based on the criteria established in Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has concluded that our internal control over financial reporting was effective as of December 31, 2013.
The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included in this Annual Report on Form 10-K.
86
(b) Report of the Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Altra Industrial Motion Corp.
Braintree, Massachusetts
We have audited the internal control over financial reporting of Altra Industrial Motion Corp., formerly Altra Holdings, Inc., and subsidiaries (the Company) as of December 31, 2013, based on criteria established in Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Managements Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Svendborg A/S, which was acquired on December 17, 2013 and whose financial statements constitute 17% of total assets, and less than .5% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2013. Accordingly, our audit did not include the internal control over financial reporting at Svendborg A/S. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2013 of the Company and our report dated February 26, 2014 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 26, 2014
87
(c) Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a15(f) under the Exchange Act) that occurred during our quarter ended December 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other | Information |
None.
Item 10. Directors, | Executive Officers and Corporate Governance |
The information required by this item is incorporated by reference to our definitive 2014 Proxy Statement to be filed no later than 120 days after December 31, 2013.
Item 11. Executive | Compensation |
The information required by this item is incorporated by reference to our definitive 2014 Proxy Statement to be filed no later than 120 days after December 31, 2013.
Item 12. Security | Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item is incorporated by reference to our definitive 2014 Proxy Statement to be filed no later than 120 days after December 31, 2013.
Item 13. Certain | Relationships and Related Transactions, and Director Independence |
The information required by this item is incorporated by reference to our definitive 2014 Proxy Statement to be filed no later than 120 days after December 31, 2013.
Item 14. Principal | Accounting Fees and Services |
The information required by this item is incorporated by reference to our definitive 2014 Proxy Statement to be filed no later than 120 days after December 31, 2013.
Item 15. Exhibits, | Financial Statement Schedules. |
(a) List of documents filed as part of this report:
(1) Financial Statements.
i. Consolidated Balance Sheets as of December 31, 2013 and 2012
ii. Consolidated Statements of Comprehensive Income for the Fiscal Years ended December 31, 2013, 2012 and 2011
iii. Consolidated Statements of Stockholders Equity as of December 31, 2013, 2012 and 2011
iv. Consolidated Statements of Cash Flows for the Fiscal Years ended December 31, 2013, 2012 and 2011
v. Unaudited Quarterly Results of Operations for the Fiscal Years ended December 31, 2013 and 2012
(2) Financial Statement Schedule
ii. Schedule II Valuation and Qualifying Accounts
88
3) Exhibits List
Number |
Description |
|
2.1 (1) | LLC Purchase Agreement, dated as of October 25, 2004, among Warner Electric Holding, Inc., Colfax Corporation and Altra Holdings, Inc. | |
2.2 (1) | Assignment and Assumption Agreement, dated as of November 21, 2004, between Altra Holdings, Inc. and Altra Industrial Motion, Inc. | |
2.3 (2) | Share Purchase Agreement, dated as of November 7, 2005, among Altra Industrial Motion, Inc. and the stockholders of Hay Hall Holdings Limited listed therein | |
2.4 (3) | Asset Purchase Agreement, dated May 18, 2006, among Warner Electric LLC, Bear Linear LLC and the other guarantors listed therein | |
2.5 (5) | Agreement and Plan of Merger, dated February 17, 2007, among Altra Holdings, Inc., Forest Acquisition Corp. and TB Woods Corp. | |
2.6 (10) | Sale and Purchase Agreement dated February 25, 2011 among Danfoss Bauer GmbH, Danfoss A/S and Altra Holdings, Inc. (and certain of its subsidiaries)** | |
2.7 | Purchase Agreement, dated November 6, 2013, among Altra Holdings, Inc., certain of its subsidiaries, and Friction Holding A/S. * | |
3.1 (4) | Second Amended and Restated Certificate of Incorporation of Altra Holdings, Inc. | |
3.2 (7) | Second Amended and Restated Bylaws of Altra Holdings, Inc. | |
3.3 (13) | Certificate of Ownership and Merger of Altra Merger Sub, Inc. with and into Altra Holdings, Inc., to effect the Company name change. | |
4.1 (4) | Form of Common Stock Certificate | |
4.2 (9) | Indenture, dated March 7, 2011, among Altra Holdings, Inc., the Guarantors party thereto and Bank of New York Mellon Trust Company, N.A. | |
10.1 (6) | Amended and Restated Employment Agreement, dated as of September 25, 2008, among Altra Industrial Motion, Inc., Altra Holdings, Inc. and Michael L. Hurt | |
10.2 (14) | Amendment No. 1 to Amended and Restated Employment Agreement, dated as of December 20, 2013, among Altra Industrial Motion Corp., Altra Power Transmission, Inc. and Michael L. Hurt | |
10.3 (8) | Amended and Restated Employment Agreement, dated as of January 1, 2009, among Altra Industrial Motion, Inc., Altra Holdings, Inc. and Carl Christenson | |
10.4 (11) | Amended and Restated Employment Agreement, dated as of November 5, 2012, among Altra Industrial Motion, Inc., Altra Holdings, Inc. and Christian Storch. | |
10.5 (7) | Form of Indemnification Agreement entered into between Altra Holdings, Inc. and the Directors and certain officers | |
10.6 (7) | Form of Change of Control Agreement entered into among Altra Holdings, Inc., Altra Industrial Motion, Inc. and certain officers | |
10.7 (1) | Altra Holdings, Inc. 2004 Equity Incentive Plan | |
10.8 (3) | Amendment to Altra Holdings, Inc. 2004 Equity Incentive Plan | |
10.9 (4) | Second Amendment to Altra Holdings, Inc. 2004 Equity Incentive Plan | |
10.10 (15) | The March 2012 Amendment to Altra Holdings, Inc. 2004 Equity Incentive Plan | |
10.11 (1) | Form of Altra Holdings, Inc. Restricted Stock Award Agreement | |
10.12 (4) | Form of Amendment to Restricted Stock Agreements with Michael Hurt | |
10.13 (9) | Purchase Agreement dated March 1, 2011 among the Company, the Guarantors party thereto, Jefferies & Company, Inc. and J.P. Morgan Securities LLC |
89
Number |
Description |
|
10.14 | Amended and Restated Credit Agreement, dated as of December 6, 2013, among Altra Industrial Motion Corp. and certain of its subsidiaries, as Borrowers, the lenders listed therein, the joint lead arrangers and joint bookrunners, as listed therein, and JPMorgan Chase Bank, N.A., as Administrative Agent* | |
10.15 | Ratification Agreement, dated as of December 6, 2013, by and among Altra Industrial Motion Corp., and certain of its subsidiaries, the lenders and JPMorgan Chase Bank, N.A., as Administrative Agent* | |
10.16 (12) | Pledge and Security Agreement, dated November 20, 2012, among Altra Holdings, Inc. and certain of its subsidiaries and JPMorgan Chase Bank, N.A., as Administrative Agent # | |
10.17 (12) | Patent Security Agreement, dated November 20, 2012, among certain subsidiaries of Altra Industrial Motion, Inc. in favor of , JPMorgan Chase Bank, N.A. # | |
10.18 (12) | Trademark Security Agreement, dated November 20, 2012, among Altra Industrial Motion, Inc. and certain of its subsidiaries in favor of , JPMorgan Chase Bank, N.A. | |
21.1 | Subsidiaries of Altra Industrial Motion Corp.* | |
23.1 | Consent of Deloitte & Touche LLP, independent registered public accounting firm* | |
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
101 | The following materials from the Companys Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Audited Consolidated Statement of Comprehensive Income, (ii) the Audited Consolidated Balance Sheet, (iii) the Audited Consolidated Statement of Cash Flows, and (iv) Notes to Audited Consolidated Financial Statements. |
(1) | Incorporated by reference to Altra Industrial Motion, Inc.s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on May 16, 2005. |
(2) | Incorporated by reference to Altra Industrial Motion, Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 14, 2006. |
(3) | Incorporated by reference to Altra Holdings, Inc.s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on September 29, 2006. |
(4) | Incorporated by reference to Altra Holdings, Inc.s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on December 4, 2006. |
(5) | Incorporated by reference to Altra Holdings, Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 20, 2007. |
(6) | Incorporated by reference to Altra Industrial Motion, Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 26, 2008. |
(7) | Incorporated by reference to Altra Holdings, Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 27, 2008. |
(8) | Incorporated by reference to Altra Holdings, Inc.s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2008. |
90
(9) | Incorporated by reference to Altra Holdings, Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2011. |
(10) | Incorporated by reference to Altra Holdings, Inc.s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 9, 2011. |
(11) | Incorporated by reference to Altra Holdings, Inc.s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2012. |
(12) | Incorporated by reference to Altra Holdings, Inc.s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2012. |
(13) | Incorporated by reference to Altra Industrial Motion Corp.s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 25, 2013. |
(14) | Incorporated by reference to Altra Industrial Motion Corp.s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2013. |
(15) | Incorporated by reference to Altra Holdings, Inc.s Proxy Statement filed with the Securities and Exchange Commission on March 22, 2012. |
* | Filed herewith. |
| Management contract or compensatory plan or arrangement. |
# | Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission. |
** | Schedules and exhibits to the these agreements have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplemental copies of such omitted schedules and exhibits to the Securities and Exchange Commission upon request. |
Note: Altra Holdings, Inc. changed its name to Altra Industrial Motion Corp. effective November 22, 2013.
91
Item 14(a)(2) |
ALTRA INDUSTRIAL MOTION CORP.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Reserve for Uncollectible Accounts: |
Balance at
Beginning of Period |
Additions | Deductions |
Balance at
End of Period |
||||||||||||
For the year ended December 31, 2011 |
$ | 1,111 | $ | 696 | $ | (715 | ) | $ | 1,092 | |||||||
For the year ended December 31, 2012 |
$ | 1,092 | $ | 1,675 | $ | (207 | ) | $ | 2,560 | |||||||
For the year ended December 31, 2013 |
$ | 2,560 | $ | 733 | $ | (1,048 | ) | $ | 2,245 |
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALTRA INDUSTRIAL MOTION CORP. | ||||||
February 26, 2014 | By: |
/s/ Carl R. Christenson |
||||
Name: Carl R. Christenson | ||||||
Title: President and Chief Executive Officer, Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
February 26, 2014 | By: |
/s/ Carl R. Christenson |
||||
Name: Carl R. Christenson | ||||||
Title: President and Chief Executive Officer, Director |
||||||
February 26, 2014 | By: |
/s/ Christian Storch |
||||
Name: Christian Storch | ||||||
Title: Vice President and Chief Financial Officer | ||||||
February 26, 2014 | By: |
/s/ Todd B. Patriacca |
||||
Name: Todd B. Patriacca | ||||||
Title: Chief Accounting Officer | ||||||
February 26, 2014 | By: |
/s/ Michael L. Hurt |
||||
Name: Michael L. Hurt | ||||||
Title: Executive Chairman and Director | ||||||
February 26, 2014 | By: |
/s/ Edmund M. Carpenter |
||||
Name: Edmund M. Carpenter | ||||||
Title: Director | ||||||
February 26, 2014 | By: |
/s/ Lyle G. Ganske |
||||
Name: Lyle G. Ganske | ||||||
Title: Director | ||||||
February 26, 2014 | By: |
/s/ Michael S. Lipscomb |
||||
Name: Michael S. Lipscomb | ||||||
Title: Director | ||||||
February 26, 2014 | By: |
/s/ Larry P. McPherson |
||||
Name: Larry P. McPherson | ||||||
Title: Director | ||||||
February 26, 2014 | By: |
/s/ James H. Woodward, Jr. |
||||
Name: James H. Woodward, Jr. | ||||||
Title: Director |
93
Exhibit Index
Number |
Description |
|
2.7 | Purchase Agreement, dated November 6, 2013, among Altra Holdings, Inc., certain of its subsidiaries, and Friction Holding A/S.** | |
10.14 | Amended and Restated Credit Agreement, dated as of December 6, 2013, among Altra Industrial Motion Corp. and certain of its subsidiaries, as Borrowers, the lenders listed therein, the joint lead arrangers and joint bookrunners, as listed therein, and JPMorgan Chase Bank, N.A., as Administrative Agent | |
10.15 | Ratification Agreement, dated as of December 6, 2013, by and among Altra Industrial Motion Corp., and certain of its subsidiaries, the lenders and JPMorgan Chase Bank, N.A., as Administrative Agent | |
21.1 | Subsidiaries of Altra Industrial Motion Corp. | |
23.1 | Consent of Deloitte & Touche LLP, independent registered public accounting firm | |
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101 | The following materials from the Companys Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Audited Consolidated Statement of Comprehensive Income, (ii) the Audited Consolidated Balance Sheet, (iii) the Audited Consolidated Statement of Cash Flows, and (iv) Notes to Audited Consolidated Financial Statements. |
** | Schedules and exhibits to the these agreements have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplemental copies of such omitted schedules and exhibits to the Securities and Exchange Commission upon request. |
Note: | Altra Holdings, Inc. changed its name to Altra Industrial Motion Corp. effective November 22, 2013. |
94
Exhibit 2.7
DATED 6 N OVEMBER 2013
FRICTION HOLDING A/S
- AND -
ALTRA INDUSTRIAL MOTION DENMARK APS
- AND -
ALTRA HOLDINGS, INC.
AGREEMENT
FOR THE SALE AND PURCHASE
OF
SVENDBORG BRAKES A/S
AND
S.B. PATENT HOLDING APS
CONTENTS
Clause | Page | |||||
1. |
INTERPRETATION |
2 | ||||
2. |
SALE AND PURCHASE OF THE SALE SHARES |
12 | ||||
3. |
CONDITIONS PRECEDENT AND PRE-COMPLETION MATTERS |
12 | ||||
4. |
CONDUCT OF BUSINESS BEFORE COMPLETION |
15 | ||||
5. |
NO LEAKAGE |
16 | ||||
6. |
COMPLETION |
18 | ||||
7. |
SELLERS WARRANTIES; SELLERS LIMITATION OF LIABILITY |
19 | ||||
8. |
SPECIFIC INDEMNITIES AND UNDERTAKINGS |
24 | ||||
9. |
TP INDEMNITY |
25 | ||||
10. |
ESCROW AND DEFERRED CONSIDERATION |
27 | ||||
11. |
PURCHASER AND PURCHASER GUARANTOR WARRANTIES |
29 | ||||
12. |
PURCHASER GUARANTOR GUARANTEE |
30 | ||||
13. |
NON-COMPETE AND NON-SOLICITATION |
30 | ||||
14. |
BOOKS AND RECORDS AND MISCELLANEOUS |
31 | ||||
15. |
ANNOUNCEMENTS |
35 | ||||
16. |
CONFIDENTIALITY |
35 | ||||
17. |
NOTICES |
36 | ||||
18. |
INTEREST |
39 | ||||
19. |
ASSIGNMENT |
39 | ||||
20. |
COSTS AND EXPENSES |
39 | ||||
21. |
JOINT TAXATION |
40 | ||||
22. |
INVALIDITY |
40 | ||||
23. |
THIRD PARTY RIGHTS |
40 | ||||
24. |
FURTHER ASSURANCE |
40 | ||||
25. |
WHOLE AGREEMENT |
40 | ||||
26. |
VARIATION AND WAIVER |
41 | ||||
27. |
COUNTERPARTS |
41 | ||||
28. |
PAYMENTS AND NO SET-OFF |
41 | ||||
29. |
GOVERNING LAW AND JURISDICTION |
41 |
THIS AGREEMENT is made on 6 November 2013
BETWEEN :
(1) | FRICTION HOLDING A/S, a company incorporated under the laws of Denmark, registered under CVR number 31515122, whose registered office is Jernbanevej 9, DK 5882, Vejstrup, Denmark (the Seller ); |
(2) | ALTRA INDUSTRIAL MOTION DENMARK APS, a company incorporated under the laws of Denmark, registered under CVR number 35522093, whose registered office is at c/o Bech-Bruun, Langelinje Allé 35, DK-2100 Copenhagen Æ (the Purchaser ); and |
(3) | ALTRA HOLDINGS, INC., a company incorporated under the laws of Delaware, USA, registered under EIN number 61-1478870, whose registered office is at 300 Granite St. Braintree, MA 02184, USA (the Purchaser Guarantor ). |
WHEREAS :
(A) | The Seller has agreed to sell and the Purchaser has agreed to buy the Sale Shares on the terms and subject to the conditions of this Agreement. |
(B) | The Purchaser Guarantor has agreed to guarantee the performance of the Purchasers obligations pursuant to Clause 12 under this Agreement. |
IT IS AGREED as follows:
1. | INTERPRETATION |
1.1 | In this Agreement: |
Administration Company has the meaning given to it in paragraph 1.2 of Schedule 7;
Affiliate means, in relation to any person, any other person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with such person;
Accounting Principles means the principles following the Danish Financial Statements Act applying to large enterprises of reporting class C, with the following exceptions:
(a) | no consolidated financial statements of the Group are prepared, as consolidated financial statements are prepared by parent companies of the Companies; and |
(b) | no member of the Group prepares a corporate social responsibility report, nor does any member of the Group prepare a cash-flow statement, as each are prepared by parent companies of the Companies; |
Anti-Bribery Laws means the United States Foreign Corrupt Practices Act of 1977 or any other anti-bribery and similar laws, statutes, rules or regulations of any country that apply to any Group Company, including the United Kingdom Bribery Act 2010 and any anti-bribery and related prohibitions implemented under the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, in each case, where applicable;
Agent has the meaning given to it in the Deed of Release;
Agreed Form means, in relation to any document, the form of that document which has been initialled for the purpose of identification by the Purchaser (or the Purchasers Solicitors on behalf of the Purchaser) and the Seller (or the Sellers Solicitors on behalf of the Seller);
Audited Accounts means the audited accounts of the Companies (such accounts for the period ending on 31 December 2012, and in respect of the balance sheet, as at 31 December 2012;
2
Branch means the German branch office of Svendborg Brakes A/S named Svendborg Brakes A/S Deutschland registered with the Commercial Register of the Local Court Oeynhausen under HRB 10971;
Business Day means a day on which banks are open for business in London, Copenhagen and New York City (excluding Saturdays, Sundays and public holidays);
Business Transaction has the meaning given to it in Clause 13.3(c);
China Dividends means two dividends equal to an aggregate amount of 5,400,000, to be paid by Svendborg Brakes (Shanghai) Co. Ltd. to Svendborg Brakes A/S, less the China Withholding Tax;
China Withholding Tax means the tax to be paid (in the first instance) on the China Dividend, at a rate of 10%, being a total amount of 540,000;
Claim means any claim (whether in contract, tort or otherwise) made by a party to this Agreement arising out of, or in connection with any Transaction Document, or the transactions contemplated thereby, or referred to therein, howsoever arising, but excluding a TP Claim (but for the avoidance of doubt, and without limitation, including any Other Tax Claim, Trade Debtor Claim, Employment Claim or claims under the Warranties);
Claim Notice means a written notice of a Claim, specifying in reasonable detail: (i) the matter which gives rise to the Claim; (ii) the nature of the Claim, and (iii) to the extent reasonably available to the Purchaser, the amount claimed;
Companies means:
(a) | Svendborg Brakes A/S, a company incorporated under the laws of Denmark, registered under CVR number 13256438, whose registered office is at Jernbanevej 9, DK 5882 Vejstrup, Denmark; and |
(b) | S.B. Patent Holding ApS a company incorporated under the laws of Denmark, registered under CVR number 29416974, whose registered office is at Jernbanevej 9, DK 5882 Vejstrup, Denmark, |
further details of which are set out in Schedule 2 (The Companies) ;
Competition Authority means the German Federal Cartel Office (in German: Bundeskartellamt );
Completion means completion of the sale and purchase of the Sale Shares in accordance with Clause 6 (Completion) ;
Completion Date means the date on which Completion occurs;
Condition or Conditions means the conditions precedent to Completion set out in Clause 3.1;
Confidential Information has the meaning given to that term in Clause 16.1;
Consequential Losses has the meaning given to that term in Clause 7.10(a);
Consideration has the meaning given to that term in Clause 2.2;
Covered Risk has the meaning given to that term in Clause 7.4(b);
Data Room means the contents as per 30 October 2013 at 00:04 CET of the electronic data rooms maintained on behalf of the Seller by (i) Merrill Corporation at https://datasite.merrillcorp.com/ (the Merrill Datasite ) and (ii) Gorrissen Federspiel Law Firm at http://collaboration.gfklaw.com/hc/hc?rf=y_(the Gorrissen Datasite ), an index of each of which is set out as Schedule A to the Disclosure Letter, and the contents of which are set out on DVDs as Schedule C to the Disclosure Letter;
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Deed of Cancellation means the deed of cancellation of security interests released between the Bank of Scotland PLC, Svendborg Brakes España, S.A. and Svendborg Brakes A/S, in the Agreed Form and attached as Appendix H to this Agreement;
Deed of Release means the deed of release between the Bank of Scotland PLC (as agent and security trustee) and LM WP Holdings A/S, in the Agreed Form and attached as Appendix I to this Agreement;
Disclosure Letter means the letter from the Seller to the Purchaser setting out certain general and specific disclosures, dated on or about the date of this Agreement, and as updated in accordance with Clause 3.8, and attached as Schedule 10 to this Agreement;
Due Diligence Documentation shall mean the contents of the Data Room, the Disclosure Letter, this Agreement and the Schedules or Appendices hereto;
Employment Claim means any claim (whether in contract, tort or otherwise) made by the Purchaser arising out of, or in connection with, the undertaking set out in Clause 8.4;
Employment Costs means, in respect of each of the following employees: Steven Olsen, Tommy Boork, Carl Urban Folcker, Jens-Martin Jensen, Claus Vorreiter Jensen and Michael Duelund, (i) any bonus or other extraordinary payment, including but not limited to retention bonuses and/or change-of-control bonuses, to be made to such persons in connection with the completion of the Transaction; (ii) any bonus or other extraordinary payment, including but not limited to retention bonuses and/or change-of-control bonuses, to be made to such persons following the completion of the Transaction, regardless of whether such bonus or payment falls due before or after Completion; and (iii) any costs suffered by a Group Company in respect of the transfer of the employment of such persons to the Group at Completion. Employment Costs does not include normal salary, normal contractual performance bonuses, emoluments or other forms of remuneration to which such employees are entitled up to and until Completion pursuant to the employment arrangements disclosed in the Data Room;
Encumbrances means any lien, pledge, charge (fixed or floating), mortgage, option, right of pre-emption, right to acquire, assignment by way of security, trust arrangement for the purpose of providing security or other security interests of any kind and any agreement to create any of the foregoing;
Engineering Services Agreement means the agreement for engineering services in India, between LM Wind Power Technologies (India) Pvt Ltd and Svendborg Brakes A/S, in the Agreed Form;
Environmental Law means all laws and regulations concerning the pollution, emission or contamination of the soil, underground, surface, water, groundwater, air (including in the form of noise, odor or any substance), natural resources or other environmental media and any living organisms supported by those media;
Escrow Agent means Citibank, N.A., London Branch, acting through its Agency and Trust business located at Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB, United Kingdom;
Escrow Agreements means the escrow agreements to be entered into at Completion between the Seller, the Purchaser and the Escrow Agent, in the Agreed Form and as set out as Schedule 11 to this Agreement, being an escrow agreement for the General Escrow Account, and an escrow agreement for the TP Escrow Account;
Escrow Amounts means the General Escrow Amount and the TP Escrow Amount;
Escrow Bank means Citibank International Plc, Denmark Branch, CVR number 17732595, Filial af Citibank International Plc, England;
fairly disclosed has the meaning given to it in Clause 7.7;
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Friction Pay-Off Letter means the letter from Friction Holding A/S in the Agreed Form and attached as Schedule 12A hereto;
Fixed Asset Register means the fixed asset register as at 30 June 2013, as set out in Appendix D to this Agreement;
FSR means FSR Danish Auditors (in Danish: FSR Danske Revisorer );
General Escrow Account has the meaning given to it in the Escrow Agreement relating to the General Escrow Account;
General Escrow Amount means 1,100,000;
General / Products Liability Insurance Policies means: (i) the Casualty (General Liability), Casualty (Products/Completed Operations) insurance policy held by LM Wind Power A/S with policy number LP0000011584; and (ii) the Financial Products (Employee Practices Liability) insurance policy held by LM Wind Power A/S with policy number 50.0.01.197;
Governmental Authority means any supranational, national, state, municipal or local government (including any subdivision, court, administrative agency or commission or other authority thereof) or any other supranational, governmental, intergovernmental, quasi- governmental authority, body, department or organisation, including the European Union, or any regulatory body appointed by any of the foregoing in each case, in any jurisdiction;
Gross Negligence means in relation to any person, any act, decision or omission of such person, made with reckless disregard for the harmful consequences of such act, decision or omission;
Group means the Companies including the Branch and the Subsidiaries and Group Company means any of them;
Held-Back Payment has the meaning given to it in paragraph 3(b)(iii)(1) of Schedule 6;
Indemnities means the TP Indemnity, the Other Tax Indemnities, the Trade Debtor Indemnity and any Employment Claim, and Indemnity means any one of them;
Insurance Excess means the excess under the Insurance Policy, being the amount of 375,000 in total, as set out in item 7 and section 5.4 of the Insurance Policy;
Insurance Policy means the insurance policy entered into between the Purchaser and the Insurer, as set out in Schedule 8 to this Agreement;
Insurance Premium means the premium on the Insurance Policy, being an amount of 362,500, to be paid by the Purchaser as set out in Schedule 3;
Insurer means AIG Europe Limited (Denmark Branch), CVR number 34 61 76 94, Osvald Helmuths Vej 4, DK-2000 Frederiksberg;
Interim Accounts means the internal accounts of the Group on a consolidated basis, being an income statement for the monthly periods (from 1 July 2013 onwards) ending on each Interim Accounts Date, and a balance sheet prepared as at each Interim Accounts Date, as appended to this Agreement as Appendix F;
Interim Accounts Dates means each of 31 July 2013, 30 August 2013 and 30 September 2013, and Interim Accounts Date means any one of them;
Leakage has the meaning given to that term in Clause 5.2;
Lease Agreements means the agreements for the leases of the Leased Property, as set out in Appendix B;
Leased Property has the meaning given to it in paragraph 7.2 of Schedule 4;
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Locked Box Date means 30 June 2013;
Locked Box Date Accounts means the internal accounts of the Group on a consolidated basis, being an income statement for the period 1 January to the Locked Box Date, and a balance sheet prepared as at the Locked Box Date, as appended to this Agreement as Appendix E;
Long Stop Date means 31 January 2014;
Loss shall have the meaning given to it in Clause 14.7;
LM Group means the Seller and its Affiliates, but excluding the Companies and the Subsidiaries, and excluding (i) any investment funds advised or managed by any adviser to, or manager of or general partner of the partnerships comprising Doughty Hanson & Co. V and Doughty Hanson & Co. III (the Parent Funds ); (ii) the investors in any investment funds (including the Parent Funds) advised or managed by any adviser to, manager or general partner of, the Parent Funds, and (iii) any portfolio investee entities of the Parent Funds or those of any investment funds advised or managed by any adviser to, manager or general partner of, the Parent Funds;
Material Adverse Change means any event, change, effect, occurrence or state of facts which has or is likely to have a material adverse effect on the operations, including revenues and costs, the assets and liabilities, including the financial position, of the Group taken as a whole but excluding any effects to the extent they are caused by:
(a) | any change after the date hereof in laws or regulation; |
(b) | conditions generally affecting the wind industry or mining industry (or both); |
(c) | the entry into this Agreement and any announcement thereof; and |
(d) | any action or omission of the Purchaser or its Affiliates in breach of this Agreement. |
Material Agreement means any contract or agreement entered into by a member of the Group which either (i) has a committed annual expenditure or revenue of 300,000 or more; or (ii) a fixed term that expires later than one (1) year after the date of this Agreement; or (iii) the notice period for the relevant Group Company to terminate is greater than one (1) year;
Notice has the meaning given to that term in Clause 17.1;
Other Tax Claim means any claim (whether in contract, tort or otherwise) made by the Purchaser arising out of, or in connection with, the Other Tax Indemnities;
Other Tax Indemnities has the meaning given to it in Clause 8.3;
Paid Claim has the meaning given to it in paragraph 3(b)(i) of Schedule 6;
Party means a party hereto and Parties means more than one or all of them;
Permitted Leakage has the meaning given to that term in Clause 5.3;
Personnel Handbooks means each of the personnel handbooks disclosed in the Data Room at Merrill Datasite references a.b.3.5.1, a.b.3.5.2, a.b.3.5.3, d.a.3.5.1 and d.a.3.5.3;
Potential Leakage has the meaning given to it in Clause 3.9(a);
Pre Completion Resolution shall have the meaning given to that term in Clause 9.6;
Pre-Completion 2007-2011 Amount shall have the meaning given to that term in Clause 9.6(a);
Pre-Completion 2012-2013 Amount shall have the meaning given to that term in Clause 9.6(b);
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Pre-Completion TP Amount shall have the meaning given to that term in Clause 9.6(c);
Press Announcement means the press announcement relating to the Transaction in the Agreed Form;
Proceedings means any proceeding, suit or action arising out of or in connection with this Agreement or its subject matter (including its validity, formation at issue, effect, interpretation, performance or termination) or any transaction contemplated by this Agreement;
Purchasers Group means the Purchaser, the Purchasers Affiliates and all other members of the same group of companies as the Purchaser (including, with effect from Completion, each Group Company) and the expression member of the Purchasers Group shall be construed accordingly;
Purchasers Solicitors means Bech-Bruun Law Firm, Langelinie Allé 35, DK-2100 Copenhagen Æ , Denmark;
Qualifying Claim has the meaning given to that term in Clause 7.6(a);
Related Persons has the meaning given to that term in Clause 5.4;
Release Amount has the meaning given to it in paragraph 2(a) of Schedule 6;
Release Date has the meaning given to it in paragraph 2(a) of Schedule 6;
Release Documents means the Deed of Release and Deed of Cancellation;
Relevant Interest has the meaning given to it in Clause 13.3(c);
Remaining TP Amount has the meaning given to it in paragraph 3(a) of Schedule 6;
Representative means, in relation to any person, such persons directors, officers, employees, lawyers, accountants, bankers or other advisers, agents, sub-contractors or brokers;
Restricted Actions means the matters listed in Schedule 5 (Restricted Actions) ;
Restricted Business means the businesses of the Group as at: (i) the Locked Box Date; (ii) the date of signing of this Agreement; or (iii) Completion;
Sale Shares means:
(a) | 92,388 shares of DKK 25 each in the capital of Svendborg Brakes A/S, corresponding to a nominal capital of DKK 2,309,700; and |
(b) | 200,000 shares of DKK 1 each in the capital of S.B. Patent Holding ApS, corresponding to a nominal capital of DKK 200,000; |
SB Pay-Off Letter means the letter from Svendborg Brakes A/S in the Agreed Form and attached as Schedule 12B hereto;
Scheduled Completion has the meaning given to that term in Clause 3.9;
Security Trustees Account means the Mandatory Prepayment Account (as referred to in the Deed of Release) or such other account notified by the Agent for the receipt of funds in connection with it executing the Deed of Release, and notified by the Seller to the Purchaser at least three (3) Business Days before the Completion Date;
Sellers Account means the account notified by the Seller to the Purchaser at least three (3) Business Days before the Completion Date;
Sellers Solicitors means Skadden, Arps, Slate, Meagher & Flom (UK) LLP of 40 Bank Street, Canary Wharf, London E14 5DS, United Kingdom;
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Senior Employee has the meaning given to that term in paragraph 10 of Schedule 5 ( Restricted Actions );
Senior Facilities Agreement means the senior facilities agreement originally dated 23 February 2007 (as amended on 20 February 2009 and amended and restated on or about 11 June 2008 and further amended and restated on 5 April 2012) between, amongst others, LM Group Holding A.S., the Bank of Scotland PLC, Svendborg Brakes (Shanghai) Co. Ltd, Svendborg Brakes A/S, S.B. Patent Holding ApS, Svendborg Brakes España S.A. and Svendborg Brakes USA, Inc.
Settled Claim has the meaning given to it in paragraph 4(a) of Schedule 6;
Settled TP Claim has the meaning given to it in paragraph 4(b) of Schedule 6;
Shared Amount means an amount of 2,250,000 (which forms part of the TP Escrow Amount), or to the extent that the TP Escrow Amount is, pursuant to Clause 9.6, reduced to an amount less than 2,250,000, such lesser amount;
South Korean Leased Premises has the meaning given to it in Clause 14.8(b);
Subsidiaries means the subsidiaries of each of the Companies, i.e.:
(a) | Svendborg Brakes Australia Pty. Ltd., a company incorporated under the laws of Australia, registered under number ACN 146 341 479, whose registered office is at 118 Burswood Road, P.O. Box 48, Burswood, WA 6100, Australia; |
(b) | Svendborg Brakes (Chile) Limitada, a company incorporated under the laws of the Republic of Chile, registered under RUT number 76083643-5, whose registered office is at NVA TAJAMAR 481, Torre Norte, 21st Floor, Las Condes, Santiago, Republic of Chile; |
(c) | Svendborg Brakes España S.A., a company incorporated under the laws of Spain, registered under number A42156612, whose registered office is at Calle San Benito, 24, 1° B, Soria, Spain; |
(d) | Svendborg Brakes (India) Private Ltd., a company incorporated under the laws of India, registered under number U28930TN2010PTC075925, whose registered office is at New No. 70, Old No. 64, Ground Floor, 6 th Street, Kamaraj Nagar, Avadi, Chennai-600 071, India; |
(e) | Svendborg Brakes Korea Co. Ltd., a company incorporated under the laws of Korea, registered under number 110111-4289462, whose registered office is at 102-2602, Daewoo World Mark-YongSan, Seoul, Korea; |
(f) | Svendborg Brakes (Shanghai) Co. Ltd., a company incorporated under the laws of the Peoples Republic of China, registered under number 1215571, whose registered office is at Shanghai Pudong New District Jinqiao Export Processing Zone, 1765 Chuanqiao Road, T40B-5, China; |
(g) | Svendborg South Africa (Pty) Ltd., a company incorporated under the laws of the Republic of South Africa, registered under number 2013/008850/07 (South Africa) (Proprietary) Limited, whose registered office is at 123 A Kitzinger Avenue, Brakpan, Gauteng 1541. |
(h) | Svendborg Brakes Trading (Shanghai) Co. Ltd., a company incorporated under the laws of the Peoples Republic of China, registered under number 1215570, whose registered office is at Shanghai Pudong New District Jinqiao Export Processing Zone, 2 nd Floor, 2083 Jingao Road, Room A, China; and |
(i) | Svendborg Brakes USA Inc., a company incorporated under the laws of the State of Illinois, USA, registered under number 6205-267-8, whose registered office is at Colorado Club Office Building, 4155 East Jewell Avenue, Denver, CO 80222, USA; |
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and Subsidiary means any of them;
Subsidiary Shares shall mean:
(a) | 1 share of AUD 1.00 each in the capital of Svendborg Brakes Australia Pty. Ltd. corresponding to a nominal capital of AUD 1.00; |
(b) | the registered capital of 5,310,000 Chilean pesos in Svendborg Brakes (Chile) Limitada; |
(c) | 451 shares of EUR 601.02 each in the capital of Svendborg Brakes España S.A. corresponding to a nominal capital of EUR 271,060.02; |
(d) | 2,633,650 equity shares of Rs. 1 in the capital of Svendborg Brakes (India) Private Ltd. corresponding to a nominal capital of Rs. 2,633,650; |
(e) | 10,000 shares of KRW 5,000 each in the capital of Svendborg Brakes Korea Co. Ltd. corresponding to a nominal capital of KRW 50,000,000; |
(f) | the registered capital of 260,000 in Svendborg Brakes (Shanghai) Co. Ltd.; |
(g) | 100 shares with no nominal or par value in the capital of Svendborg South Africa (Pty) Ltd. corresponding to a nominal capital of 100 ZAR; |
(h) | the registered capital of US$100,000 in Svendborg Brakes Trading (Shanghai) Co. Ltd.; and |
(i) | 1 share with no par value in the capital of Svendborg Brakes USA Inc. |
Tax means all direct or indirect tax liabilities, both current and deferred and whether by way of a primary or a secondary liability, applicable to the Group Companies including the Branch, including income tax, corporation tax, joint taxation payments (in Danish sambeskatningsbidrag) pursuant to Section 31 of the Danish Company Tax Act, capital gains tax, VAT and sales tax, withholding tax, registration fees, stamp duties, customs duties, PAYE tax/payroll tax/tax deducted from income at source, labour market contributions, other social security costs, property tax, use tax, franchise tax, trade tax, local tax and similar taxes, including interest, fees, additional tax and tax penalties;
Termination Agreement means the agreement, in Agreed Form, terminating certain management arrangements;
Third Party has the meaning given to that term in Clause 23.1;
Title Warranties means the Warranties set out in paragraphs 1.1 to 1.5 (inclusive), 2.1, 2.2, 3.1 to 3.3 (inclusive) and 4.2 of Schedule 4;
TP Claim means any claim (whether in contract, tort or otherwise) made by the Purchaser arising out of, or in connection with, the TP Indemnity;
TP Escrow Account has the meaning given to it in the Escrow Agreement relating to the TP Escrow Account;
TP Escrow Amount means the amount of 8,526,000, which amount is subdivided into an amount of 8,168,000 (the 2007-2011 TP Escrow Amount ) and an amount of 358,000(the 2012-2013 TP Escrow Amount ), and of which the Shared Amount is a component, and in all cases, subject to any adjustments in accordance with Clause 9.6;
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TP Indemnity has the meaning given to it in Clause 9.1(a);
TP Notice has the meaning given to it in Clause 9.3;
TP Paid Claim has the meaning given to it in paragraph 3(b)(i) of Schedule 6;
TP Release Date has the meaning given to it in paragraph 3(a) of Schedule 6;
Trade Debtor Claim means any claim (whether in contract, tort or otherwise) made by the Purchaser arising out of, or in connection with, the Trade Debtor Indemnity;
Trade Debtor Indemnity has the meaning given to it in Clause 8.1;
Trade Debtor Liabilities means the overdue debts from customers of the Group, the identity and quantum of which are set-out in Appendix G to this Agreement;
Trade Debtor Schedules means the documents set out in Appendix J to this Agreement;
Transaction means the acquisition by the Purchaser of the Sale Shares;
Transaction Documents means this Agreement and any other documents to be entered into pursuant to this Agreement;
Tryg Performance Bond means the financial bond dated 22 September 2010, and granted by Tryg Garanti for the benefit of Nordex SE;
VAT means in relation to any jurisdiction within the European Union, the value added tax provided for in Directive 2006/112/EC (as amended from time to time) and charged under the provisions of any national legislation implementing that directive or Directive 77/388/EEC (as amended from time to time) together with legislation supplemental thereto and, in relation to any other jurisdiction, the equivalent Tax (if any) in that jurisdiction; and
Warranties means the warranties contained in Schedule 4 (Warranties) and Warranty means any one of them.
1.2 | In this Agreement, except where the context otherwise requires: |
(a) | a reference to Clauses, paragraphs, sub-paragraphs, Schedules, Appendices and the Recitals is to Clauses, paragraphs, sub-paragraphs and the Recitals of, and the Schedules and Appendices to, this Agreement; |
(b) | a reference to this Agreement or to any specified provision of this Agreement is to this Agreement or provision as in force for the time being, as amended, modified, supplemented, varied, assigned or novated, from time to time; |
(c) | a reference to this Agreement includes the Schedules and Appendices to it, each of which forms part of this Agreement for all purposes; |
(d) | a reference to a company shall be construed so as to include any company, corporation or other body corporate, wherever and however incorporated or established; |
(e) | a reference to a person shall be construed so as to include any individual, firm, body corporate, joint venture, unincorporated association, partnership, trust, government, governmental body, authority or agency (whether or not having separate legal personality), and a reference to a person includes a reference to that persons successors and assigns; |
(f) | a reference to writing shall include any mode of reproducing words in a legible and non-transitory form; |
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(g) | a reference to a time of the day is to Danish time including, when applicable, daylight saving time; |
(h) | if a period of time is specified as from a given day, or from the day of an act or event, it shall be calculated exclusive of that day; |
(i) | a reference to EUR , euros or shall be construed as references to the lawful currency for the time being of participating member states for the purposes of the European Monetary Union; |
(j) | a reference to DKK shall be construed as references to the lawful currency for the time being of Denmark; |
(k) | a reference to any law or enactment (including in this Clause 1) includes references to: |
(i) | that law or enactment as re-enacted, amended, extended or applied by or under any other enactment (before or after signature of this Agreement); |
(ii) | any law or enactment which that law or enactment re-enacts (with or without modification); and |
(iii) | any subordinate legislation made (before or after signature of this Agreement) under any law or enactment, as re-enacted, amended, extended or applied, as described in paragraph (i) above, or under any law or enactment referred to in paragraph (ii) above, |
PROVIDED THAT, as between the Parties, no such amendment or re-enactment shall apply for the purposes of this Agreement to the extent that it would impose any new or extended obligation, liability or restriction on, or otherwise adversely affect the rights of, any Party, and law and enactment includes any legislation in any jurisdiction;
(l) | the Parties acknowledge that they have participated jointly in the negotiation and drafting of this Agreement. In the event that a question of interpretation arises (including as to the intention of the Parties), no presumption or burden of proof shall arise in favour of or against any Party based on the authorship of any provisions; |
(m) | words importing the singular include the plural and vice versa, and words importing a gender include every gender; |
(n) | references to costs and / or expenses incurred by a person shall not include any amount in respect of VAT comprised in such costs or expenses for which either that person or, if relevant, any other member of the group to which that person belongs for VAT purposes is entitled to credit or repayment as VAT input tax under any applicable provisions; |
(o) | headings are inserted for convenience only and shall be ignored in construing this Agreement; |
(p) | in construing this Agreement the so-called ejusdem generis rule does not apply and accordingly the interpretation of general words is not restricted by: (i) being preceded by words indicating a particular class of acts, matters or things; or (ii) being followed by particular examples; and |
(q) | unless expressly stated to the contrary in this Agreement, any reference to (or requirement for) the execution of a document by a person includes execution on behalf of that person. |
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2. | SALE AND PURCHASE OF THE SALE SHARES |
2.1 | On and subject to the provisions of this Agreement, at Completion the Seller shall sell, and the Purchaser shall purchase, the Sale Shares, on the basis that the Seller shall ensure that the Sale Shares and, indirectly, the Subsidiary Shares are sold to the Purchaser free from all Encumbrances and together with all rights attaching to them as at the Completion Date, including the right to receive all dividends and distributions declared, made or paid on the Sale Shares on or after the Locked Box Date. |
2.2 | The consideration payable by the Purchaser at Completion for the purchase of the Sale Shares shall be an amount equal to 80,070,000 (the Consideration ). |
2.3 | On and subject to Completion, the Seller irrevocably and unconditionally waives any and all rights over, or in connection with, any of the Sale Shares including any right of pre-emption or other restriction on transfer in respect of the Sale Shares or any of them conferred on the Seller under the articles of association of each of the Companies, any agreements or otherwise. |
2.4 | The Sellers sale and the Purchasers purchase of all the Sale Shares shall be considered to be completed simultaneously on the Completion Date in accordance with this Agreement. |
2.5 | If any payment is made by the Seller to the Purchaser under or in respect of any breach of any provision of this Agreement the payment shall so far as possible be treated as a reduction in the Consideration, and the Consideration shall accordingly be reduced by the amount of such payment. |
3. | CONDITIONS PRECEDENT AND PRE-COMPLETION MATTERS |
3.1 | Completion is conditional upon the satisfaction or waiver (if made in accordance with the provisions hereof) of the following condition(s) precedent before the Long Stop Date: |
(a) | all necessary approvals from the Competition Authority (either as the result of an explicit approval or the expiry of any stand still periods without any objection from the Competition Authority). An approval shall not be considered to have been granted if such approval is subject to any conditions, unless all Parties accept the conditions in such approval; |
(b) | there being no injunction, judgment, court order, pending legal proceedings or ongoing investigations or, after the date of this Agreement, new regulations or laws prohibiting Completion; |
(c) | since the last Interim Accounts Date prior to signing of this Agreement, there shall not have been any Material Adverse Change. |
In assessing whether a Material Adverse Change has occurred, Consequential Losses, to the extent that they can reasonably be expected to be realised by the Group, shall be taken into consideration.
3.2 | The Parties agree to use their best endeavours to co-operate in connection with the satisfaction of the Condition in Clause 3.1(a), including at the request of the other Party to promptly provide, and for the Seller (on a request from the Purchaser) to procure that the Group provides, all necessary information and other assistance reasonably required by the other Party or the Competition Authority. |
3.3 |
The Purchaser is responsible for preparing and making the clearance applications and filings contemplated or required to be made to obtain all consents, approvals or actions of the Competition Authority or any other person which are required in order to satisfy or fulfil the Condition in Clause 3.1(a). Subject thereto and without prejudice to the generality of Clause 3.2, |
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the Parties shall co-operate in the timely preparation, submission and pursuit of all clearance applications and filings required in connection with satisfying the Condition in Clause 3.1(a) and the taking of all other steps as the Purchaser shall consider reasonably necessary or desirable to obtain all consents, approvals or actions of the Competition Authority or any other person which are required in order to satisfy or fulfil the Condition in Clause 3.1(a). The Purchaser shall keep the Seller reasonably informed in respect of the progress of the same and shall, as soon as possible after the date of this Agreement, take all steps reasonably necessary to obtain all consents, approvals or authorisations of the Competition Authority that are required in order to complete the Transaction and other transactions contemplated by the Transaction Documents, including: |
(a) | with the reasonable assistance of the Seller, procuring the filing of any necessary submissions to the Competition Authority as soon as practicable and in any event within five (5) Business Days after the date of this Agreement, and the payment of any filing fees assessed by the Competition Authority. If the approval sought from the Competition Authority proceeds to a Phase II review, and the Parties agree to extend the Long Stop Date to accommodate such review process, the Seller shall pay half of all the reasonable costs associated with such Phase II application and approval; |
(b) | providing the Seller (or advisers nominated by the Seller) with a reasonable opportunity to review and comment on any drafts of notifications and communications proposed to be submitted to the Competition Authority before they are so submitted or sent; |
(c) | providing the Seller (or advisers nominated by the Seller) with copies of final submissions, written responses and other communications with the Competition Authority (which relate to the Transaction) as soon as reasonably practicable after being sent or received (as the case may be) (save that business secrets and other confidential material may be redacted so long as the Purchaser acts reasonably in identifying such material for redaction); and |
(d) | providing the Seller with reasonable notice of, and all reasonable opportunities to participate in, any meetings, conference calls or other discussions with the Competition Authority (save to the extent such meetings comprise discussion of a nature confidential to the Purchaser). |
3.4 | The Purchaser may waive the Condition in Clause 3.1(c) above at any time by written notice to the Seller. |
3.5 | Each of the Purchaser and the Seller: |
(a) | shall give notice in writing to the other that a relevant Condition has been satisfied or waived as soon as practicable and in any event within two (2) Business Days of becoming aware of the fact; and |
(b) | shall disclose to the other Party preferably in writing any matter, fact or circumstance of which it becomes aware which will or might reasonably be expected to prevent any of the Conditions from being satisfied on or prior to the Long Stop Date. |
3.6 | If one or more of the Conditions: |
(a) | remains unsatisfied or is not waived by the relevant Party as at the Long Stop Date; or |
(b) | becomes impossible to satisfy or is not waived by the relevant Party before the Long Stop Date, |
the provisions of Clause 3.7 shall apply.
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3.7 | This Clause 3.7 shall apply only in the circumstances referred to in Clause 3.6 and, if applicable, Clause 3.9(b) or Clause 6.3. Where this Clause applies, this Agreement, other than Clause 1 ( Interpretation ), 15 ( Announcements ), 16 ( Confidentiality ), 17 ( Notices ), 18 ( Interest ), 19 ( Assignment ), 20 ( Costs and expenses ), 22 ( Invalidity ), 23 ( Third party rights ), 25 ( Whole Agreement ), 26 ( Variation and waiver ), 27 ( Counterparts ), and 29 ( Governing law and jurisdiction ) shall automatically terminate with immediate effect and each Partys rights and obligations other than those specified above shall cease immediately on termination. Such termination shall, however, not affect the rights and obligations of any Party existing before or at the time of termination. |
3.8 | Five (5) Business Days prior to Completion, the Seller shall provide the Purchaser with an updated Disclosure Letter disclosing any matters which constitute, or may reasonably be expected to constitute, a breach of the Warranties set forth in Schedule 4 (Warranties), not already disclosed in the Disclosure Letter. Notwithstanding such updated disclosure and Clause 7.7, such additional disclosure shall not be effective as disclosure against the Warranties. |
3.9 | During the period of five (5) Business Days prior to Completion (as scheduled in accordance with Clause 6, and prior to any extension in accordance with this Clause 3.9 (the Scheduled Completion )), the Seller shall grant the Purchaser and the Purchasers advisors access to all the books and records, including bank statements, of the Group Companies for the purpose of the Purchaser attempting to verify whether any Leakage has occurred, which for the avoidance of doubt shall include verifying any Permitted Leakage in accordance with Schedule 9. If, prior to Completion, the Purchaser discovers that any Leakage, that is not a Permitted Leakage, has occurred, then the Purchaser must promptly notify the Seller of such matter and: |
(a) | the Seller may either elect to: |
(i) | prior to or at Completion (A) pay the aggregate potential Leakage identified by (or agreed to with) the Purchaser (the Potential Leakage ) into the Group to satisfy that Potential Leakage and (B) present documentary evidence to the Purchaser that the Seller has paid the Potential Leakage, and Completion shall proceed (and the Purchaser shall have no Claims in respect of such amounts pursuant to Clause 5.1 or otherwise); or |
(ii) | at the Scheduled Completion place the Potential Leakage into the General Escrow Account and added to the General Escrow Amount (and the Consideration to be paid at the Scheduled Completion shall be reduced by an equal amount), and the Parties shall resolve the matter after the Scheduled Completion; or |
(b) | if the Seller does not elect to deal with the Potential Leakage in accordance with Clause 3.9(a); |
(i) | the Parties may, by mutual agreement, defer Completion, however no longer than to the Long Stop Date, and if Completion does not occur on or prior to the Long Stop Date, this Agreement shall be terminated and the provisions of Clause 3.7 shall apply; and/or |
(ii) | either the Seller or the Purchaser may, by written notice to the other Parties, determine not to complete, and this Agreement shall be terminated and the provisions of Clause 3.7 shall apply. |
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3.10 | The Parties acknowledge and agree that they: (i) shall act reasonably and in good faith with respect to identifying any Potential Leakage, pursuant to Clause 3.9, (ii) shall not falsely identify or contest any such Potential Leakage in contradiction to reasonable evidence of such matter, and (iii) shall not act in a fraudulent manner. |
3.11 | If Completion does not occur pursuant to Clause 3.9(b), and the Potential Leakage or a part hereof subsequently is established as Leakage (that is not Permitted Leakage) pursuant to this Agreement, or if it is established that the Seller has not been in compliance with Clause 3.10 the Seller indemnifies and undertakes to pay the Purchaser for any and all costs, losses or liabilities sustained by the Purchaser in order to reimburse the Purchasers transaction costs. In such case, the Sellers reimbursement of the Purchasers transaction costs shall not exceed an amount of 2,000,000. The limitations set out in Clauses 7.5, 7.6 and 7.7 shall not apply to this Clause 3.11. |
3.12 | If Completion does not occur pursuant to Clause 3.9(b), and the Potential Leakage subsequently is established not to have been Leakage (or to have been Permitted Leakage) pursuant to this Agreement, or if it is established that the Purchaser has not been in compliance with Clause 3.10, the Purchaser indemnifies and undertakes to pay the Seller for any and all costs, losses or liabilities sustained by the Seller in order to reimburse the Sellers transaction costs. In such case, the Purchasers reimbursement of the Sellers transaction costs shall not exceed an amount of 2,000,000. |
4. | CONDUCT OF BUSINESS BEFORE COMPLETION |
4.1 | Subject to Clause 4.2, the Seller shall to the greatest extent legally possible exercise and have exercised its influence as shareholder of each of the Companies and procure and have procured that the Companies, including each of their boards of directors, the management, employees etc. shall procure and shall have procured that during the period from the date of this Agreement to Completion: |
(a) | the Group Companies shall continue and shall have continued to carry on business in the normal course in all material aspects and in compliance with all laws and regulations applicable to them and in the same manner as their businesses have been carried on before the Locked Box Date; and |
(b) | no Group Company shall undertake and shall not have undertaken any of the Restricted Actions. |
4.2 | Clause 4.1 shall not operate so as to restrict or prevent: |
(a) | any matter undertaken at the written request of the Purchaser or with its prior written approval (such approval not to be unreasonably withheld or delayed); |
(b) | any matter reasonably undertaken by any Group Company in an emergency or disaster situation with the intention of minimising any adverse effect thereof on any Group Company; |
(c) | the completion or performance of any obligations undertaken pursuant to any contract or arrangement: |
(i) | entered into by any Group Company that has been disclosed in the Data Room; or |
(ii) | entered into by any Group Company prior to the Locked Box Date, provided such contract or arrangement was entered into in the ordinary course of business, and does not contain any onerous terms and/or conditions; |
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(d) | any act or conduct which any Group Company is required to take, or omit to take, as a result of, or in order to comply with, any law or regulation; |
(e) | any matters undertaken in order to comply with the requirements of any Governmental Authority; |
(f) | acts or arrangements necessary to implement the steps and arrangements set out in Schedule 9 to this Agreement, including entering into any ancillary documents necessary to effect those arrangements; or |
(g) | any action or omission that is required in order to implement the transactions contemplated by this Agreement or another Transaction Document. |
The Seller shall promptly inform the Purchaser if the circumstances mentioned in Clauses 4.2 (b) and (e) occurs including reasonable information/details of the circumstances. The Seller acknowledges that any action taken in accordance with Clauses 4.2 (b) to (g) (inclusive) shall not release it from liability under the Agreement (save for Clause 4.1), including the Warranties as set out in this Agreement.
4.3 | The Seller shall in the period from signing of the Agreement until Completion, no later than the 15 th of each month provide the Purchaser with monthly management accounts prepared on a consistent basis with which the Interim Accounts have been prepared. |
4.4 | As soon as reasonably practicable following signing of the Agreement, the Seller shall use all reasonable endeavours to procure that: (i) the Bank of Scotland PLC in its capacity as security trustee under the Senior Facilities Agreement issues and registers with the Danish Registration Court (in Danish: Tinglysningsretten) relevant powers of attorney in favour of their Danish counsel in order to facilitate the deregistration at Completion of the negative pledge statements registered in their favour; and (ii) Svendborg Brakes España S.A. and Svendborg Brakes A/S issue and deliver in original to the attorney relevant powers of attorney in favour of their Spanish counsel in order to facilitate the execution of the Deed of Cancellation in accordance with Clause 6.5 below. |
4.5 | The Seller shall, without using any funds of any Group Company, use its reasonable endeavours to (and shall procure that Svendborg Brakes (India) Private Ltd. shall use its reasonable endeavours to) as soon as is reasonably practicable, procure the certification of the Reserve Bank of India of the Form FC-TRS, in respect of the transfer of shares in Svendborg Brakes (India) Private Ltd. on or about 20 March 2013. The Seller shall indemnify and hold the Purchaser and any Group Company harmless of any liability, loss, costs and expenses related to the steps described in the first sentence of this Clause, and the limitations in Clauses 7.5, 7.6 and 7.7 should not apply to such indemnity. |
5. | NO LEAKAGE |
5.1 | The Seller undertakes to the Purchaser that if during the period from the Locked Box Date until the Completion Date the Seller and/or any of the Sellers Related Persons has received or it has been agreed in such period that the Seller and/or the Sellers Related Persons will receive from any Group Company any Leakage other than Permitted Leakage then the Seller shall pay to the Purchaser or, if so requested by the Purchaser, to a Group Company, an amount in cash (in the same currency as the Leakage) equal to the amount of such Leakage. |
5.2 | For the purposes of this Agreement, Leakage means: |
(a) | any dividend, or distribution declared, paid, made or agreed or required to be made by any Group Company to the Seller or any of its Related Persons; |
(b) | any payments made by any Group Company to the Seller or any of its Related Persons, unless covered by Clause 5.3; |
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(c) | the issue or sale of any securities of any Group Company to the Seller or any of its Related Persons; |
(d) | any fees, bonuses or expenses related to any of the transactions contemplated by this Agreement to the extent paid, payable, assumed, indemnified or incurred by any Group Company but not including any amounts paid prior to the Locked Box Date or accrued and taken into account in the Locked Box Accounts; |
(e) | any payments made, or agreed to be made by any Group Company to the Seller or any of its Related Persons in respect of the issue, redemption, repurchase, repayment or acquisition of any share capital or other securities of any Group Company, or any other return of capital to the Seller or any of its Related Persons by a Group Company; |
(f) | the waiver or agreement to waive by any Group Company of (i) any amount owed to that Group Company by the Seller or by any of its Related Persons, or (ii) any claims by a Group Company in respect of any agreement or arrangement with the Seller or any of its Related Persons; and |
(g) | the payment or agreement to pay by any Group Company of any fees, costs or Tax or other amounts as a result of those matters set out in Clauses 5.2(a) to 5.2(f) (inclusive). |
5.3 | For the purpose of this Agreement, Permitted Leakage means: |
(a) | any payments made by any Group Company to the Seller or any of its Related Persons: |
(i) | on arms length terms in the ordinary course of trading and pursuant to the contracts agreements and arrangements set out in Appendix C to this Agreement (save for the two Management Agreements set out therein, each dated 15 October 2011, pursuant to which any Leakage will only be Permitted Leakage if and to the extent it is contained in Schedule 9 to this Agreement); or |
(ii) | if made to any portfolio investee entities of the Parent Funds, provided such payments are on arms length terms in the ordinary course of trading; |
(b) | any Tax becoming payable by any Group Company directly as a consequence of the making of any payment as set out in Clause 5.3(a); and |
(c) | subject to Clause 5.5, any payments made in accordance with the steps and arrangements set out in Schedule 9 to this Agreement. |
5.4 | For the purposes of this Agreement, Related Persons means: |
(a) | the Sellers Affiliates, including (i) the LM Group, (ii) the Parent Funds (iii) Doughty Hanson (Managers) Limited and any of its Affiliates, and (iv) any portfolio investee entities of the Parent Funds; and |
(b) | the directors, officers and employees of the Seller and the Sellers Affiliates as defined in Clause 5.4(a). |
5.5 | If and to the extent that a China Dividend is not paid on or prior to Completion, the amount of the dividend or distribution that is permitted to be made pursuant to item 7 of Schedule 9, shall be reduced by the amount of such unpaid China Dividend (and for the avoidance of doubt, Clauses 10.3 to 10.6 (inclusive) of this Agreement shall apply to such unpaid China Dividend). |
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6. | COMPLETION |
6.1 | Subject to Clause 3.9, Completion shall take place at the offices of the Purchasers Solicitors five (5) Business Days after the Purchaser has notified the Seller of the satisfaction of the Condition in Clause 3.1(a) (provided that the other Conditions continue to be satisfied, or are waived) in accordance with this Agreement, or at such other time and/or venue as may be agreed in writing between the Seller and the Purchaser. |
6.2 | At Completion: |
(a) | the Purchaser shall deliver or take (or cause to be delivered or taken) the documents and actions listed in Part A of Schedule 3 (Completion) ; and |
(b) | the Seller shall deliver or take (or cause to be delivered or taken) the documents and actions listed in Part B of Schedule 3 (Completion) . |
6.3 | If any foregoing provision of this Clause 6 (Completion) is not complied with in any material respect the Purchaser (in the case of non-compliance by the Seller) or the Seller (in the case of non-compliance by the Purchaser) shall be entitled (in addition to and without prejudice to all other rights or remedies available to it, including the right to claim damages) by written notice to the other, served on such date: |
(a) | to elect not to proceed with the Completion whereupon the provisions of Clause 3.7 shall apply; or |
(b) | to effect Completion so far as practicable having regard to the defaults which have occurred; or |
(c) | to fix a new date for Completion not being later than five (5) Business Days following the original Completion Date in which case the foregoing provisions of this Clause 6.3 shall apply to Completion as so deferred. |
6.4 | Each of the Seller and the Purchaser agree that they shall, and they shall procure their Affiliates shall, use all reasonable endeavours to procure that, on or prior to Completion, the Tryg Performance Bond is assigned or transferred to a Group Company, or a replacement bond is otherwise entered into by a Group Company on terms the same or substantially the same as the existing Tryg Performance Bond (in each case, such that the Tryg Performance Bond is released or terminated). In the event that the Parties do not achieve the foregoing, it is agreed that: |
(a) | the Parties shall use all reasonable endeavours to implement the assignment or transfer of the Tryg Performance Bond to a Group Company, or that a replacement bond is otherwise entered into by a Group Company on terms the same or substantially the same as the existing Tryg Performance Bond (in each case, such that the Tryg Performance Bond is released or terminated), as soon as is reasonably practicable after Completion; and |
(b) | the Purchaser shall indemnify and keep indemnified the Seller with respect to, and undertakes to pay to the Seller (i) any and all amounts paid to Nordex SE (or an Affiliate thereof) under the Tryg Performance Bond, on or after Completion; and (ii) any and all costs, premiums or interest payable by the Seller or an Affiliate thereof in respect of the Tryg Performance Bond, for any period following Completion. |
6.5 | As soon as is reasonably practicable after Completion (and in any event not later than the first Business Day following Completion), the Seller shall deliver to the Purchaser the Deed of Cancellation, duly executed by Bank of Scotland PLC, Svendborg Brakes España S.A. and Svendborg Brakes A/S. |
6.6 |
The Seller confirms and agrees that, immediately following Completion, all outstanding amounts owed by a member of the Group to a member of the LM Group, with the exception |
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of commercial trade debt arising in the ordinary course of business, and all interest accrued thereon to the Completion Date will have been satisfied and any commitment thereunder cancelled, and the Group will have no further debt obligations to any member of the LM Group, with the exception of commercial trade debt arising in the ordinary course of business. |
7. | SELLERS WARRANTIES; SELLERS LIMITATION OF LIABILITY |
7.1 | The Seller warrants to the Purchaser in the terms of the Warranties at the date of this Agreement and at the Completion Date. |
7.2 | Each of the Warranties set out in each paragraph of Schedule 4 (Warranties) shall be separate and independent, apply to and effect all the Group Companies including the Branch and, save as otherwise expressly provided in this Agreement, shall not be limited by reference to any other paragraph of Schedule 4 (Warranties) . |
7.3 | In each Warranty, where any statement is qualified as being made so far as the Seller is aware or any similar expression, a matter shall be treated as being within the awareness, knowledge, information or belief of the Seller if: (i) it is within the actual knowledge, information or belief of any of Michael Duelund, Urban Folcker, Tommy Boork, Steven Olsen, Kenneth Fog-Nielsen, Clause Jensen, Jens Martin Jensen or Tim Hui; or (ii) any such persons would reasonably be expected to be aware, or to have such knowledge, information or belief, given their positions and responsibilities within the Group. |
7.4 | The Parties agree that: |
(a) | the Purchaser shall pay, or procure the payment of the Insurance Premium at Completion to the Insurer; |
(b) | if and to the extent that the Purchaser wishes to make a Claim, and the fact, matter or circumstance giving rise to such Claim would be, or might reasonably be expected to be, covered by the Insurance Policy (it being acknowledged and agreed that Claims up to the amount of the Insurance Excess, are not covered by the Insurance Policy) (a Covered Risk ): |
(i) | at the time of notifying a claim for a Covered Risk to the Insurer, the Purchaser shall also notify the corresponding potential Claim to the Seller by issuance of a Claim Notice (and in accordance with paragraph 2(a) of Schedule 6, an amount equal to any such Claim shall be withheld and not released from the General Escrow Account); |
(ii) | the Purchaser shall first attempt to seek recovery under the Insurance Policy; |
(iii) | the Seller shall not be liable in respect of any Claim relating to a Covered Risk, unless and until the Purchaser has made a claim in respect of the Covered Risk under the Insurance Policy, and the Insurer has finally determined that the claim (or any part thereof) is not payable pursuant to such Insurance Policy; and |
(iv) | prior to seeking any recovery in respect of a Claim against the Escrow Amounts, the Purchaser shall confirm in writing to the Seller that either (A) in the Purchasers reasonable opinion, such matter that is not a Covered Risk; or (B) that the Insurer has determined that no amount is payable in respect of such matter pursuant to the Insurance Policy. |
(c) |
in connection with a Claim, if the Purchaser is unable to recover under the Insurance Policy, and the Seller makes a payment to the Purchaser in respect of such Claim, |
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upon the written request of the Seller, the Purchaser shall to the extent possible assign the claim (or potential claim) under the Insurance Policy to the Seller, to enable the Seller to pursue such claim against the Insurer; and |
(d) | in the event that the Purchaser makes a claim under the Insurance Policy, the Purchaser agrees that: |
(i) | at the time of making such claim, the Purchaser shall notify, and provide a copy of such claim and any supporting documentation, to the Seller; and |
(ii) | the Purchaser shall, upon request from the Seller, keep the Seller reasonably informed of the claim under the Insurance Policy, including its progress. |
7.5 | The Seller shall not be liable in respect of any Claim unless the Purchaser shall have delivered a Claim Notice to the Seller as soon as reasonably practicable after the Claim has come to the knowledge of the Purchaser (it being acknowledged that this requirement to provide such notice to the Seller, and the failure to do so shall not preclude or limit a Claim unless and to the extent that the delay adversely affects the Sellers ability to mitigate the amount of a Claim), and in any event: |
(a) | in relation to a Claim under Clause 4 (Conduct of business before Completion) or Clause 5 (No Leakage) , within 6 months after the Completion Date; |
(b) | in relation to Other Tax Claims, any Claims under Schedule 4, paragraph 6 (Tax matters) or Schedule 4, paragraph 17 (Environmental matters) , within 6 years after the Completion Date; and |
(c) | in relation to any other Claim apart from Claims under the Title Warranties, within 18 months after the Completion Date. |
Any Claims under the Title Warranties or Clause 3.11 shall survive indefinitely.
7.6 | The Seller shall have no liability in respect of any Claim by the Purchaser unless: |
(a) | the amount claimed in respect of any individual Claim exceeds 50,000 (each a Qualifying Claim ). Claims based on the same cause or substantially the same cause, including claims due to a serial product error, shall be aggregated and shall be regarded as a single claim for the purpose of this clause 7.6(a); and |
(b) | the aggregate amount of all Qualifying Claims exceeds 375,000 in which event the Seller shall be liable for the full amount of all such Qualifying Claims, and not just the excess. |
The amounts in Clause 7.6(a) or 7.6(b) shall not apply to Claims arising out of (i) the Title Warranties; (ii) an Indemnity; (iii) Clause 4 ( Conduct of Business Before Completion ); (iv) Clause 5 ( Leakage ); (v) Clause 8.4; or (vi) Clause 3.11.
7.7 | The Seller shall not be liable in respect of a Claim, if the matter which has given cause for the Claim is fairly disclosed in the Due Diligence Documentation. For the purposes of this Agreement and the Disclosure Letter, fairly disclosed means disclosed with sufficient details to identify the nature and scope of the matter disclosed in the Due Diligence Documentation. For the avoidance of doubt, opinions, advice and limitations of scope (to the extent they do not disclose facts) in the due diligence reports provided by the Sellers advisors and contained in the Merrill Datasite shall not be considered disclosed. This limitation, however, shall not apply to Claims arising out of breaches of: (i) the Title Warranties; (ii) an Indemnity; (iii) Clause 4 ( Conduct of Business Before Completion ); (iv) Clause 5 ( Leakage ); (v) Clause 8.4; (vi) Schedule 4, Clause 6 ( Tax Matters ); or (vii) Clause 3.11. |
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7.8 | The maximum aggregate liability of the Seller in relation to all Claims (including, without limitation, Other Tax Claims, Employment Claims or Trade Debtor Claims) shall not exceed the General Escrow Amount plus the Shared Amount. This limitation shall, however, not apply to any Claims arising out of breaches of: (i) the Title Warranties; (ii) the TP Indemnity (the aggregate liability for such indemnity being set out in Clause 9.2); (iii) Clause 3.11; (iv) Clause 14.8; (v) Clause 4.5, or (vi) Clause 5 (Leakage), which shall (together with all other Claims against the Seller made in connection with this Agreement) be limited to a maximum aggregate amount of the Consideration. Claims shall be calculated in accordance with and subject to Danish Law, with the modifications set out herein. |
7.9 | If the Purchaser or any member of the Purchasers Group becomes aware of a matter which constitutes or is reasonably likely to give rise to a Claim or a TP Claim: |
(a) | the Purchaser or the relevant member of the Purchasers Group shall within a reasonable time deliver a Claim Notice or TP Notice to the Seller of the matter in accordance with Clauses 7.5 and 9.3, and shall consult with the Seller with respect to the matter; |
(b) | the Purchaser or the relevant member of the Purchasers Group shall, and shall ensure that each member of the Purchasers Group will (save to the extent to do so would not be legally permissible), (i) provide to the Seller and its advisers reasonable access to any member of the Purchasers Groups (including, for the avoidance of doubt, any Group Companys after Completion) premises, personnel and relevant assets, documents and records for the purposes of investigating them after and enabling the Seller to take the action referred to in paragraph (d) below; and (ii) keep the Seller reasonably informed in relation to the matter, including its progress; |
(c) | save to the extent to do so would not be legally permissible, the Seller (at its cost) may take copies of the documents or records, and photograph the premises or assets, referred to in paragraph (b) above; |
(d) | the Seller shall use all reasonable endeavours and take all reasonable steps to settle and resolve the subject matter of any Claim or TP Claim, as soon as is practicable; |
(e) | the Purchaser or the relevant member of the Purchasers Group shall, and shall ensure that each member of the Purchasers Group will: |
(i) | take any action and institute any proceedings, as the Seller may reasonably request in writing, to avoid, dispute, defend, resist, appeal, compromise or mitigate any Claim or TP Claim (a Disputed Claim ), including without limitation, in respect of any in respect of Tax claims of any kind (including TP Claims or Claims pursuant to paragraph 6 of Schedule 4), through institution, where relevant, of Mutual Agreement Procedures under the EU Arbitration Convention (or relevant double tax treaties where the EU Arbitration Convention does not apply), and in the event that the EU Arbitration Convention or double tax treaties do not apply, seek a corresponding adjustment in the foreign income; |
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(ii) | upon notice in writing from the Seller to the Purchaser, save to the extent to do so would not be legally permissible, permit the Seller or any of its Affiliates to take conduct of such Disputed Claim and resist or contest such Disputed Claim in the name of the relevant Group Company, and give any information and assistance, as the Seller or its insurers may reasonably request to: |
(1) | dispute, resist, appeal, compromise, defend, remedy or mitigate the Disputed Claim (other than agreeing to any non-monetary relief); or |
(2) | enforce against a person (other than the Seller, any Group Company or member of the Purchasers Group) the rights of a member of the Purchasers Group or any of their insurers in relation to the matter; |
provided that in any such case: (A) the Seller shall indemnify the Purchaser (for itself and as trustee for each member of the Purchasers Group) from time to time on demand against all losses, claims, expenses, demands and other liabilities incurred by any member of the Purchasers Group as a result of compliance with the above provisions of this paragraph (e); (B) the Purchaser shall be kept informed of all matters pertaining to the Disputed Claim; and (C) the Seller shall not enter into any settlement binding the Purchaser or any Group Company to any obligation without the prior written consent of the Purchaser or the relevant Group Company, which consent shall not be unreasonably withheld, delayed or made subject to conditions. The Seller expressly acknowledges and agrees that: (X) any amounts payable under the indemnity provided in this Clause 7.9(e), shall not be required to be satisfied (but may at the Purchasers election be satisfied) by the Escrow Amounts, and the Purchaser shall have separate recourse to the Seller, and further that the limitations set out in Clauses 7.5, 7.6 and 7.7 shall not apply to such indemnity; (Y) upon the written request of the Purchaser, it will either prepay or provide security for amounts that are reasonably expected to be payable pursuant to the indemnity under item (A) above, and if the Seller does not prepay or provide security for such amounts, the Purchaser is not obliged to carry out any of its obligations pursuant to this Clause 7.9(e); and
(f) | the Purchaser or the relevant member of the Purchasers Group shall not, and shall ensure that each member of the Purchasers Group shall not, admit liability in respect of, or compromise or settle, the matter without the prior written consent of the Seller, which consent may not be unreasonably withheld or delayed. |
7.10 | When calculating a loss of the Purchaser due to a breach of this Agreement or any Transaction Document by the Seller, the following principles apply to the calculation: |
(a) | the Seller shall not be held liable for any indirect or consequential losses of the Purchaser or any Group Company, such as operating loss, loss of profits, loss of interest or consequential costs, including any legal fees in connection with such matters (in Danish: indirekte tab eller folgeskader) ( Consequential Losses ), but shall be held liable for Consequential Losses to the extent the Consequential Losses are claimed by a third party against the Purchaser or any Group Company, and the Purchaser or any Group Company is required to pay such Consequential Losses to the third party; |
(b) | the quantum of losses of the Purchaser are calculated on a for basis, and in no event shall any multiple or similar ratio be used in calculating the amount of losses. |
(c) | the effect of any realised tax benefit or saving, or the value of any future tax benefit or saving (in respect of the value of any future tax benefit or saving, the expected/calculated tax benefit shall be discounted into present value (based on its reasonably expected time of payment/accrual) and only to the extent that it is substantially likely that such benefit or saving shall apply within five (5) years after the time of calculation of the tax benefit) applying the tax rate current at the time by the Purchaser or any Group Company shall be deducted; |
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(d) | the amount of any compensation or other recovery (including, without limitation, any insurance proceeds) which is paid or substantially likely to be recovered by the Purchaser or any Group Company shall be deducted, less any Taxes on the amounts to the extent the amount is taxable in the hands of the recipient (and such tax has not already been taken into account). If the Seller has settled and paid a Claim or TP Claim and the Purchaser, or any Group Company, subsequently recovers any payment or compensation related to such claim, the Purchaser shall immediately transfer to the Seller the amount so recovered, less the Purchasers or any Group Companys reasonable expenses related to such recovery; |
(e) | the occurrence of or the increase of a loss attributable to any change in the applicable law, or any change in tax rates, or any change in the accounting principles adopted after the signing date of this Agreement shall be disregarded; |
(f) | the occurrence of or increase of a loss arising from the result of any act or omission after the Completion Date on the part of the Purchaser, or any Group Company, or their respective directors, officers, employees or agents shall be disregarded, unless such act or omission was required pursuant to the terms of this Agreement; |
(g) | in the event that a reserve has been established in the Locked Box Date Accounts: |
(i) | with respect to reserves established for specific warranty claims, only losses incurred which are in excess of the aggregate reserve for all specific warranty claims, (but, for avoidance of doubt, excluding any general warranty reserve), shall be included in the calculation of a loss; and |
(ii) | with respect to reserves established for general warranty claims, only losses incurred which are in excess of the aggregate reserve for all general warranty claims, (but, for avoidance of doubt, excluding any specific warranty reserve), shall be included in the calculation of a loss; and |
(h) | the Purchaser is under an obligation to mitigate the losses (in Danish: tabsbegrænsningsforpligtelse) in accordance with Danish law. |
7.11 | Any payment by the Seller to the Purchaser pursuant to Clauses 7, 8 or 9 shall be deemed an adjustment to the Consideration whereby the Consideration is decreased by the amount paid by the Seller on a for basis. |
7.12 | The remedies provided in this Clause 7 and Clause 8 are the exclusive remedies available to the Purchaser with respect to any Claim. Subject to termination in accordance with the specific terms of this Agreement and save for rescindment of the Agreement prior to Completion due to the Sellers, the Sellers Affiliates or the Sellers Representatives fraud, fraudulent misconduct or Gross Negligence, the Purchaser is not entitled to rescind the Agreement (in Danish: hæve aftalen) or claim for a proportionate reduction of the Consideration (in Danish: forholdsmæssigt afslag). For the avoidance of doubt: |
(a) | the Parties are entitled to request specific performance of the other Parties in respect of the covenants undertaken by the Parties pursuant to Schedule 3; and |
(b) | a breach of this agreement may be taken into consideration in the assessment of whether a Material Adverse Change has occurred for the purposes of Clause 3.1(c). |
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7.13 | The limitations of liability contained in this Clause 7 shall not apply to any liability for any Claim, or to any other liability arising under this Agreement, to the extent that the same is attributable to fraud, fraudulent misrepresentation or Gross Negligence on the part of the Seller or any of the Sellers Affiliates, including the Sellers Representatives. |
7.14 | The Purchaser agrees and undertakes that it will not make, and to the fullest extent permissible waives any right it may have to make, any claim against any Group Company or their present or former Representatives, or the present or former Representatives of LM Group, in respect of any claim for breach of Warranty or in respect of any misrepresentation, inaccuracy or omission in or from any information or advice supplied or given by any such person on connection with the Warranties or this Agreement (including, for the avoidance of doubt, in the Due Diligence Documentation), save in the event of fraud or fraudulent misrepresentation. |
8. | SPECIFIC INDEMNITIES AND UNDERTAKINGS |
8.1 | The Seller undertakes to indemnify and hold the Purchaser harmless (by way of an adjustment of the Consideration) to the extent that, any Trade Debtor Liability (or part thereof) remains unpaid by the relevant counterparty on the date which falls 12 months after the Completion Date (save to the extent that such liability has been settled, released, waived, forgiven or set-off by any member of the Purchasers Group on or prior to such date, without the consent of the Seller) (the Trade Debtor Indemnity ). |
8.2 | In respect of the Trade Debtor Liabilities, the Purchaser agrees that: |
(a) | if and to the extent that a Trade Debtor Liability (or any part thereof) is covered by an insurance policy (such as a trade debtor insurance policy) or other indemnity maintained by any member of the Purchasers Group: |
(i) | the Purchaser shall (or shall procure that the relevant member of the Purchasers Group shall) attempt to seek recovery under such insurance policy or indemnity; and |
(ii) | if and to the extent that the Purchaser recovers any amount pursuant to Clause 8.2(a)(i), any Claims against the Seller shall be reduced by such amount, or, should a Claim have already been satisfied by the Seller in respect of such matter, such amount shall be reimbursed to the Seller without set-off or counterclaim, |
provided that nothing in this Clause 8.2(a) shall be construed to require the Purchaser to procure or maintain any such insurance for the Trade Debtor Liabilities.
(b) | up and until the date which falls 12 months after the Completion Date, the Purchaser undertakes that it shall, and that it shall procure that the Group Companies shall: |
(i) | use all reasonable endeavours to collect and have repaid the Trade Debtor Liabilities in a manner consistent with the Trade Debtor Schedules; |
(ii) | take any action that the Seller may reasonably request in writing to enforce or recover any Trade Debtor Liability, provided such action is in accordance with the methods or actions as set out in the Trade Debtor Schedules; |
(iii) | not enter into any agreement, arrangement or understanding pursuant to which it accepts or allows any delay in repayment of any Trade Debtor Liability without the prior consent of the Seller (such consent not to be unreasonably withheld or delayed); and |
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(iv) | within 5 Business Days after each of the dates falling 3 months, 6 months and 9 months after Completion, deliver to the Seller written notice setting out (i) a report specifying the quantum and aging of the Trade Debtor Liabilities which remain outstanding; and (ii) a certification that the procedures described in the document disclosed in the Trade Debtor Schedules have been followed consistently in order to recover the Trade Debtor Liabilities, |
provided that it is agreed that the Purchaser may (or may allow a Group Company to) take actions which are not expressly specified in the Trade Debtor Schedules, if and to the extent that such actions are reasonable in the circumstances, and do not materially increase the likelihood of a liability arising under the Trade Debtor Indemnity; and
(c) | if the Seller makes any payment (or any payment is made on its behalf) pursuant to the Trade Debtor Indemnity, and the Purchaser or the relevant Group Company subsequently receives payment in full or in part of a Trade Debtor Indemnity the Purchaser undertakes that it shall, and that it will procure that the Group shall, as soon as reasonably practically possible after receipt of such payment, reimburse the Seller of such amount, less any reasonable costs incurred by third parties in connection with the recovery (but without any set-off and free and clear of any other deduction or withholding of any kind other than any deduction or withholding required by law). |
8.3 | The Seller undertakes to indemnify and hold the Purchaser harmless (by way of an adjustment of the Consideration) for any and all losses sustained by the Purchaser and/or any of the Group Companies in respect of: |
(a) | any amounts of VAT underpaid by Svendborg Brakes (Shanghai) Co. Ltd. on sales made by it on or prior to the Locked Box Date; or |
(b) | any amounts of tax paid for related party transactions entered into by Svendborg Brakes (Shanghai) Co. Ltd. on or prior to the Locked Box Date, |
such indemnities being referred to herein as the Other Tax Indemnities .
8.4 | The Seller undertakes and agrees that it is responsible for and as of the Completion Date shall have paid all of the Employment Costs not using the funds of any Group Company (save for as provided for in Schedule 9 to this Agreement), and if and to the extent that any member of the Group becomes liable for such Employment Costs, the Seller shall pay an amount equal to such costs to the Purchaser (or as the Purchaser directs). |
9. | TP INDEMNITY |
9.1 | The Seller undertakes to indemnify and hold the Purchaser harmless (by way of an adjustment of the Consideration) in respect of: |
(a) | the potential Tax claim set out in the pre-assessment notice issued by the Danish Tax Authorities as disclosed in the Data Room at Merrill Datasite reference a.b.4.2.3 concerning remuneration of the Subsidiaries Svendborg Brakes Trading (Shanghai) Co. Ltd. and Svendborg Brakes USA Inc. in the income years 2007 through 2011; and |
(b) | potential Tax claims relating to the same or similar transfer pricing issues as mentioned in Clause 9.1(a), but relating to the income years 2012 and 2013, |
including, for the avoidance of doubt, interest, costs and expenses in relation thereto (the TP Indemnity ).
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9.2 | The maximum aggregate liability of the Seller in relation to all TP Claims, shall not in any circumstances exceed the TP Escrow Amount plus the General Escrow Amount. TP Claims shall be calculated in accordance with and subject to Danish Law with the modifications set out herein. |
9.3 | The Seller acknowledges that it is aware of the circumstances regarding the TP Indemnity, however if and to the extent that the Purchaser wishes to make a TP Claim, it shall deliver a written notice specifying in reasonable detail: (i) the circumstances that give rise to the TP Claim; and (ii) the amount claimed (a TP Notice ). In respect of potential Tax claims covered by Clause 9.1(b), the Seller shall not be liable in respect of such Tax claims unless a TP Notice is received within 6 years of the date of Completion. |
9.4 | The remedies provided in this Clause 9 are the exclusive remedies available to the Purchaser with respect to any TP Claim. Subject to termination in accordance with the terms of this Agreement, the Purchaser is not entitled to rescind the Agreement (in Danish: hæve aftalen) or claim for a proportionate reduction of the Consideration (in Danish: forholdsmæssigt afslag). |
9.5 | The provisions of Clauses 7.10, 7.11, 7.13, and 7.14 shall apply to any TP Claim, provided that a reference to Claim therein shall be construed as a reference to TP Claim. |
9.6 | The Parties agree that if a matter consistent with paragraphs (4)(b)(ii) or (iii) of Schedule 6 occurs prior to Completion ( Pre-Completion Resolution ) and any amount to be paid by a Group Company in connection with such Pre-Completion Resolution is actually paid prior to Completion, then: |
(a) | if a Pre-Completion Resolution occurs in respect of the matter provided for in Clause 9.1(a), the amount of the liability in respect of such matter being referred to herein as the Pre-Completion 2007-2011 Amount : |
(i) | subject to the provisions of Clause 9.6(c), the 2007-2011 TP Escrow Amount shall be adjusted and shall become equal to the lesser of (i) the Shared Amount or (ii) the difference between the initial 2007-2011 TP Escrow Amount (prior to any adjustment pursuant to this clause 9.6(a)(i)) and the Pre-Completion 2007-2011 Amount (and for the avoidance of doubt, such amount may be zero), and such amount shall be considered the Shared Amount for purposes of this Agreement, and the TP Escrow Amount shall be accordingly decreased; and |
(ii) | the Consideration payable by the Purchaser at Completion shall be reduced by the Pre-Completion 2007-2011 Amount; or |
(b) | if a Pre-Completion Resolution occurs in respect of the matter provided for in Clause 9.1(b), the amount of the liability in respect of such matter being referred to herein as the Pre-Completion 2012-2013 Amount : |
(i) | subject to the provisions of Clause 9.6(c), the 2012-2013 TP Escrow Amount shall not be placed into the TP Escrow Account, and the TP Escrow Amount shall be accordingly decreased; and |
(ii) | the Consideration payable by the Purchaser at Completion shall be reduced by the Pre-Completion 2012-2013 Amount; or |
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(c) | if a Pre-Completion Resolution occurs in respect of the matters provided for in both Clause 9.1(a) and 9.1(b) such that no further TP Claims exist, the aggregate amount of the liability in respect of such matters being referred to herein as the Pre-Completion TP Amount : |
(i) | an additional amount equal to the lesser of (i) the Shared Amount or (ii) the difference between the initial TP Escrow Amount (not subject to any adjustment) and the Pre-Completion TP Amount, shall be placed in the TP Escrow Account, and shall be considered the Shared Amount for the purposes of this Agreement, and such amount shall be considered the TP Escrow Amount; and |
(ii) | the Consideration payable by the Purchaser at Completion shall be reduced by an amount equal to the Pre-Completion TP Amount. |
10. | ESCROW AND DEFERRED CONSIDERATION |
Escrow
10.1 | With respect to the treatment of the Escrow Amounts, the Parties agree to comply with Schedule 6 of this Agreement and the terms of the Escrow Agreements. |
10.2 | The Parties agree that: |
(a) | the purpose of placing the TP Escrow Amount into the TP Escrow Account is to satisfy: |
(i) | TP Claims; and |
(ii) | Claims against the Shared Amount (or such lesser amount as is held in the TP Escrow Account from time to time), provided that in respect of any Claim against the TP Escrow Amount (for the avoidance of doubt, other than a TP Claim): (A) a Claim Notice is delivered in accordance with this Agreement within 18 months after the Completion Date; and (B) the aggregate amount of all Claims made against the TP Escrow Amount (for the avoidance of doubt, other than a TP Claim) will not in any circumstances exceed the Shared Amount, |
(iii) | the Purchaser cannot claim against the TP Escrow Amount in respect of any Claims, save for in the circumstances described in Clause 10.2(a)(ii) above; and |
(iv) | all TP Claims against the Seller must, if payable in accordance with the terms of this Agreement, firstly be satisfied by payment from the TP Escrow Amount held in the TP Escrow Account, and secondly by payment from the General Escrow Account (and accordingly, cannot exceed the TP Escrow Amount plus the General Escrow Amount), in each case in accordance with this Clause 10 and Schedule 6. |
(b) | the purpose of placing the General Escrow Amount into the General Escrow Account is to satisfy any Claims (including Other Tax Claims, Employment Claims and Trade Debtor Claims) to the extent they are validly made in accordance with the terms of this Agreement, plus any TP Claims for which the TP Escrow Amount is not sufficient. Subject to Clause 7, all Claims against the Seller must, if payable in accordance with the terms of this Agreement, be satisfied by payment from: |
(i) | the General Escrow Amount held in the General Escrow Account (from time to time); and/or |
(ii) | the Shared Amount in the TP Escrow Account, in accordance with Clause 10.2(a)(ii) above, |
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it being understood (i) that Claims raised against the Seller within 18 months following Completion must, if payable in accordance with the terms of this Agreement, first be paid out of the Shared Amount and (ii) that Claims raised against the Seller cannot exceed the General Escrow Amount plus the Shared Amount, and in each case, in accordance with this Clause 10 and Schedule 6; and
(c) | notwithstanding that the Shared Amount is made available for Claims in accordance with Clause 10.2(a)(ii) above, it shall also remain available for TP Claims, and accordingly, to the extent either a Claim or a TP Claim reduces the Shared Amount available, only such reduced amount shall be available for Claims and TP Claims going forward. |
Deferred Consideration
10.3 | The Parties acknowledge and agree that: |
(a) | as set out in Schedule 9 to this Agreement, the Seller intends to procure that the China Dividends (less the China Withholding Tax) are paid prior to Completion, and the proceeds of such dividends will be distributed to members of the LM Group and/or used to pay debt owed by members of the LM Group; |
(b) | notwithstanding this intention, if the China Dividends are not paid prior to Completion: |
(i) | the Purchaser shall procure that the China Dividends (less the China Withholding Tax) are paid as soon as is reasonably practicable after Completion; |
(ii) | on the reasonable request of the Seller, the Purchaser shall keep the Seller informed of the progress and status of the payment of any China Dividend; and |
(iii) | upon receipt of a China Dividend (less the China Withholding Tax applicable to that dividend), the Purchaser shall or shall procure that an amount equal to that China Dividend (less the China Withholding Tax applicable to that dividend and net of the reasonable costs and expenses of the Purchaser or any Group Company paid to any third party in procuring such dividends are paid) is paid to the Seller, being a payment of deferred consideration as an adjustment to the Consideration. |
10.4 | In the first instance, the Seller intends to apply the China Withholding Tax to the China Dividends at a rate of 10%, but it is noted that such tax may be reduced. Accordingly, the Purchaser undertakes and agrees that it will (or it will procure that a member of the Group will): |
(a) | take such steps as are reasonably required by the Seller to recoup part of the China Withholding Tax (it being noted that the intention is to reduce the aggregate tax from a rate of 10% to 5%), including, without limitation, making such filings, submissions and presentations to the relevant Tax authorities as are reasonably necessary to procure such matters; |
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(b) | on the reasonable request of the Seller, the Purchaser shall keep the Seller informed of the progress and status of recouping of any such Tax; and |
(c) | upon receipt of any monies pursuant to such submissions, pay such funds to the Seller, net of the reasonable costs and expenses of the Purchaser or any Group Company paid to any third party in recovering such amounts. |
10.5 | Every amount payable under Clauses 10.3 and 10.4 shall be made in full without any set-off or counterclaim howsoever arising (save for any additional Tax borne by the Purchaser and/or any Group Company in carrying out such steps). |
10.6 | If, due to the operation of any laws or regulations a China Dividend cannot be paid, or the amounts mentioned in Clause 10.4 cannot reasonably be expected to be recouped or claimed from the relevant Tax authority, the Purchaser shall be released of the Purchasers obligation to pay these amounts to the Seller upon providing the Seller with reasonable documentary evidence of such reasons for the inability to make the dividend or recoup the payment. |
11. | PURCHASER AND PURCHASER GUARANTOR WARRANTIES |
11.1 | Each of the Purchaser and the Purchaser Guarantor warrants to the Seller at the date of this Agreement and at the Completion Date that: |
(a) | each of them has the requisite power and authority to enter into and to perform each Transaction Document to which it is a party; |
(b) | each Transaction Document to be entered into by each of them constitutes or will, when executed, constitute, legally valid and binding obligations of the Purchaser and the Purchaser Guarantor; |
(c) | at Completion each of them will have the necessary cash resources to comply with its obligations under this Agreement; |
(d) | compliance with the terms of each Transaction Document does not and will not conflict with or constitute a default or a breach under any provision of: |
(i) | the memorandum or articles of association or equivalent constitutional documents of the Purchaser or the Purchaser Guarantor; |
(ii) | any order, judgment, award, injunction, decree, ordinance or regulation or any other restriction of any kind or character by which the Purchaser or the Purchaser Guarantor is bound or submits; or |
(iii) | any agreement, instrument or contract to which the Purchaser or the Purchaser Guarantor is a party or by which it is bound; and |
(e) | save for any consents, notices or approvals required from the Competition Authority in accordance with Clause 3 and notice requirements pursuant to Clause 15.3 of this Agreement, compliance with the terms of this Agreement does not and will not require the Purchaser or the Purchaser Guarantor to obtain any consent or approval of, or give any notice to or make any registration with, any Governmental Authority which has not been obtained or made at the date of this Agreement. |
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12. | PURCHASER GUARANTOR GUARANTEE |
12.1 | The Purchaser Guarantor as primary obligor unconditionally and irrevocably: |
(a) | guarantees by way of continuing guarantee of its obligations hereunder to the Seller the due and punctual performance by the Purchaser of its obligations pursuant to Clauses 2.2, 6.2(a) and Part A of Schedule 3; |
(b) | agrees that if the Purchaser fails to make any payment of the Consideration in accordance with Clause 2.2, the Purchaser Guarantor shall on demand (without requiring the Seller first to take steps against the Purchaser or any other person) pay that amount to the Seller, provided that either (i) the Conditions are fulfilled and Completion has occurred; or (ii) Completion has not occurred as contemplated by this Agreement, and the failure to complete (including due to a Condition not being fulfilled, or a deliverable under Part A of Schedule 3 not being satisfied) is due to a failure by the Purchaser to perform its obligations under this Agreement (for the avoidance of doubt, this shall not include a circumstance where the failure is due to circumstances outside the Purchasers (or any of its Affiliates or Representatives) control). |
12.2 | Each payment to be made by the Purchaser Guarantor under this Clause 12 ( Purchaser Guarantor Guarantee ) shall be made in the currency in which the relevant amount is payable by the Purchaser and the provisions of Clause 28 shall apply mutatis mutandis to payments by the Purchaser Guarantor under this Clause 12 ( Purchaser Guarantor Guarantee ) as if such payment was pursuant to a Claim. |
12.3 | The Purchaser Guarantors obligations under this Clause 12 ( Purchaser Guarantor Guarantee ) shall not be affected by any matter or thing which but for this provision might operate to affect or prejudice these obligations, including without limitation: |
(a) | any time or indulgence granted to, or composition with, the Purchaser or any other person; |
(b) | the taking, variation, renewal or release of, or neglect to perfect or enforce this Agreement or any right, guarantee, remedy or security from or against the Purchaser or any other person; |
(c) | the inability or failure of the Purchaser to satisfy any amount in connection with this Agreement, including where such inability or failure arises due to this Agreement being unenforceable against, or invalid in respect of, the Purchaser, and not due wholly or primarily to any action or inaction by the Seller; or |
(d) | that the Seller may not have provided any or sufficient information to, or obtained consent from, the Purchaser Guarantor regarding any action or omission to act towards the Purchaser, including without limitation as set out in Clauses 12.3(a) to (c), |
provided that, if and to the extent that the Purchaser is not required to pay the Consideration in accordance with the terms of this Agreement (but for any unenforceability or invalidity not due wholly or primarily to the action or inaction of the Seller as set out in (c) above), then the Purchaser Guarantor shall not be required to pay such Consideration.
13. | NON-COMPETE AND NON-SOLICITATION |
13.1 | Subject to Clause 13.3, for a period of two (2) years from the Completion Date, the Seller shall refrain, and shall procure that each member of the LM Group refrains, from any activity competing with the Restricted Business. Furthermore, the Seller shall refrain, and shall procure that each member of the LM Group refrains, in the same period from acquiring or holding, directly or indirectly, any equity in any legal entity engaging in any competing activity. |
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13.2 | For a period of two (2) years from the Completion Date, unless a shorter period of time follows from mandatory legislation in the relevant jurisdiction (e.g. six (6) months in Denmark), the Seller shall refrain, and shall procure that each member of the LM Group refrains, from soliciting or attempting to solicit the service or employment of any Senior Employee of the Companies or the Subsidiaries (provided that this shall not restrict the LM Group from employing any person in response to a bona fide newspaper or trade advertisement). |
13.3 | The restrictions in Clause 13.1 shall not: |
(a) | preclude any member of the LM Group from (i) providing products or services substantially in the same form or manner as provided by them at Completion; or (ii) providing operations and maintenance services to the wind power industry generally, provided that in providing such services, the LM Group does not, and does not seek to, market or provide services specifically to the industrial brakes segment of the wind power industry, and to the extent that LM Group in providing operation and maintenance services to the wind power industry generally also deliver products and/or services to the brakes segment of the wind power industry, such part of LM Groups services may only constitute a minor part of the combined service to the specific customer; |
(b) | preclude or restrict any member of the LM Group from holding, as a passive investor, not more than three per cent. of the issued share capital of any company whose shares are publicly traded or listed; |
(c) | apply (or as the case may be shall cease to apply) in so far and to the extent that any member of the LM Group (or any part thereof) after Completion acquires, or is acquired by, any company or business, or enters into any joint venture, business combination or similar arrangement (a Business Transaction ), and, as a result of any such Business Transaction, the LM Group subsequently includes a company or business that conducts business which falls within the terms of Clause 13.1 (the Relevant Interest ) provided that: |
(i) | the Relevant Interest is not the principal reason for such Business Transaction and that, upon the request of the Purchaser, the Seller can reasonably demonstrate the same; and |
(ii) | the annual turnover generated by the Relevant Interest does not exceed the greater of: |
(1) | 10 per cent of the total consolidated turnover of the subject of the Business Transaction; or |
(2) | 10,000,000. |
14. | BOOKS AND RECORDS AND MISCELLANEOUS |
14.1 | The Purchaser shall procure that the Group Companies shall retain for a period of five (5) years from Completion (or such longer period as may be prescribed by applicable law) all books, records and other written information relating to the Group Companies, their assets, liabilities and / or business (i) delivered to the Purchaser in connection with the transactions contemplated by this Agreement; or (ii) held by the Group Companies at the Completion Date. |
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14.2 | Upon reasonable written notice and at the Sellers expense, the Purchaser shall procure that the Group Companies shall, to the extent permitted by applicable law, allow the Seller and its Representatives reasonable access during normal business hours to such books, records and other information (including, the right to inspect and take copies) as may be reasonably required by the Seller in order to enable the Seller or its Affiliates to comply with their statutory and contractual obligations (including, the Sellers obligations under this Agreement) PROVIDED THAT any such access will be conducted under the supervision of personnel of the Purchaser and/or the Group Companies and in such a manner as not to interfere unreasonably with the normal operation of the business of the Group Companies. Without limitation to the foregoing, the Purchaser agrees that the Seller and its Representatives shall have access to the books, records and other information of the Group immediately after Completion in order to collate information to enable to it to prepare its accounts (as required by law). |
14.3 | Upon reasonable written notice and at the Purchasers expense, the Seller shall procure that the members of the LM Group shall, to the extent permitted by applicable law, allow the Purchaser and its Representatives reasonable access during normal business hours to the historical financial data of the Group (as at Completion) maintained in the IBM Cognos system maintained by the LM Group, and allow such persons to inspect and take copies (including electronic copies) of such information, as may be reasonably required by the Purchaser in order to enable the Group to comply with its statutory and contractual obligations PROVIDED THAT any such access will be conducted under the supervision of personnel of the LM Group and in such a manner as not to interfere unreasonably with the normal operation of the business of the LM Group. |
14.4 | The Parties have agreed not to enter into any transitional services agreements or similar arrangements with respect to the Purchasers taking over and operation of the Group post Completion. Notwithstanding the foregoing, upon written request from the Purchaser or any Group Company, the Seller shall, and the Seller shall procure that the LM Group shall, provide assistance to the Purchaser or any Group Company which the Purchaser or any Group Company may reasonably request, provided that: |
(a) | the services are the same or substantially similar to those provided by a member of the LM Group to a Group Company on or prior to Completion; |
(b) | the Seller or the LM Group is actually able to render such services, and such services are necessary to facilitate the Purchasers taking over and operation of the Group post Completion; and |
(c) | such assistance shall be rendered at the Purchasers expense and on reasonable market terms. |
14.5 | If at any time after Completion and for any reason it is discovered that the Release Documents have not been sufficient to release the security referred to in the Release Documents, the Seller shall, upon written request from the Purchaser, use all reasonable endeavours to procure that the security trustee to the lending banks which have the benefit of such security, releases all such security as soon as reasonably practicable. |
14.6 |
If at any time after Completion and for any reason it is discovered that, there exists any security over the shares or assets of a Group Company in connection with any financial debt of any member of the LM Group, or there exists any other obligation on the part of any of the Group Companies supporting or securing the financial obligations of any member of the LM |
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Group, the Seller shall and will procure that the LM Group shall, upon written request from the Purchaser, use all reasonable endeavours to promptly procure that the party that has the benefit of such security or such obligations, releases all such security and releases the relevant Group Company for such obligations as soon as reasonably practicable. |
14.7 | The Parties acknowledge and agree that the Group will not be covered by the LM Groups General / Products Liability Insurance Policies as from Completion. The Parties agree that in the event that any Group Company suffers a loss, or becomes aware of facts or circumstances that would reasonably be expected to result in a loss, which is not covered by any of the Purchaser Groups insurance policies, but which is or potentially is covered by the General / Products Liability Insurance Policies because the loss arises from a pre-Completion occurrence (a Loss ): |
(a) | provided that the Purchaser (or relevant Group Company) provides the Seller with all information reasonably requested in respect of such Loss (such that the Seller can determine, acting reasonably, that the Loss would reasonably be expected to be covered by the General / Products Liability Insurance Policies), the Seller shall, or shall procure that an Affiliate shall, notify and pursue recovery of the Loss under the relevant General / Products Liability Insurance Policy (it being acknowledged that recovery of such Loss includes all available types of cover under the LM Groups General / Products Liability Insurance Policies, including, but not limited to indemnity and defence costs); |
(b) | on the request of the Purchaser (or any Group Company), the Seller shall upon notification of a Loss to the insurer, also notify the insurer that the Purchaser (or relevant Group Company) is nominated as Loss payee for any and all insurance proceeds in respect of such Loss and keep the Purchaser (or any relevant Group Company) informed of the progress and status of any such claim; and |
(c) | in pursuing recovery for the Loss under the General / Products Liability Insurance Policies, the Seller shall take into account the reasonable requests and representations of the Purchaser (or relevant Group Company), and provided that any such request does not have an adverse effect on the LM Group, take such actions in respect of the recovery of such Loss, as the Purchaser requests (it being acknowledged that it shall be at the discretion of the Seller as to whether any proceeding or litigation or other step of a similar kind is threatened or brought against the relevant insurer or underwriter, provided that, the Seller shall not unreasonably refuse such a request by the Purchaser if the Purchaser provides an opinion of counsel that determines that, under the circumstances, pursuit of an action for recovery against the insurer would be reasonable. For the avoidance of doubt, the Seller shall have conduct in respect of any such action), |
provided that in any such case: (A) the Purchaser shall indemnify the Seller (for itself and as trustee for each member of the LM Group) from time to time on demand against all losses, claims, expenses, demands and other liabilities incurred by any member of the LM Group as a result of compliance with the above provisions of this Clause 14.7 (including, without limitation, reasonable costs of making and pursuing a claim); (B) upon the written request of the Seller, it will either prepay or provide security for amounts that are reasonably expected to be payable pursuant to the indemnity under item (A) above, and if the Purchaser does not prepay or provide security for such amounts, the Seller is not obliged to carry out any of its obligations pursuant to this Clause 14.7; and (C) subject to the obligations to give notice to the Purchaser as set out herein, nothing herein shall require the LM Group or its Affiliates to maintain existing its insurance policies post Completion;
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The Seller shall ensure, and shall procure that the LM Group ensures, that the LM Group does not terminate, buy-back, or in other ways exit the General / Products Liability Insurance Policies (with the effect that the cover for any Loss or future Loss is limited or eliminated) without providing the Purchaser with at least three (3) months prior written notice of the LM Groups intent to terminate such General / Products Liability Insurance Policies. In addition, the Seller shall, and shall procure that the LM Group shall, cooperate reasonably in the event that the Purchaser determines that purchasing a form of run-off or tail coverage would be beneficial in protecting the Purchasers interests and ensuring there is no gap in coverage, provided that any such insurance shall be at the Purchasers cost.
14.8 | The Parties acknowledge and agree that: |
(a) | Mr H K Song is currently employed at Svendborg Brakes Korea Co. Ltd., however provides no services to Svendborg Brakes Korea Co. Ltd. and solely carries out business for and on behalf of the LM Group. The LM Group undertakes use all reasonable endeavours to enter into, as soon as practically possible after signing of this Agreement, a new employment agreement (or an assignment of the existing employment agreement) with Mr Song to accomplish the transfer of his employment to another legal entity within or on behalf of the LM Group. The LM Group undertakes to indemnify and hold harmless, Svendborg Brakes Korea Co. Ltd for all damages, liabilities and costs, including already paid costs, and all other costs relating to Mr H K Song, from the Locked Box Date to Completion and undertakes and agrees to pay all costs and take over all liabilities relating to Mr Song from Completion until Mr Song is transferred to another entity of the LM Group or until Mr Songs employment with Svendborg Brakes Korea Co. Ltd. is terminated (including where such termination of Mr H K Song is not lawful, i.e. not in compliance with relevant labour law entailing penalties to be paid by Svendborg Brakes Korea Co. Ltd. to Mr H K Song), whichever date is first; and |
(b) | the Seller holds the lease as lessee, and pays the rent for, the leased premises in South Korea situated at 102-2602, Daewoo World Mark-YongSan, Seoul (the South Korean Leased Premises ). The parties further acknowledge that Mr H K Song (who is currently an employee of Svendborg Brakes Korea Co. Ltd, but whose employment shall be dealt with pursuant to Clause 14.8(a) above) is provided with access to and use of the Leased Premises and that LM Group reimburses Svendborg Brakes Korea Co. Ltd for such use. Following signing of this Agreement: |
(i) | the Purchaser shall (and shall procure that Svendborg Brakes Korea Co. Ltd shall), subject at all times to the terms of any lease agreement or extension relating to the Leased Premises, and provided that such access is not materially detrimental to the Purchaser or any Group Company, permit Mr H K Song to have access to and use of the Leased Premises for not less than 6 months after Completion, and thereafter as agreed to between the Parties; and |
(ii) | the Seller shall reimburse and shall procure that the LM Group reimburses Svendborg Brakes Korea Co. Ltd upon Svendborg Brakes Korea Co. Ltd.s delivery of documentation for half the costs relating to the Leased Premises and any additional costs relating to Mr H K Songs use of the Leased Premises from the Locked Box Date (to the extent that such costs have not already been satisfied by a member of the LM Group), and for as long as the Leased Premises is shared by the Parties, |
and the Seller acknowledges and agrees that: (X) any amounts payable under the indemnity provided in this Clause 14.8, shall not be required to be satisfied (but may at the Purchasers
34
election be satisfied) by the Escrow Amounts, and the Purchaser shall have separate recourse to the Seller, and further that the limitations set out in Clauses 7.5, 7.6 and 7.7 shall not apply to such indemnity; and (Y) upon the written request of the Purchaser, it will either prepay or provide security for amounts that are reasonably expected to be payable pursuant to this Clause 14.8, and if the Seller does not prepay or provide security for such amounts, the Purchaser is not obliged to carry out any of its obligations pursuant to this Clause 14.8.
15. | ANNOUNCEMENTS |
15.1 | The Parties hereby agree to the release of the Press Announcement promptly following the execution of this Agreement. |
15.2 | Save for the Press Announcement (and any announcement that is consistent in all material respects with the Press Announcement or any other announcement made in accordance with this Clause 15 (Announcements) ) and subject to Clause 15.3, no public announcement concerning the existence or subject matter of this Agreement (i.e. announcements concerning this Agreement only) shall be made by any Party without the prior written approval of the Purchaser, in the case of any announcement by the Seller, or the Seller, in the case of any announcement by the Purchaser, in each case with such approval not to be unreasonably withheld or delayed. |
15.3 | A Party may make an announcement concerning the existence or the subject matter of this Agreement if required by: |
(a) | any applicable law or enactment; or |
(b) | any securities exchange or Governmental Authority to which that Party is subject or submits, wherever situated, including on the part of the Purchaser filings that it is required to, or that it considers (acting reasonably) it is advisable to, make with the United States Securities and Exchange Commission, |
provided that it shall, to the extent permitted by law, send the other Party a copy of such announcement simultaneously with the announcement pursuant to the above.
15.4 | The restrictions contained in this Clause 15 (Announcements) shall continue to apply after termination of this Agreement without limit in time. |
16. | CONFIDENTIALITY |
16.1 | Subject to Clauses 16.2 and 16.4, each Party shall treat as strictly confidential and shall not disclose to any other person any information received or obtained as a result of entering into or performing this Agreement which relates to the existence of this Agreement, the provisions of this Agreement, Claims, the negotiations and subject matter of this Agreement and the other Parties ( Confidential Information ) (including written information and information transferred or obtained orally, visually, electronically or by any other means) including details of any claims. |
16.2 | A Party may disclose information which would otherwise be subject to the provisions of Clause 16.1, if and to the extent: |
(a) | it is required by applicable law or enactment to which such Party is subject; |
(b) | it is an announcement made in accordance with the provisions of Clause 15 (Announcements) ; |
(c) | it is required by any securities exchange or Governmental Authority to which any Party is subject or submits, wherever situated, whether or not the requirement for information has the force of law; |
(d) | it is disclosed on a strictly confidential basis to the professional advisers, auditors and bankers of that Party; |
35
(e) | it is disclosed on a strictly confidential basis to directors and / or employees of that Party, to its Affiliates or to directors and / or employees of its Affiliates; |
(f) | it was lawfully in its possession or in the possession of any of its Affiliates or Representatives (in either case as evidenced by written records) free of any restriction as to its use or disclosure prior to it being so disclosed; |
(g) | the information has come into the public domain through no fault of that Party or any of its Affiliates or Representatives; |
(h) | that the Seller (in relation to disclosure by the Purchaser) or the Purchaser (in relation to disclosure by the Seller) has given prior written consent to the disclosure; or |
(i) | it is required to enable that Party to perform this Agreement or enforce its rights under this Agreement and / or disclosure is required for the purposes of any Proceedings, |
and PROVIDED THAT, without limitation to Clause 15.3, to the extent reasonably practicable and permitted by applicable law, the relevant person shall notify the other Parties to this Agreement of any information to be disclosed in reliance on Clauses 16.2(a) or 16.2(b).
16.3 | Each of the Parties hereby agrees that it shall not use Confidential Information for any purpose other than in relation to the proper performance of its obligations and exercise of its rights under this Agreement (and the transactions contemplated hereby) or in connection with the business of the Group Companies. |
16.4 | Each of the Parties undertakes that it shall, and shall procure that its Affiliates shall, only disclose Confidential Information to any of its Representatives if it is reasonably required for purposes connected with this Agreement (or the other Transaction Documents) and only if the Representative is informed of the confidential nature of the Confidential Information and accepts equivalent restrictions to those accepted by the Party who discloses the information. |
16.5 | The restrictions contained in this Clause 16 (Confidentiality) shall continue to apply after termination of this Agreement without limit in time. |
16.6 | Without prejudice to any other rights or remedies that the Parties may have, the Parties acknowledge and agree that damages alone would not be an adequate remedy for any breach by them of this Clause 16 (Confidentiality) and that the remedies of injunction and specific performance as well as any other equitable relief for any threatened or actual breach of this Clause 16 (Confidentiality) by any Party would be more appropriate remedies. |
17. | NOTICES |
17.1 | Any notice or other communication to be given under or in connection with this Agreement (a Notice ) shall be: |
(a) | in writing in the English language; |
(b) | signed by or on behalf of the Party giving it; and |
(c) | delivered: |
(i) | personally by hand or courier (using an internationally recognised courier company); or |
(ii) | sent by first class post (or by airmail if overseas) or recorded delivery or by facsimile; or |
(iii) | by email, provided that if receipt is not acknowledged by the recipient by return email with 24 hours of it being sent, a copy of such notice must also be sent pursuant to any of the means set out in Clauses 17.1(c)(i) and (ii) above, no later than 2 Business Days after the day on which the original email was sent, |
36
to the Party due to receive the Notice, to the address and for the attention of the relevant Party set out in this Clause 17 (Notices) (or to such other address and / or for such other persons attention as shall have been notified to the giver of the relevant Notice and become effective (in accordance with this Clause 17 (Notices) ) prior to dispatch of the Notice).
17.2 | In the absence of evidence of earlier receipt, any Notice served in accordance with Clause |
17.1 | shall be deemed given and received: |
(a) | in the case of personal delivery by hand or courier, at the time of delivery at the address referred to in Clause 17.4; |
(b) | in the case of first class post (other than airmail) or recorded delivery, at 10am on the second Business Day after posting; |
(c) | in the case of airmail, at 10am on the fifth Business Day after posting; |
(d) | in the case of facsimile, when confirmation of its successful transmission has been recorded by the senders fax machine; and |
(e) | in the case of email, upon its receipt being acknowledged by return email, or provided the sender complies with Clauses 17.1(c)(iii) above, at the time the email was recorded as sent in the system of the sender. |
17.3 | For the purposes of this Clause 17 (Notices) : |
(a) | all times are to be read as local time in the place of deemed receipt; and |
(b) | if deemed receipt under this Clause 17 (Notices) is not within business hours (meaning 9.00am to 5.30pm Monday to Friday on a day that is not a public holiday in the place of receipt), the Notice is deemed to have been received at 10am on the next Business Day in the place of receipt. |
17.4 | The addresses of the Parties for the purpose of this Clause 17 (Notices) are as follows: |
(a) | Seller: |
For the attention of: | Soren Hoffer | |
Address: | Jupitervej 6, 6000 Kolding, Denmark | |
Telephone: | +45 79 84 00 00 | |
Facsimile: | +45 79 84 00 01 | |
Email: | sh@lmwindpower.com |
37
With a copy (which shall not constitute, or be essential for valid, notice) to:
For the attention of: | Graeme Stening, Head of Legal Affairs | |
Address: | Doughty Hanson & Co Managers Limited, 45 Pall Mall, London SW1Y 5JG | |
Telephone: | +44 20 7663 9484 | |
Facsimile: | +44 20 7663 9354 | |
Email: | graeme.stening@doughtyhanson.com |
With a copy (which shall not constitute, or be essential for valid, notice) to:
For the attention of: | Allan Murray-Jones | |
Address: | Skadden, Arps, Slate, Meagher & Flom (UK) LLP, 40 Bank Street, Canary Wharf, London E14 5DS | |
Telephone: | +44 20 7519 7000 | |
Facsimile: | +44 20 7519 7070 | |
Email: | allan.murray-jones@skadden.com |
(b) | Purchaser and Purchaser Guarantor: |
For the attention of: | ||
Carl Christenson | ||
Address: | 300 Granite Street, Suite 201, Braintree, MA 02184, USA | |
Telephone: | +1 781 917 0510 | |
Facsimile: | +1 781 843 0615 | |
Email: | carl.christenson@altramotion.com |
With a copy (which shall not constitute, or be essential for valid, notice) to:
For the attention of: | Glenn Deegan | |
Address: | 300 Granite Street, Suite 201, Braintree, MA 02184, USA | |
Telephone: | +1 781 917 0517 | |
Facsimile: | +1 815 389 7782 | |
Email: | glenn.deegan@altramotion.com |
38
With a copy (which shall not constitute, or be essential for valid, notice) to:
For the attention of: | Peter M. Andersen | |
Address: | Bech-Bruun Law Firm, Langelinie Allé 35, DK-2100 Copenhagen Æ , Denmark | |
Telephone: | +45 72 27 33 06 | |
Facsimile: | +45 72 27 00 27 | |
Email: | pma@bechbruun.com |
17.5 | In proving service it shall be sufficient to prove that the envelope containing the notice or communication was properly addressed and delivered to the address shown thereon, or that the facsimile containing the notice or communication was transmitted to the fax number of the relevant Party. |
17.6 | If a Party can reasonably assume that the person for whose attention a Notice is marked in relation to another Party, or a director of such another Party, is aware that such a Notice has been given, such Notice shall be deemed to be validly given from the time at which such person had that awareness. |
17.7 | Any Party may notify the other Parties of any change to its name, address or facsimile number for the purpose of this Clause 17 (Notices) , provided that such notice shall be sent to each of the other Parties and shall only be effective on: |
(a) | the date specified in the notice as the date on which the change is to take effect; or |
(b) | if no date is so specified or the date specified is less than three (3) Business Days after which such notice was given (or deemed to be given), the fourth Business Day after the notice was given or deemed to be given. |
17.8 | This Clause shall not apply to the service of, or any step in, Proceedings. |
18. | INTEREST |
If any sum due for payment under this Agreement is not paid on the due date the Party in default shall pay interest on the unpaid sum from the due date and until and including the date of actual payment at a rate equal to the aggregate of 5 per cent per annum.
19. | ASSIGNMENT |
19.1 | No Party may assign the benefit of this Agreement (in whole or in part) or transfer, declare a trust of or otherwise dispose of in any manner whatsoever its rights and obligations under this Agreement or sub contract or delegate its performance under this Agreement (each of the above a dealing ) without the prior written consent of all of the other Parties, such consent to be at the absolute discretion of the other Parties to withhold. |
19.2 | Any dealing or purported dealing in contravention of this Clause 19 (Assignment) shall be ineffective to the extent possible. |
19.3 | Each Party that has rights under this Agreement is acting on its own behalf and not for the benefit of another person. |
20. | COSTS AND EXPENSES |
20.1 | Save as otherwise expressly provided in this Agreement (including Clause 5 (No Leakage) ), each Party shall pay its own costs and expenses in relation to the negotiation, preparation, execution and carrying into effect of this Agreement and all other documents mentioned herein. |
39
21. | JOINT TAXATION |
21.1 | The Companies will cease to be jointly taxed with the Seller from the Completion Date as specified in Schedule 7. |
22. | INVALIDITY |
If at any time any provision of this Agreement shall be held to be illegal, void, invalid or unenforceable in whole or in part under any enactment or rule of law in any jurisdiction, then:
(a) | such provision shall: |
(i) | to the extent that it is illegal, void, invalid or unenforceable, be given no effect and shall be deemed not to be included in this Agreement; and |
(ii) | not affect or impair the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or the legality, validity or enforceability under the law of any other jurisdiction of such provision or any other provision of this Agreement; and |
(b) | the Parties shall use all reasonable endeavours to replace such a provision with a valid and enforceable substitute provision which carries out, as closely as possible, the intentions of the Parties under this Agreement. |
23. | THIRD PARTY RIGHTS |
23.1 | The Parties do not intend that any term of this Agreement should be enforceable by any person (a Third Party ) who is not a party to this Agreement. |
23.2 | Notwithstanding the provisions of Clause 23.1 or any benefits conferred by this Agreement on any third party, the Parties may agree to amend, vary, waive, terminate or rescind this Agreement at any time and in any way without the consent of any Third Party. |
24. | FURTHER ASSURANCE |
Without prejudice to any other provision of this Agreement, the Seller shall, on being required to do so by the Purchaser, do or procure the doing of all such acts and / or execute or procure the execution of such documents as the Purchaser may from time to time reasonably require in order to vest any of the Sale Shares in the Purchaser.
25. | WHOLE AGREEMENT |
25.1 | Each of the Parties to this Agreement confirms that the content of this Agreement and the other Transaction Documents as expressly set out herein and therein, represents the entire understanding, and constitutes the whole agreement, in relation to its subject matter and the transactions contemplated by this Agreement and the Transaction Documents, and supersedes all previous agreements, understandings or arrangements (whether express, implied, oral or written (whether or not in draft form)) between the Parties with respect thereto which shall cease to have any further force or effect notwithstanding the existence of any provision of any such prior agreement or understanding that any such rights or provisions shall survive its termination and, without prejudice to the generality of the foregoing, excludes any warranty, condition or other undertaking implied at law or by custom, usage or course of dealing. |
25.2 | The Purchaser (for itself and on behalf of each other member of the Purchasers Group) confirms that: |
(a) |
in entering into this Agreement and the other Transaction Documents it has agreed not to rely on any representation (including without limitation any misrepresentation or any misstatement), warranty, collateral contract, assurance, covenant, indemnity, |
40
undertaking or commitment which is not expressly set out in this Agreement, including the Due Diligence Documentation, or the applicable Transaction Document. |
25.3 | Without prejudice to the foregoing provisions of this Clause 25 (Whole Agreement) , the Purchaser acknowledges and agrees that neither the Seller nor any of the Sellers Affiliates nor any Group Company nor their respective Representatives, makes nor has previously made any representation (including any misrepresentation or any misstatement), warranty, collateral contract, assurance or undertaking as to the accuracy of the forecasts, estimates, projections, statements of intent and statements of opinion provided to the Purchaser or any of its Representatives (howsoever provided) on or prior to the date of this Agreement, including forecasts, estimates, projections, statements of intent and statements of opinion contained in materials provided in the Data Room/the Due Diligence Documentation, at or in relation to the presentations by the Representatives of the Seller and / or the management of the Group Companies to, and the related Q and A sessions with, the Purchaser and / or its Representatives. |
26. | VARIATION AND WAIVER |
26.1 | No variation of this Agreement shall be effective unless it is in writing (which for this purpose, does not include email) and signed by or on behalf of each of the Parties. The expression variation shall, in each case, include any variation, supplement, deletion or replacement however effected. |
26.2 | Any waiver or any right or default hereunder shall be effective only in the instance given and will not operate as or imply a waiver of any other or similar right or default on any subsequent occasion. No waiver of this Agreement or of any provision hereof will be effective unless it is in writing and signed by the Party against whom such waiver is sought to be enforced. |
26.3 | Any delay by any Party in exercising, or failure to exercise, any right or remedy under this Agreement shall not constitute a waiver of the right or remedy or a waiver of any other rights or remedies and no single or partial exercise of any rights or remedy under this Agreement or otherwise shall prevent any further exercise of the right or remedy or the exercise of any other right or remedy. |
27. | COUNTERPARTS |
This Agreement may be executed in counterparts, and by the Parties on separate counterparts, but shall not be effective until each Party has executed at least one counterpart. Each counterpart shall constitute an original of this Agreement, but the counterparts shall together constitute one and the same instrument.
28. | PAYMENTS AND NO SET-OFF |
28.1 | Subject to Clause 2.5, every amount payable under this Agreement by one Party to another shall be made in full without any set-off or counterclaim howsoever arising and shall be free and clear of deduction or withholding of any kind other than any deduction or withholding required by law. |
28.2 | Unless otherwise expressly stated in this Agreement, all payments to be made under this Agreement shall be made in to such account as the receiving Party directs by notice to the paying Party. |
29. | GOVERNING LAW AND JURISDICTION |
29.1 | This Agreement and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter shall be governed by, and construed in accordance with, Danish law. |
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29.2 | Any dispute, controversy or claim arising out of or in connection with this Agreement, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by binding arbitration under the Rules of Arbitration of the International Chamber of Commerce, which Rules are deemed to be incorporated by reference into this clause. There shall be three arbitrators, and the parties agree that one arbitrator shall be nominated by each party for appointment by the ICC Court in accordance with the ICC Rules. The third arbitrator, who shall act as the chairman of the tribunal, shall be nominated by agreement of the two party-appointed arbitrators within fourteen days of the confirmation of the appointment of the second arbitrator, or in default of such agreement, appointed by the ICC Court. The seat or place of arbitration shall be Copenhagen. The language to be used in the arbitral proceedings shall be English. The award shall be final and binding on the parties and may be entered and enforced in any court having jurisdiction. |
29.3 | Each Party waives (and agrees not to raise) any objection, on the ground of inconvenient forum or on any other ground, to the bringing of Proceedings pursuant to Clause 26.2. |
29.4 | Each Party irrevocably agrees that a judgment or order against it in Proceedings brought in Denmark shall (provided there is no appeal pending or open) be conclusive and binding upon it and may be enforced against it in the courts of any other jurisdiction. |
AS WITNESS the hands of the parties or their duly authorised officers on the date first written on page 1 of this Agreement.
[Signature pages follow the Schedules and Appendices]
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AS WITNESS the hands of the parties or their duly authorised officers on the date first written on page 1 of this Agreement.
Seller: | ||||||
Signed by | ||||||
FRICTION HOLDING A/S acting by | ||||||
L.M. SCHUT | (NAME OF DIRECTOR) and | /s/ L.M. Schut | ||||
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S. Hoffer | (NAME OF DIRECTOR) | /s/ S. Hoffer | ||||
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Purchaser and Purchaser Guarantor: | ||||||
Signed by | ||||||
ALTRA INDUSTRIAL MOTION DENMARK APS acting by | ||||||
(NAME OF DIRECTOR) | ||||||
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Signed by | ||||||
ALTRA HOLDINGS, INC. acting by | ||||||
(NAME OF DIRECTOR) | ||||||
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AS WITNESS the hands of the parties or their duly authorised officers on the date first written on page 1 of this Agreement.
Seller: | ||||||
Signed by | ||||||
FRICTION HOLDING A/S acting by | ||||||
(NAME OF DIRECTOR) and | ||||||
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(NAME OF DIRECTOR) | ||||||
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Purchaser and Purchaser Guarantor: | ||||||
Signed by | ||||||
ALTRA INDUSTRIAL MOTION DENMARK APS acting by | ||||||
Carl Christenson | (NAME OF DIRECTOR) | /s/ Carl R. Christenson | ||||
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Signed by | ||||||
ALTRA HOLDINGS, INC. acting by | ||||||
Carl Christenson | (NAME OF PRESIDENT) | /s/ Carl R. Christenson | ||||
|
|
Exhibit 10.14
EXECUTION VERSION
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of
December 6, 2013,
among
ALTRA INDUSTRIAL MOTION CORP.
and Certain of its Subsidiaries,
as Borrowers,
and
The Lenders Party Hereto
and
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent
J.P. MORGAN SECURITIES LLC,
WELLS FARGO SECURITIES, LLC and
KEYBANC CAPITAL MARKETS, INC.,
as Joint Lead Arrangers and Joint Bookrunners,
WELLS FARGO BANK, NATIONAL ASSOCIATION and
KEYBANK NATIONAL ASSOCIATION,
as Co-Syndication Agents
and
TD BANK, N.A.,
FIFTH THIRD BANK and
RBS CITIZENS, N.A.,
as Co-Documentation Agents
TABLE OF CONTENTS
Page | ||
ARTICLE I Definitions |
1 | |
SECTION 1.01. Defined Terms |
1 | |
SECTION 1.02. Classification of Loans and Borrowings |
29 | |
SECTION 1.03. Terms Generally |
29 | |
SECTION 1.04. Accounting Terms; GAAP |
30 | |
SECTION 1.05. Status of Obligations |
31 | |
ARTICLE II The Credits |
31 | |
SECTION 2.01. Commitments; Original Term Loans; Additional Term Loans |
31 | |
SECTION 2.02. Loans and Borrowings |
31 | |
SECTION 2.03. Requests for Borrowings |
32 | |
SECTION 2.04. Determination of Dollar Amounts |
33 | |
SECTION 2.05. Swingline Loans |
34 | |
SECTION 2.06. Letters of Credit |
35 | |
SECTION 2.07. Funding of Borrowings |
39 | |
SECTION 2.08. Interest Elections |
40 | |
SECTION 2.09. Termination and Reduction of Commitments |
42 | |
SECTION 2.10. Repayment and Amortization of Loans; Evidence of Debt |
42 | |
SECTION 2.11. Prepayment of Loans |
44 | |
SECTION 2.12. Fees |
46 | |
SECTION 2.13. Interest |
47 | |
SECTION 2.14. Alternate Rate of Interest |
48 | |
SECTION 2.15. Increased Costs |
49 | |
SECTION 2.16. Break Funding Payments |
50 | |
SECTION 2.17. Payments Free of Taxes |
51 | |
SECTION 2.18. Payments Generally; Allocations of Proceeds; Pro Rata Treatment; Sharing of Set-offs |
54 | |
SECTION 2.19. Mitigation Obligations; Replacement of Lenders |
57 | |
SECTION 2.20. Defaulting Lenders |
58 | |
SECTION 2.21. Expansion Option |
60 | |
SECTION 2.22. Judgment Currency |
62 | |
SECTION 2.23. Designated Borrowers |
62 | |
ARTICLE III Representations and Warranties |
64 | |
SECTION 3.01. Organization; Powers |
64 | |
SECTION 3.02. Authorization; Enforceability |
64 | |
SECTION 3.03. Governmental Approvals; No Conflicts |
64 | |
SECTION 3.04. Financial Condition; No Material Adverse Change |
64 | |
SECTION 3.05. Properties |
65 | |
SECTION 3.06. Litigation, Environmental and Labor Matters |
65 | |
SECTION 3.07. Compliance with Laws and Contractual Obligations |
66 | |
SECTION 3.08. Investment Company Status |
66 | |
SECTION 3.09. Taxes |
66 |
i
SECTION 3.10. ERISA |
66 | |||
SECTION 3.11. Disclosure |
67 | |||
SECTION 3.12. Federal Reserve Regulations |
67 | |||
SECTION 3.13. Solvency |
67 | |||
SECTION 3.14. Use of Proceeds |
67 | |||
SECTION 3.15. Subsidiaries |
67 | |||
SECTION 3.16. No Burdensome Restrictions |
67 | |||
SECTION 3.17. No Default |
67 | |||
SECTION 3.18. Applicable Anti-Corruption Laws, Applicable Anti-Money Laundering Laws and Sanctions |
67 | |||
SECTION 3.19. Representations as to Foreign Borrowers |
68 | |||
ARTICLE IV Conditions |
69 | |||
SECTION 4.01. Effective Date |
69 | |||
SECTION 4.02. Each Credit Event |
71 | |||
SECTION 4.03. Initial Credit Event for each Additional Borrower |
71 | |||
ARTICLE V Affirmative Covenants |
72 | |||
SECTION 5.01. Financial Statements and Other Information |
72 | |||
SECTION 5.02. Notices of Material Events |
73 | |||
SECTION 5.03. Existence; Conduct of Business |
74 | |||
SECTION 5.04. Payment of Obligations |
74 | |||
SECTION 5.05. Maintenance of Properties; Insurance |
74 | |||
SECTION 5.06. Books and Records; Inspection Rights |
75 | |||
SECTION 5.07. Compliance with Laws and Material Contractual Obligations |
75 | |||
SECTION 5.08. Use of Proceeds |
75 | |||
SECTION 5.09. Accuracy of Information |
76 | |||
SECTION 5.10. Material Domestic Subsidiaries |
76 | |||
SECTION 5.11. Additional Collateral; Further Assurances |
76 | |||
ARTICLE VI Negative Covenants |
77 | |||
SECTION 6.01. Indebtedness |
77 | |||
SECTION 6.02. Liens |
79 | |||
SECTION 6.03. Fundamental Changes and Asset Sales |
80 | |||
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions |
81 | |||
SECTION 6.05. Swap Agreements |
84 | |||
SECTION 6.06. Restricted Payments |
84 | |||
SECTION 6.07. Transactions with Affiliates |
84 | |||
SECTION 6.08. Restrictive Agreements |
85 | |||
SECTION 6.09. Financial Covenants |
85 | |||
SECTION 6.10. Capital Expenditures |
85 | |||
ARTICLE VII Events of Default |
86 | |||
ARTICLE VIII The Administrative Agent |
88 | |||
ARTICLE IX Miscellaneous |
92 | |||
SECTION 9.01. Notices |
92 | |||
SECTION 9.02. Waivers; Amendments |
93 | |||
SECTION 9.03. Expenses; Indemnity; Damage Waiver |
95 | |||
SECTION 9.04. Successors and Assigns |
96 | |||
SECTION 9.05. Survival |
100 |
ii
SECTION 9.06. Counterparts; Integration; Effectiveness |
100 | |||
SECTION 9.07. Severability |
101 | |||
SECTION 9.08. Right of Setoff |
101 | |||
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process |
101 | |||
SECTION 9.10. WAIVER OF JURY TRIAL |
102 | |||
SECTION 9.11. Headings |
102 | |||
SECTION 9.12. Confidentiality |
102 | |||
SECTION 9.13. Material Non-Public Information |
103 | |||
SECTION 9.14. Authorization to Distribute Certain Materials to Public-Siders |
103 | |||
SECTION 9.15. Interest Rate Limitation |
104 | |||
SECTION 9.16. USA PATRIOT Act |
104 | |||
SECTION 9.17. Appointment for Perfection |
104 | |||
SECTION 9.18. Collateral Fallaway |
104 | |||
SECTION 9.19. Existing Credit Agreement Amended and Restated |
105 | |||
ARTICLE X Domestic Borrower Guaranty |
105 |
SCHEDULES:
Schedule 1.01 | Existing Letters of Credit | |
Schedule 2.01 | Commitments | |
Schedule 2.23 | Designated Borrowers | |
Schedule 3.06 | Disclosed Matters | |
Schedule 3.15 | Subsidiaries and Material Domestic Subsidiaries | |
Schedule 6.01 | Existing Indebtedness | |
Schedule 6.02 | Existing Liens | |
Schedule 6.04 | Existing Investments | |
Schedule 6.08 | Existing Restrictive Agreements |
EXHIBITS:
Exhibit A | Form of Assignment and Assumption | |
Exhibit B | Form of Compliance Certificate | |
Exhibit C | Forms of U.S. Tax Certificates | |
Exhibit D | Form of Increasing Lender Supplement Existing Lender | |
Exhibit E | Form of Augmenting Lender Supplement New Lender | |
Exhibit F | Form of Borrowing Request | |
Exhibit G | Form of Designated Borrower Request and Assumption Agreement | |
Exhibit H | Form of Designated Borrower Notice |
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AMENDED AND RESTATED CREDIT AGREEMENT (this Agreement ) dated as of December 6, 2013, among ALTRA INDUSTRIAL MOTION CORP., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain Subsidiaries of the Company from time to time party hereto pursuant to Section 2.23 (each, a Designated Borrower and, together with the Company, the Borrowers and each, a Borrower ), the LENDERS from time to time party hereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.
WHEREAS, the Company and Altra Power Transmission, Inc., a Delaware corporation (f/k/a Altra Industrial Motion, Inc., a Delaware corporation) ( APT ), as borrowers, the Administrative Agent, and the Lenders as of the date hereof are each party to that certain Credit Agreement dated as of November 20, 2012 (the Existing Credit Agreement );
WHEREAS, prior to the date hereof, (i) the Company changed its name from Altra Holdings, Inc. to Altra Industrial Motion Corp. (by merging its wholly-owned subsidiary, Altra Merger Sub, Inc., a Delaware corporation, with and into the Company under the name of Altra Industrial Motion Corp.), and (ii) APT changed its name from Altra Industrial Motion, Inc. to Altra Power Transmission, Inc. (by filing a Certificate of Amendment to its Certificate of Incorporation to effect such name change); and
WHEREAS, the Borrowers have requested that the Lenders and the Administrative Agent agree to amend and restate the Existing Credit Agreement, and the Lenders and the Administrative Agent are willing to so amend and restate the Existing Credit Agreement, on the terms and conditions herein set forth;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms . As used in this Agreement, the following terms have the meanings specified below:
ABR , when used in reference to any Loan or Borrowing, refers to a Loan, or the Loans comprising such Borrowing, bearing interest at a rate determined by reference to the Alternate Base Rate.
Acquisition means any transaction or series of related transactions resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of any Person, or any business unit, division, product line or line of business of any Person, (b) the acquisition of in excess of fifty percent (50%) of the Equity Interests of any Person, or (c) the acquisition of another Person by a merger, amalgamation or consolidation or any other combination with such Person.
Additional Term Lender means, as of any date of determination, each Lender having an Additional Term Loan Commitment or holding Additional Term Loans.
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Additional Term Loan Commitment means, with respect to each Lender, the commitment of such Lender to make Additional Term Loans hereunder. The initial amount of each Lenders Additional Term Loan Commitment is set forth on Schedule 2.01 , or in the Assignment and Assumption or other documentation contemplated hereby pursuant to which such Lender shall have assumed its Additional Term Loan Commitment, as applicable.
Additional Term Loans means the term loans made on the Effective Date by the Additional Term Lenders to the Dutch Borrower pursuant to Section 2.01 .
Adjusted LIBO Rate means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
Administrative Agent means JPMorgan Chase Bank, N.A. (including its subsidiaries and Affiliates), in its capacity as administrative agent for the Lenders hereunder.
Administrative Questionnaire means an Administrative Questionnaire in a form supplied by the Administrative Agent.
Affiliate means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
Aggregate Revolving Commitment means the aggregate amount of the Revolving Commitments of all of the Lenders, as reduced or increased from time to time pursuant to the terms and conditions hereof. As of the Effective Date, the Aggregate Revolving Commitment is $200,000,000.
Agreed Currencies means (a) U.S. Dollars, (b) Euro, (c) Pounds Sterling, and (d) any other lawful currency that is readily available and freely transferable and convertible into U.S. Dollars, available in the London interbank deposit market and acceptable to the Administrative Agent, the Issuing Bank and all of the Revolving Lenders. If any currency (other than U.S. Dollars) is or becomes an Agreed Currency and subsequently fails to meet the foregoing requirements, whether due to currency control or other exchange regulations imposed in the country in which such currency is issued or otherwise (a Disqualifying Event ), then the Administrative Agent shall promptly notify the Revolving Lenders and the Company, and such currency shall no longer be an Agreed Currency until such time as the Disqualifying Event no longer exists.
Agreement has the meaning assigned to such term in the preamble.
Alternate Base Rate means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1 ⁄ 2 of 1%, and (c) the Adjusted LIBO Rate for a one (1) month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%; provided , that for purposes of this definition, the Adjusted LIBO Rate for any Business Day shall be based on the rate appearing on the Reuters Screen LIBOR01 (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations
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comparable to those currently provided on such page of such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to deposits in U.S. Dollars in the London interbank market) at approximately 11:00 a.m., London time, on such Business Day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, respectively.
Applicable Anti-Corruption Laws means all laws, rules, and regulations of any jurisdiction applicable to the Company or its Subsidiaries from time to time concerning or relating to bribery or corruption.
Applicable Anti-Money Laundering Laws means all laws, rules, and regulations of any jurisdiction applicable to the Company or its Subsidiaries from time to time concerning or relating to anti-money laundering and terrorist financing, including the US Bank Secrecy Act, the Patriot Act and the US Money Laundering Control Act.
Applicable Foreign Borrower Documents has the meaning assigned to such term in Section 3.19(a) .
Applicable Percentage means, with respect to any Lender, (a) with respect to Revolving Loans, Letters of Credit (including LC Exposure and LC Disbursements) or Swingline Loans (including Swingline Exposure), the percentage equal to a fraction, the numerator of which is such Lenders Revolving Commitment and the denominator of which is the Aggregate Revolving Commitment; provided , that if the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Commitments most recently in effect, after giving effect to any assignments; provided further , that in the case of Section 2.20 when a Defaulting Lender shall exist, any such Defaulting Lenders Revolving Commitment shall be disregarded from both the numerator and the denominator in the foregoing calculation, (b) with respect to Original Term Loans, a percentage equal to a fraction, the numerator of which is the aggregate outstanding principal amount of such Lenders Original Term Loans and the denominator of which is the aggregate outstanding principal amount of all Original Term Loans; provided , that in the case of Section 2.20 when a Defaulting Lender shall exist, any such Defaulting Lenders Original Term Loans shall be disregarded from both the numerator and the denominator in the foregoing calculation, (c) with respect to Additional Term Loans, a percentage equal to a fraction, the numerator of which is the aggregate outstanding principal amount of such Lenders Additional Term Loans and the denominator of which is the aggregate outstanding principal amount of all Additional Term Loans; provided , that in the case of Section 2.20 when a Defaulting Lender shall exist, any such Defaulting Lenders Additional Term Loans shall be disregarded from both the numerator and the denominator in the foregoing calculation, and (d) when such term is used without respect to Letters of Credit or any particular Class of Loans, a percentage equal to a fraction, the numerator of which is the sum of such Lenders Credit Exposure and unused Commitments and the denominator of which is the sum of the total Credit Exposures and unused Commitments of all Lenders; provided , that in the case of Section 2.20 when a Defaulting Lender shall exist, any such Defaulting Lenders Credit Exposure and unused Commitments shall be disregarded from both the numerator and the denominator in the foregoing calculation.
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Applicable Rate means, for any day, with respect to any Eurodollar Loan or ABR Loan or with respect to the commitment fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption Applicable Rate for Eurodollar Loans, Applicable Rate for ABR Loans or Applicable Rate for Commitment Fee, as the case may be, based on the better ( i.e. , corresponding to a Pricing Level that is more favorable to the Borrowers) of (a) the Consolidated Total Net Leverage Ratio applicable on such date or (b) the ratings by Moodys and S&P, respectively, applicable on such date to the Index Debt:
Pricing Level |
Rating |
Consolidated
Total Net Leverage Ratio |
Applicable
Rate for Eurodollar Loans |
Applicable
Rate for ABR Loans |
Applicable
Rate for Commitment Fee |
|||||||||||
I |
³ BBB-/Baa3 | 1.375 | % | 0.375 | % | 0.200 | % | |||||||||
II |
= BB+/Ba1 | £ 1.50:1.00 | 1.500 | % | 0.500 | % | 0.250 | % | ||||||||
III |
= BB/Ba2 |
> 1.50:1.00 and
£ 2.50:1.00 |
1.625 | % | 0.625 | % | 0.275 | % | ||||||||
IV |
£ BB-/Ba3 | > 2.50:1.00 | 1.875 | % | 0.875 | % | 0.300 | % |
For purposes of the foregoing:
(x) (i) the Consolidated Total Net Leverage Ratio shall be determined as of the end of each fiscal quarter of the Company and the Subsidiaries based on the most recent Financial Statements and corresponding Compliance Certificate; and (ii) each change in the Applicable Rate resulting from a change in the Consolidated Total Net Leverage Ratio shall be effective during the period commencing on and including the date of delivery to the Administrative Agent of such Financial Statements and Compliance Certificate indicating such change and ending on the date immediately preceding the effective date of the next change in the Applicable Rate; provided , that, unless the Borrowers are entitled to a more favorable Pricing Level based on ratings, Pricing Level IV set forth above shall apply if the Company fails to deliver or make available, as the case may be, the Financial Statements or corresponding Compliance Certificate when required to be delivered or made available by it pursuant to Sections 5.01(a) , (b) or (c) , during the period from the expiration of the time the Company is required to deliver or make available such Financial Statements and Compliance Certificate until such Financial Statements and Compliance Certificate are delivered or made available, as the case may be;
(y) (i) if the ratings established or deemed to have been established by Moodys and S&P for the Index Debt shall fall within different Pricing Levels, the Applicable Rate shall be based on the higher of the two ratings unless one of the two ratings is two or more Pricing Levels lower than the other, in which case the Applicable Rate shall be determined by reference to the Pricing Level next above that of the lower of the two ratings; (ii) if the ratings established or deemed to have been established by Moodys and S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moodys or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by the Company to the Agent and the Lenders
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pursuant to Section 5.01 or otherwise; (iii) each change in the Applicable Rate resulting from a change in ratings shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next change in the Applicable Rate; (iv) if the rating system of Moodys or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Company and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation; and (v) if only one of Moodys or S&P is then providing a rating for the Index Debt, then for purpose of the above pricing index, the rating shall be determined by reference to whichever of Moodys or S&P is then providing the rating on the Index Debt; and
(z) Pricing Level III set forth above shall apply during the period commencing on and including the Effective Date and ending on the date immediately preceding the delivery of Financial Statements covering the fiscal quarter of the Company and the Subsidiaries ending December 31, 2013, and the corresponding Compliance Certificate (or, if sooner, the date upon which the Borrowers are entitled to a more favorable Pricing Level based on ratings).
Applicant Borrower has the meaning assigned to such term in Section 2.23(b) .
Approved Fund means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and 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.
APT has the meaning assigned to such term in the recitals.
Arrangers means, collectively, J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, and KeyBanc Capital Markets, Inc., in their capacity as Joint Lead Arrangers and Joint Bookrunners.
Assignment and Assumption means an assignment and assumption agreement entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04 ), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.
Augmenting Lender has the meaning assigned to such term in Section 2.21(a) .
Availability Period means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Revolving Commitments.
Banking Services means any of the following bank services provided to the Company or any Subsidiary by any Banking Services Provider: (a) credit cards for commercial customers (including commercial credit cards and purchasing cards), (b) stored value cards and (c) treasury management services (including controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services).
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Banking Services Agreement means any agreement entered into in connection with Banking Services.
Banking Services Provider means any Person that (i) is a Lender or an Affiliate of a Lender at the time it enters into the applicable Banking Services Agreement, in its capacity as a party thereto, or (ii) with respect to any Banking Services Agreement existing as of the Effective Date, is a Lender or an Affiliate of a Lender as of the Effective Date, in its capacity as a party thereto, in each case together with such Persons successors and permitted assigns.
Bankruptcy Event means, with respect to any Person, such Person becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, such Person has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment; provided , that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, provided , further , that such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
Beneficial Owner means, with respect to any U.S. Federal withholding Tax, the beneficial owner, for U.S. Federal income tax purposes, to whom such Tax relates.
Board means the Board of Governors of the Federal Reserve System of the United States of America.
Borrower and Borrowers each has the meaning assigned to such term in the preamble.
Borrowing means (a) Revolving Loans of the same Type and currency, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, (b) Original Term Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, (c) Additional Term Loans made, converted or continued on the same date and as to which a single Interest Period is in effect, or (d) a Swingline Loan.
Borrowing Request means a request by the Company, for itself or on behalf of a Designated Borrower, for a Borrowing in accordance with Section 2.03 , substantially in the form of Exhibit F .
Business Day means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed;
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provided , that (a) when used in connection with a Eurodollar Loan, the term Business Day shall also exclude any day on which banks are not open for dealings in the applicable Agreed Currency in the London interbank market or (other than in respect of Borrowings denominated in U.S. Dollars or Euro) the principal financial center of such Agreed Currency, and (b) when used in connection with a Eurodollar Loan denominated in Euro, the term Business Day shall also exclude any day on which the TARGET payment system is not open for the settlement of payments in Euro.
Capital Expenditures means, for any period, with respect to any Person, the aggregate of all expenditures (whether paid in cash or accrued as liabilities) during such period by such Person for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that should be capitalized under GAAP on a consolidated balance sheet of such Person; provided , that the term Capital Expenditures shall not include (a) expenditures made in connection with the replacement, substitution, restoration, repair or improvement of assets to the extent financed with (i) insurance proceeds paid on account of the loss of or damage to the assets being replaced, restored, repaired or improved or (ii) awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced, (b) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment solely to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time, or (c) expenditures that constitute Permitted Acquisitions.
Capital Lease Obligations of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
Cash Equivalent Investments means:
(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within two hundred seventy (270) days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moodys;
(c) investments in certificates of deposit, bankers acceptances and time deposits maturing within one hundred eighty (180) days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;
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(d) fully collateralized repurchase agreements with a term of not more than thirty (30) days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and
(e) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated in the highest rating category obtainable from S&P or Moodys and (iii) have portfolio assets of at least $5,000,000,000.
Change in Control means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), of Equity Interests representing more than thirty-five percent (35%) of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Company; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who were neither (i) nominated by the board of directors of the Company nor (ii) appointed by directors so nominated; or (c) the acquisition of Control of the Company by any Person or group.
Change in Law means the occurrence after the date of this Agreement (or, with respect to any Lender, such later date on which such Lender becomes a party to this Agreement) of (a) the adoption of any law, rule, regulation or treaty (including any rules or regulations issued under or implementing any existing law or treaty), (b) any change in any law, rule, regulation or treaty or in the interpretation or application thereof by any Governmental Authority or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.15(b) , by any lending office of such Lender or by such Lenders or the Issuing Banks holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided , that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith or in implementation thereof and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law, regardless of the date enacted, adopted, issued or implemented.
Class , when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Original Term Loans, Additional Term Loans or Swingline Loans.
Code means the Internal Revenue Code of 1986, as amended.
Collateral means all of the Collateral referred to in the Collateral Documents and any and all other personal property of any Domestic Loan Party, now existing or hereafter acquired, that may at any time be or become subject to a Lien in favor of the Administrative Agent, on behalf of the Secured Parties, to secure the Secured Obligations.
Collateral Documents means, collectively, the Security Agreement, the Patent Security Agreement, the Trademark Security Agreement, the Ratification Agreement and all other
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agreements, instruments and documents executed in connection with this Agreement that are intended to create or perfect Liens to secure the Secured Obligations, whether heretofore, now, or hereafter executed by the Company or any of its Subsidiaries and delivered to the Administrative Agent.
Collateral Fallaway has the meaning assigned to such term in Section 9.18 .
Collateral Reinstatement has the meaning assigned to such term in Section 9.18 .
Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
Commitment means, with respect to each Lender, the sum of such Lenders Revolving Commitment and Additional Term Loan Commitment. The initial amount of each Lenders Commitment is set forth on Schedule 2.01 , or in the Assignment and Assumption or other documentation contemplated hereby pursuant to which such Lender shall have assumed its Commitment, as applicable.
Company has the meaning assigned to such term in the preamble.
Compliance Certificate means a certificate substantially in the form of Exhibit B .
Computation Date has the meaning assigned to such term in Section 2.04 .
Connection Income Taxes means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
Consolidated or consolidated means, with reference to financial statements or financial statement items of any Person, such statements or items of such Person and its subsidiaries on a consolidated basis in accordance with applicable principles of consolidation under GAAP.
Consolidated EBITDA means, for any period, Consolidated Net Income for such period, plus (a) without duplication and to the extent deducted (and not added back) in arriving at such Consolidated Net Income, the sum of the following amounts for such period: (i) Consolidated Interest Expense, (ii) the provision for federal, state, local and foreign income taxes, (iii) depreciation expense, (iv) amortization expense, (v) reasonable out-of-pocket transaction expenses incurred during such period in connection with any Permitted Acquisitions consummated during such period, in an aggregate amount for all such Permitted Acquisitions not to exceed $5,000,000 for such period, (vi) non-cash compensation expense arising from the grant of or the issuance of Equity Interests, and (vii) other non-cash losses or expenses ( provided , that if any cash expenditures are subsequently made in respect of such non-cash losses or expenses that were added back pursuant to this clause (a)(vii) , such cash expenditures shall be deducted in determining Consolidated EBITDA for the period during which such expenditures are made); minus (b) without duplication and to the extent included in arriving at such Consolidated Net Income, the sum of the following amounts for such period: (i) federal, state, local and foreign income tax credits and refunds (to the extent not netted from tax expense), (ii) non-cash income or gains, and (iii) extraordinary, unusual or non-recurring income or gains; in each case, as determined on a consolidated basis for the Company and the Subsidiaries.
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Consolidated Interest Coverage Ratio means, as of the last day of any fiscal quarter, the ratio of (a) Consolidated EBITDA for the Reference Period ended on such date to (b) Consolidated Interest Expense paid during or payable in cash for the Reference Period ended on such date, excluding (for avoidance of duplication) any portion of Consolidated Interest Expense paid during such Reference Period that was already included in a prior Reference Period as being payable for such prior Reference Period, or visa-versa.
Consolidated Interest Expense means, for any period, for the Company and the Subsidiaries calculated in accordance with GAAP on a consolidated basis (without duplication) for such period, all interest expense (including interest expense under Capital Lease Obligations that is treated as interest in accordance with GAAP) with respect to all outstanding Indebtedness of the Company and the Subsidiaries allocable to such period in accordance with GAAP (including all commissions, discounts and other fees and charges owed with respect to letters of credit); provided , however , that the calculation of Consolidated Interest Expense shall not include (a) interest payable from the Company or any Subsidiary to any other Subsidiary or the Company or (b) one-time charges for the Additional Term Loans or Incremental Term Loans or other financings and such charges incurred in connection with the original execution, delivery and performance of this Agreement, such as arrangement fees, extension fees, upfront fees and payoff fees, including any premiums for prepaying obligations.
Consolidated Net Income means, for any period, the net income (or loss) of the Company and the Subsidiaries calculated in accordance with GAAP on a consolidated basis (without duplication) for such period.
Consolidated Senior Funded Debt means, as of any date of determination, the outstanding principal amount as of such date of all Indebtedness of the Company and the Subsidiaries on a consolidated basis that is (a) secured by a Lien on any property or asset of the Company or any Subsidiary and (b) does not constitute Subordinated Indebtedness (to the extent such Subordinated Indebtedness is evidenced by a written instrument in form and substance, including subordination provisions, approved in writing by the Administrative Agent).
Consolidated Senior Net Leverage Ratio means, as of the last day of any fiscal quarter, the ratio of (a) Consolidated Senior Funded Debt as of such date minus 50% of the aggregate amount of the consolidated cash and consolidated Cash Equivalent Investments of the Company and the Subsidiaries as of such date in excess of $25,000,000 (up to a maximum reduction of $50,000,000 on account of such excess cash and Cash Equivalent Investments) to (b) Consolidated EBITDA for the Reference Period ended on such date.
Consolidated Tangible Assets means, as of any date of determination, the book value as of such date of all assets of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP, minus the book value as of such date of all goodwill and other intangible assets of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP.
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Consolidated Total Funded Debt means, as of any date of determination, the outstanding principal amount as of such date of all Indebtedness of the Company and the Subsidiaries on a consolidated basis.
Consolidated Total Net Leverage Ratio means, as of the last day of any fiscal quarter, the ratio of (a) Consolidated Total Funded Debt as of such date minus 50% of the aggregate amount of the consolidated cash and consolidated Cash Equivalent Investments of the Company and the Subsidiaries as of such date in excess of $25,000,000 (up to a maximum reduction of $50,000,000 on account of such excess cash and Cash Equivalent Investments) to (b) Consolidated EBITDA for the Reference Period ended on such date.
Contractual Obligation means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
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.
Credit Exposure means, with respect to any Lender at any time, the sum of (a) such Lenders Revolving Credit Exposure at such time, plus (b) an amount equal to the aggregate principal amount of such Lenders Term Loans outstanding at such time.
Credit Party means the Administrative Agent, the Issuing Bank, the Swingline Lender or any other Lender.
Default means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
Defaulting Lender means, subject to Section 2.20 , any Lender that (a) has failed, within two (2) Business Days after the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or Swingline Loans or (iii) pay over to the Administrative Agent, Issuing Bank, Swingline Lender or any other Lender any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lenders good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified any Borrower or the Administrative Agent, Issuing Bank or Swingline Lender in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lenders good faith determination that a condition precedent (specifically identified and including the particular default, if any) to such funding obligation cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three (3) Business Days after request by the Administrative Agent, Issuing Bank or Swingline Lender or a Borrower, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is
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financially able to meet such obligations) to fund prospective Loans and participations in then outstanding Letters of Credit and Swingline Loans under this Agreement; provided , that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Credit Partys or such Borrowers, as the case may be, receipt of such certification in form and substance satisfactory to it and the Administrative Agent, or (d) has, or has a Lender Parent that has, become the subject of a Bankruptcy Event.
Designated Borrower has the meaning assigned to such term in the preamble.
Designated Borrower Notice has the meaning assigned to such term in Section 2.23(b) .
Designated Borrower Request and Assumption Agreement has the meaning assigned to such term in Section 2.23(b) .
Disclosed Matters means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06 .
Dollar Amount of any currency at any date means (a) if such currency is U.S. Dollars, the amount of such currency, or (b) if such currency is a Foreign Currency, the equivalent in such currency of U.S. Dollars, calculated on the basis of the Exchange Rate for such currency on or as of the most recent Computation Date provided for in Section 2.04 .
Domestic Borrower means the Company or any Designated Borrower that is a Domestic Subsidiary.
Domestic Loan Parties means, collectively, the Domestic Borrowers and the Subsidiary Guarantors.
Domestic Subsidiary means any Subsidiary that is organized under the laws of any State of the United States of America or the District of Columbia.
Dutch Borrower means Altra Industrial Motion Netherlands, B.V., a Dutch private limited liability company and a wholly-owned Subsidiary.
Effective Date means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02 ).
Environmental Laws means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.
Environmental Liability means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Company or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
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threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
Equity Interests means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any of the foregoing.
Equivalent Amount of any currency with respect to any amount of U.S. Dollars at any date means the equivalent in such currency of such amount of U.S. Dollars, calculated on the basis of the Exchange Rate for such other currency at 11:00 a.m., London time, on the date on or as of which such amount is to be determined.
ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time.
ERISA Affiliate means any trade or business (whether or not incorporated) that, together with the Company, is treated as a single employer under subsection (b), (c), (m) or (o) of Section 414 of the Code or Section 4001(a)(14) of ERISA.
ERISA Event means (a) the occurrence of any reportable event, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the thirty (30) day notice period is waived); (b) the existence with respect to any Multiemployer Plan of an accumulated funding deficiency (as defined in Sections 412 and 431 of the Code or Sections 302 and 304 of ERISA), whether or not waived, or the determination that any Multiemployer Plan is in either endangered status or critical status (as defined in Section 432 of the Code or Section 305 of ERISA), or the failure of any Plan that is not a Multiemployer Plan to satisfy the minimum funding standards of Sections 412 and 430 of the Code or Sections 302 and 303 of ERISA, or the determination that any Plan that is not a Multiemployer Plan is in at-risk status (as defined in Section 430(i) of the Code or Section 303(i) of ERISA) or the imposition of any lien on the Company or any of its ERISA Affiliates pursuant to Section 430(k) of the Code or Section 303(k) of ERISA; (c) the filing pursuant to Section 412(c) of the Code or Section 303(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Company or any of its ERISA Affiliates of material liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Company or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Company or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; (g) the receipt by the Company or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Company or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the engagement by the Company or any of its ERISA Affiliates in a non-exempt prohibited transaction (as defined under Section 406 of ERISA or Section 4975 of the Code) or a breach of a fiduciary duty under ERISA that could result in material liability to the Company or any
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Subsidiary; (i) the failure of any Plan (and any related trust) that is intended to be qualified under Sections 401 and 501 of the Code to be so qualified; (j) any incurrence by or any expectation of the incurrence by the Company or any of its ERISA Affiliates of any material liability for post-retirement benefits under any employee benefit plan described in Section 3(1) of ERISA, other than as required by Section 601 et seq . of ERISA or Section 4980B of the Code or similar state law; or (k) the occurrence of an event with respect to any employee benefit plan described in Section 3(3) of ERISA that results in the imposition of a material excise tax or any other material liability on the Company or any of its ERISA Affiliates or of the imposition of a Lien on the assets of the Company or any of its ERISA Affiliates.
Euro or means the single currency of the participating member states of the European Union.
Eurocurrency Payment Office of the Administrative Agent shall mean, for each Foreign Currency, the office, branch, affiliate or correspondent bank of the Administrative Agent for such currency as specified from time to time by the Administrative Agent to the Company and each Lender.
Eurodollar , when used in reference to any Loan or Borrowing, means that such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted LIBO Rate.
Event of Default has the meaning assigned to such term in Article VII .
Exchange Rate means, on any day, with respect to any Foreign Currency, the rate at which such Foreign Currency may be exchanged into U.S. Dollars, as set forth at approximately 11:00 a.m., Local Time, on such date on the Reuters World Currency Page for such Foreign Currency. In the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate with respect to such Foreign Currency shall be determined by reference to such other publicly available service for displaying exchange rates as may be reasonably selected by the Administrative Agent or, in the event no such service is selected, such Exchange Rate shall instead be calculated on the basis of the arithmetical average of the spot rates of exchange of the Administrative Agent for such Foreign Currency on the London market at 11:00 a.m., Local Time, on such date for the purchase of U.S. Dollars with such Foreign Currency, for delivery two (2) Business Days later; provided , that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent may use any reasonable method it deems appropriate to determine such rate, and such determination shall be conclusive absent manifest error.
Excluded Swap Obligations means, with respect to any Subsidiary Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Subsidiary Guarantor of, or the grant by such Subsidiary Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) (a) by virtue of such Subsidiary Guarantors failure for any reason to constitute an eligible contract participant (determined after giving effect to any keepwell, support or other agreement for the benefit of such
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Subsidiary Guarantor) as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee of such Subsidiary Guarantor, or the grant of such security interest, becomes effective with respect to such Swap Obligation or (b) in the case of a Swap Obligation subject to a clearing requirement pursuant to Section 2(h) of the Commodity Exchange Act (or any successor provision thereto), because such Subsidiary Guarantor is a financial entity, as defined in Section 2(h)(7)(C)(i) the Commodity Exchange Act (or any successor provision thereto), at the time the Guarantee of such Subsidiary Guarantor, or the grant of such security interest, becomes or would become effective with respect to such related Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.
Existing Credit Agreement has the meaning assigned to such term in the recitals.
Existing Letters of Credit means, collectively, the letters of credit set forth on Schedule 1.01 .
Excluded Taxes means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. Federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Company under Section 2.19(b) ) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.17 , amounts with respect to such Taxes were payable either to such Lenders assignor immediately before such Lender acquired the applicable interest in a Loan or Commitment or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipients failure to comply with Section 2.17(f) and (d) any U.S. Federal withholding Taxes imposed under FATCA.
FATCA means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
Federal Funds Effective Rate means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three (3) Federal funds brokers of recognized standing selected by it.
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Financial Officer means, with respect to any Loan Party, such Loan Partys chief financial officer, principal accounting officer, treasurer or corporate controller, or any other authorized officer of such Loan Party who is reasonably acceptable to the Administrative Agent and familiar with the historical and current financial condition of the Company and the Subsidiaries.
Financial Statements means the financial statements to be furnished pursuant to Sections 5.01(a) and (b) .
Foreign Borrower means any Designated Borrower that is a Foreign Subsidiary.
Foreign Currencies means Agreed Currencies other than U.S. Dollars.
Foreign Lender means (a) with respect to any Borrower that is a U.S. Person, a Lender that is not a U.S. Person, and (b) with respect to any Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which such Borrower is resident for tax purposes.
Foreign Subsidiary means any Subsidiary that is not a Domestic Subsidiary.
GAAP means generally accepted accounting principles in the United States of America.
Governmental Authority means the government of the United States of America, any other nation or 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.
Guarantee of or by any Person (the guarantor ) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the primary obligor ) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided , that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee of any guaranteeing person shall be deemed to be the lower of (x) the stated or determinable amount of the primary obligation in respect of which such Guarantee is made and
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(y) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee shall be such guaranteeing persons maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith.
Guarantee Agreement means the Amended and Restated Guarantee Agreement dated as of the date hereof by the Subsidiary Guarantors in favor of the Secured Parties, as amended, restated, supplemented or otherwise modified from time to time.
Hazardous Materials means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
Immaterial Subsidiary means a Subsidiary which, together with its subsidiaries, comprises two percent (2%) or less of the Companys consolidated assets, consolidated total sales and Consolidated Net Income as of the end of or for the most recently ended Reference Period, excluding, however, any such Subsidiary that is a Borrower.
Increasing Lender has the meaning assigned to such term in Section 2.21(a) .
Incremental Term Loan has the meaning assigned to such term in Section 2.21(a) .
Incremental Term Loan Amendment has the meaning assigned to such term in Section 2.21(e) .
Indebtedness of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of another Person, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers acceptances. The Indebtedness of any Person shall include the Indebtedness of any other Person (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Persons ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. For purposes of calculating Indebtedness, (i) if more than one
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of the Company and/or its Subsidiary or Subsidiaries is an obligor under such Indebtedness, any calculation including Indebtedness shall only include such joint obligation once in the calculation of Indebtedness, and (ii) for purposes of calculating compliance with Section 6.09 , including any component included in such calculation, there shall not be included (A) Indebtedness owed by the Company or any Subsidiary to any other Subsidiary or the Company, as the case may be, or (B) Indebtedness of the Company or any Subsidiary under Swap Agreements, to the extent such Indebtedness is permitted by Section 6.01(g) .
Indemnified Taxes means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
Index Debt means senior, unsecured, long-term indebtedness for borrowed money of the Company that is not guaranteed by any other Person (other than a Subsidiary that is a Designated Borrower or a Subsidiary Guarantor) or subject to any other credit enhancement.
Information Memorandum means the Confidential Information Memorandum dated October 2012, relating to the Borrowers and the Transactions.
Interest Election Request means a request by the Company, for itself or on behalf of a Designated Borrower, to convert or continue a Borrowing in accordance with Section 2.08 .
Interest Payment Date means (a) with respect to any ABR Loan (other than a Swingline Loan), the last day of each March, June, September and December and the Maturity Date, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three (3) months duration, each day prior to the last day of such Interest Period that occurs at intervals of three (3) months duration after the first day of such Interest Period and the Maturity Date, and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid and the Maturity Date.
Interest Period means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one (1), two (2), three (3) or six (6) months thereafter (or such other period acceptable to the Administrative Agent and each Lender affected thereby), as the Company may elect; provided , that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
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Investment has the meaning assigned to such term in Section 6.04 .
IRS means the United States Internal Revenue Service.
Issuing Bank means JPMorgan Chase Bank, N.A., and any other Revolving Lender approved by the Administrative Agent and the Company that has agreed in its sole discretion to act as an Issuing Bank hereunder, or any of their respective affiliates, in each case in its capacity as issuer of any Letter of Credit. Each reference herein to the Issuing Bank shall be deemed to be a reference to the relevant Issuing Bank and its successors in such capacity as provided in Section 2.06(i) .
LC Disbursement means a payment made by the Issuing Bank pursuant to a draw made under a Letter of Credit.
LC Exposure means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrowers at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.
Lender Parent means, with respect to any Lender, any Person as to which such Lender is, directly or indirectly, a subsidiary.
Lenders means the Persons listed on Schedule 2.01 and any other Person that shall have become a Lender hereunder pursuant to Section 2.21 or pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. Unless the context otherwise requires, the term Lenders includes the Swingline Lender.
Letter of Credit means any letter of credit issued pursuant to this Agreement and shall include the Existing Letters of Credit.
LIBO Rate means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on, in the case of U.S. Dollars, Reuters Screen LIBOR01 Page and, in the case of any Foreign Currency, the appropriate page of such service which displays British Bankers Association Interest Settlement Rates for deposits in such Foreign Currency (or, in each case, on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to deposits in the applicable Agreed Currency in the London interbank market) at approximately 11:00 a.m., London time, two (2) Business Days prior to (or, in the case of Loans denominated in Pounds Sterling, on the day of) the commencement of such Interest Period, as the rate for deposits in the applicable Agreed Currency with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason (including, for the avoidance of doubt, in the event of a Eurodollar Borrowing denominated in any Agreed Currency for which no screen quote based on British Bankers Association Interest Settlement Rates is available from Reuters or such successor or substitute service), then the LIBO Rate with respect to such Eurodollar Borrowing for such
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Interest Period shall be the rate at which deposits in the applicable Agreed Currency in an Equivalent Amount of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent (or, if applicable, such other Eurocurrency Payment Office for such Foreign Currency) in immediately available funds in the London interbank market (or, if applicable, such other offshore interbank market for such Foreign Currency) at approximately 11:00 a.m., London time (or, if applicable, such other Local Time for such Foreign Currency), two (2) Business Days prior to (or, in the case of Loans denominated in Pounds Sterling, on the day of) the commencement of such Interest Period.
Lien means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
Loan Documents means, collectively, this Agreement, the Guarantee Agreement, each promissory note delivered pursuant to this Agreement, any Letter of Credit applications, the Collateral Documents and any other agreements, instruments, documents and certificates executed by or on behalf of any Loan Party and delivered to or in favor of the Credit Parties concurrently herewith or hereafter in connection with the Transactions hereunder. Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to such Loan Document as the same may be in effect at any and all times such reference becomes operative.
Loan Parties means, collectively, the Borrowers and the Subsidiary Guarantors.
Loans means the loans (which shall include any Incremental Term Loan(s)) made by the Lenders to the Borrowers pursuant to this Agreement, and shall include the Original Term Loans.
Local Time means (a) in the case of a Loan, Borrowing or LC Disbursement denominated in U.S. Dollars, New York City time, and (b) in the case of a Loan, Borrowing or LC Disbursement denominated in a Foreign Currency, local time for such currency as specified from time to time by the Administrative Agent.
Material Adverse Effect means a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, (b) the ability of the Loan Parties, taken as a whole, to perform their obligations under the Loan Documents, (c) the Collateral, taken as a whole, or the Administrative Agents Liens (on behalf of itself and the other Secured Parties) on the Collateral, taken as a whole, or the priority of such Liens, or (d) the rights of or benefits available to the Credit Parties under the Loan Documents, taken as a whole.
Material Domestic Subsidiary means a Domestic Subsidiary which, by itself or together with its Domestic Subsidiaries, comprises five percent (5%) or more of the Companys consolidated assets, consolidated total sales or Consolidated Net Income as of the end of or for the most recently ended Reference Period.
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Material Indebtedness means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of the Company and the Subsidiaries in an aggregate principal amount exceeding $20,000,000. For purposes of determining Material Indebtedness, the principal amount of the obligations of the Company or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Company or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.
Maturity Date means December 6, 2018.
Moodys means Moodys Investors Service, Inc.
Multicurrency Sublimit means $100,000,000.
Multiemployer Plan means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
Non-Consenting Lender means any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all Lenders or all affected Lenders in accordance with the terms of Section 9.02 (excluding clause (b)(i) of Section 9.02 ) and (b) has been approved by the Required Lenders.
Obligations means all advances to, and debts, liabilities, obligations, covenants and duties of, any Borrower arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Borrower of any proceeding under any debtor relief laws naming such Borrower as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.
OFAC means Office of Foreign Assets Control of the United States Department of the Treasury.
Original Term Lender means, as of any date of determination, each Lender holding Original Term Loans.
Original Term Loans means the Term Loans made under (and as defined in) the Existing Credit Agreement.
Other Connection Taxes means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
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Other Taxes means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19 ).
Overnight Foreign Currency Rate means, for any amount payable in a Foreign Currency, the rate of interest per annum as determined by the Administrative Agent at which overnight or weekend deposits in such Foreign Currency (or if such amount due remains unpaid for more than three (3) Business Days, then for such other period of time as the Administrative Agent may elect) for delivery in immediately available and freely transferable funds would be offered by the Administrative Agent to major banks in the interbank market upon request of such major banks for such Foreign Currency as determined above and in an amount comparable to the unpaid principal amount of the related Borrowing or LC Disbursement, plus any taxes, levies, imposts, duties, deductions, charges or withholdings imposed upon, or charged to, the Administrative Agent by any relevant correspondent bank in respect of such amount in such Foreign Currency.
Participant has the meaning assigned to such term in Section 9.04(c) .
Participant Register has the meaning assigned to such term in Section 9.04(c) .
Patent Security Agreement means the Patent Security Agreement dated as of November 20, 2012, among certain of the Domestic Loan Parties and the Administrative Agent, for the benefit of the Secured Parties, as reaffirmed and ratified by the Ratification Agreement and as amended, restated, supplemented or otherwise modified from time to time.
Patriot Act has the meaning assigned to such term in Section 9.16 .
PBGC means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
Permitted Acquisition means any Acquisition by the Company or any Subsidiary that satisfies all of the following conditions:
(a) both before and immediately after giving effect to such Acquisition and the incurrence or assumption of any Indebtedness in connection therewith, no Default or Event of Default shall have occurred and be continuing;
(b) both before and immediately after giving effect to such Acquisition and the incurrence or assumption of any Indebtedness in connection therewith, the Company shall be in compliance on a Pro Forma Basis with each financial covenant set forth in Section 6.09 ;
(c) if the aggregate consideration paid in connection with such Acquisition (including all cash consideration paid and Indebtedness incurred or assumed in connection therewith, and the maximum amount payable under any earn-out obligations in connection therewith as reasonably calculated on the date of such Acquisition) exceeds $50,000,000, the Company shall have
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delivered to the Administrative Agent a certificate demonstrating pro forma financial covenant compliance as required pursuant to clause (b) above, together with copies of corresponding pro forma financial statements, in each case in form and substance satisfactory to the Administrative Agent (copies of which certificate and financial statements the Administrative Agent shall promptly provide to the Lenders); and
(d) in the case of an Acquisition involving the merger, amalgamation or consolidation of any Loan Party, the surviving entity shall be or simultaneously become a Loan Party.
Permitted Encumbrances means:
(a) Liens imposed by law (other than Liens imposed under ERISA) for Taxes that are not yet due or are being contested in compliance with Section 5.04 ;
(b) carriers, warehousemens, mechanics, materialmens, repairmens, landlords and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than thirty (30) days or are being contested in compliance with Section 5.04 ;
(c) pledges and deposits made in the ordinary course of business in compliance with workers compensation, unemployment insurance and other social security laws or regulations (other than any Lien imposed under ERISA);
(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII ; and
(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Company or any Subsidiary;
provided , that the term Permitted Encumbrances shall not include any Lien securing Indebtedness.
Person means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
Plan means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Company or any of its ERISA Affiliates is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an employer as defined in Section 3(5) of ERISA.
Pounds Sterling or £ means the lawful currency of the United Kingdom.
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Prime Rate means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A., as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
Pro Forma Basis means, with respect to any Acquisition, that the Company is in pro forma compliance with the applicable financial covenants set forth in Section 6.09 , recomputed (a) as if such Acquisition (including the incurrence or assumption of any Indebtedness in connection therewith) had occurred on the first day of the most recent Reference Period preceding the date of such Acquisition for which the Company has delivered Financial Statements, (b) with Consolidated Senior Funded Debt, Consolidated Total Funded Debt, consolidated cash and consolidated Cash Equivalent Investments measured as of the date of such Acquisition and immediately after giving effect to such Acquisition and any Indebtedness incurred or assumed in connection therewith, and (c) with Consolidated EBITDA and Consolidated Interest Expense measured for the Reference Period then most recently ended for which the Company has delivered Financial Statements.
Public-Sider means any representative of a Lender that does not want to receive material non-public information with the meaning of the federal and state securities laws.
Ratification Agreement means the Omnibus Reaffirmation and Ratification of Collateral Documents dated as of the date hereof, by the Domestic Loan Parties in favor of the Administrative Agent, for the benefit of the Secured Parties, as amended, restated, supplemented or otherwise modified from time to time.
Recipient means, as applicable, (a) the Administrative Agent, (b) any Lender and (c) the Issuing Bank.
Reference Period means, as of the last day of any fiscal quarter, the period of four (4) consecutive fiscal quarters of the Company and the Subsidiaries ending on such date.
Register has the meaning assigned to such term in Section 9.04(b)(iv) .
Related Parties means, with respect to any specified Person, such Persons Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Persons Affiliates.
Required Additional Term Lenders means, at any time, subject to Section 2.20(b) , Additional Term Lenders having Additional Term Loans representing more than fifty percent (50%) of the aggregate principal amount of all Additional Term Loans at such time.
Required Lenders means, at any time, subject to Section 2.20(b) , Lenders having Credit Exposures and unused Commitments representing more than fifty percent (50%) of the sum of the total Credit Exposures and unused Commitments at such time.
Required Original Term Lenders means, at any time, subject to Section 2.20(b) , Original Term Lenders having Original Term Loans representing more than fifty percent (50%) of the aggregate principal amount of all Original Term Loans at such time.
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Required Revolving Lenders means, at any time, subject to Section 2.20(b) , Revolving Lenders having Revolving Credit Exposures and unused Revolving Commitments representing more than fifty percent (50%) of the sum of the total Revolving Credit Exposures and unused Revolving Commitments at such time.
Restricted Payment means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Company or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Company or any Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Company or any Subsidiary. For the avoidance of doubt, the term Restricted Payment shall not include the issuance by the Company or any Subsidiary of any Equity Interest.
Revolving Commitment means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lenders Revolving Credit Exposure hereunder, as such commitment may be (a) reduced or terminated from time to time pursuant to Section 2.09 , (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 and (c) increased from time to time pursuant to Section 2.21 . The initial amount of each Lenders Revolving Commitment is set forth on Schedule 2.01 , or in the Assignment and Assumption or other documentation contemplated hereby pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable.
Revolving Credit Exposure means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lenders Revolving Loans and its LC Exposure and Swingline Exposure at such time.
Revolving Lender means, as of any date of determination, each Lender that has a Revolving Commitment or, if the Revolving Commitments have terminated or expired, a Lender with Revolving Credit Exposure.
Revolving Loan means the revolving loans made by the Revolving Lenders to the Borrowers pursuant to Section 2.01 .
S&P means Standard & Poors.
Sanctioned Country means, at any time, a country or territory which is the subject or target of any Sanctions.
Sanctioned Person means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC, the U.S. Department of State, the European Union, any EU member state, or any other Governmental Authority that has jurisdiction over any party hereto (to the extent that compliance with the Sanctions of any such other Governmental Authority would not result in the violation of any other Sanctions by any party hereto), (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person.
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Sanctions means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State, or (b) the European Union, Her Majestys Treasury of the United Kingdom, or any other Governmental Authority that has jurisdiction over any party hereto (to the extent that compliance with such sanctions or embargoes of any such other Governmental Authority would not result in the violation of any other Sanctions by any party hereto).
SEC means the Securities and Exchange Commission of the United State of America.
Secured Banking Services Obligations means any and all obligations of the Company or any Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) under any and all Banking Services Agreements with a Banking Services Provider.
Secured Obligations means, collectively, all Obligations, Secured Swap Obligations and Secured Banking Services Obligations.
Secured Parties means, collectively, the holders of the Secured Obligations from time to time and shall include (a) each Lender and the Issuing Bank in respect of their Loans, LC Exposure and Swingline Exposure, (b) the Administrative Agent, the Issuing Bank and the Lenders in respect of all other present and future obligations and liabilities of the Loan Parties of every type and description arising under or in connection with this Agreement or any other Loan Document, (c) each Swap Provider and Banking Services Provider in respect of Secured Swap Obligations and Secured Banking Services Obligations, (d) each indemnified party under Section 9.03 in respect of the obligations and liabilities of the Loan Parties to such Person hereunder and under the other Loan Documents, and (e) the respective successors and (in the case of a Lender, permitted) transferees and assigns of the foregoing Persons.
Secured Swap Obligations means any and all obligations of the Company or any Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Swap Agreements permitted hereunder with a Swap Provider, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any such Swap Agreement transaction; provided , however , that for any applicable Subsidiary Guarantor, the Secured Swap Obligations shall not include Swap Obligations that constitute Excluded Swap Obligations with respect to such Subsidiary Guarantor.
Security Agreement means the Pledge and Security Agreement dated as of November 20, 2012, among the Domestic Loan Parties and the Administrative Agent, for the benefit of the Secured Parties, as reaffirmed and ratified by the Ratification Agreement and as amended, restated, supplemented or otherwise modified from time to time.
Solvent means that the Company and the Subsidiaries on a consolidated basis are solvent within the meaning given such term and similar terms under applicable laws relating to fraudulent transfers and conveyances, including that (a) the fair value of the assets of the
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Company and the Subsidiaries on a consolidated basis, at a fair valuation, exceeds their aggregate debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the assets of the Company and the Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) the Company and the Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) the Company and the Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the business in which they are engaged.
Statutory Reserve Rate means, with respect to any currency, a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve, liquid asset, fees or similar requirements (including any marginal, special, emergency or supplemental reserves or other requirements) established by any central bank, monetary authority, the Board, the Financial Services Authority, the European Central Bank or other Governmental Authority for any category of deposits or liabilities customarily used to fund loans in such currency, expressed in the case of each such requirement as a decimal. Such reserve, liquid asset, fees or similar requirements shall, in the case of Loans denominated in U.S. Dollars, include those imposed pursuant to Regulation D of the Board. Eurodollar Loans shall be deemed to be subject to such reserve, liquid asset, fee or similar requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under any applicable law, rule or regulation, including Regulation D of the Board. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve, liquid asset or similar requirement.
Subordinated Indebtedness means any Indebtedness of the Company or any Subsidiary that is expressly subordinated in right of payment and performance to the Obligations.
subsidiary means, with respect to any Person (the parent ) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parents consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than fifty percent (50%) of the equity or more than fifty percent (50%) of the ordinary voting power or, in the case of a partnership, more than fifty percent (50%) of the general partnership interests are, as of such date, owned, Controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
Subsidiary means any subsidiary of the Company.
Subsidiary Guarantors means, collectively, the Material Domestic Subsidiaries that are party to the Guarantee Agreement and any other Subsidiaries that are party to the Guarantee Agreement.
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Svendborg Brakes Acquisition means the acquisition by Altra Industrial Motion Denmark APS, a wholly-owned subsidiary of the Dutch Borrower, of the shares of the Svendborg Brakes Target pursuant to the Svendborg Brakes Acquisition Agreement.
Svendborg Brakes Acquisition Agreement means the Agreement for the Sale and Purchase of Svendborg Brakes A/S and S.B. Patent Holding APS, by and among Friction Holding A/S, Altra Industrial Motion Denmark APS and the Company, dated as of November 6, 2013.
Svendborg Brakes Target means, collectively, Svendborg Brakes A/S and S.B. Patent Holding APS, each organized under the laws of Denmark, and their respective subsidiaries.
Swap Agreement means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided , that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Company or the Subsidiaries shall be a Swap Agreement.
Swap Obligation means any obligation to pay or perform under any agreement, contract or transaction that constitutes a swap within the meaning of section 1a(47) of the Commodity Exchange Act.
Swap Provider means any Person that (i) is a Lender or an Affiliate of a Lender at the time it enters into the applicable Swap Agreement, in its capacity as a party thereto, or (ii) with respect to any Swap Agreement existing as of the Effective Date, is a Lender or an Affiliate of a Lender as of the Effective Date, in its capacity as a party thereto, in each case together with such Persons successors and permitted assigns.
Swingline Exposure means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the total Swingline Exposure at such time.
Swingline Lender means JPMorgan Chase Bank, N.A., in its capacity as lender of Swingline Loans hereunder.
Swingline Loan means a Loan made pursuant to Section 2.05 .
TARGET means the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) payment system (or, if such payment system ceases to be operative, such other payment system (if any) reasonably determined by the Administrative Agent to be a suitable replacement) for the settlement of payments in Euro.
Taxes means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
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Term Loans means, collectively, the Original Term Loans and the Additional Term Loans.
Trademark Security Agreement means the Trademark Security Agreement dated as of November 20, 2012, among certain of the Domestic Loan Parties and the Administrative Agent, for the benefit of the Secured Parties, as reaffirmed and ratified by the Ratification Agreement and as amended, restated, supplemented or otherwise modified from time to time.
Transactions means the execution, delivery and performance by the Loan Parties of the Loan Documents, the borrowing of Loans, the use of the proceeds thereof, and the issuance of Letters of Credit hereunder.
Type , when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
UCC means the Uniform Commercial Code as in effect in the State of New York; provided , that if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, UCC means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
U.S. or United States means the United States of America.
U.S. Dollars or $ means the lawful currency of the United States of America.
U.S. Person means a United States person within the meaning of Section 7701(a)(30) of the Code.
U.S. Tax Compliance Certificate has the meaning assigned to such term in Section 2.17(f)(ii)(B)(3) .
Withdrawal Liability means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings . For purposes of this Agreement, Loans may be classified and referred to by Class ( e.g. , a Revolving Loan or Original Term Loan or Additional Term Loan ) or by Type ( e.g. , a Eurodollar Loan or ABR Loan ) or by Class and Type ( e.g. , a Eurodollar Revolving Loan ). Borrowings also may be classified and referred to by Class ( e.g. , a Revolving Borrowing ) or by Type ( e.g. , a Eurodollar Borrowing ) or by Class and Type ( e.g. , a Eurodollar Revolving Borrowing ).
SECTION 1.03. Terms Generally . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without
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limitation. The word will shall be construed to have the same meaning and effect as the word shall. The word law shall be construed as referring to all statutes, rules, regulations, codes and other laws (including official rulings and interpretations thereunder having the force of law or with which affected Persons customarily comply), and all judgments, orders and decrees, of all Governmental Authorities. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), except that for purposes of determining the accuracy of any representation or warranty, such reference shall only be to such agreement, instrument or other document as in effect on the date such representation or warranty was made, (b) any definition of or reference to any law shall be construed as referring thereto as from time to time amended, supplemented or otherwise modified (including by succession of comparable successor laws), except that for purposes of determining the accuracy of any representation or warranty, such reference or definition shall only be to such law as in effect on the date the representation and warranty was made, (c) any reference herein to any Person shall be construed to include such Persons successors and assigns (subject to any restrictions on assignment set forth herein) and, in the case of any Governmental Authority, any other Governmental Authority that shall have succeeded to any or all functions thereof, (d) 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, (e) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (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 1.04. Accounting Terms; GAAP . Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided , that if the Company notifies the Administrative Agent that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Company that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any other provision contained herein, (a) all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Financial Accounting Standards Board Accounting Standards Codification 825 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Company or any Subsidiary at fair value, as defined therein, and (b) any obligations of a Person under a lease (whether existing now or entered into in the future) that is not (or would not be) a Capital Lease Obligation under GAAP as in effect on the Effective Date shall not be treated as a Capital Lease Obligation solely as a result of the adoption of changes in GAAP.
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SECTION 1.05. Status of Obligations . In the event that any Loan Party shall at any time issue or have outstanding any Subordinated Indebtedness, the Borrowers shall take or cause such other Loan Party to take all such actions as shall be necessary to cause the Secured Obligations to constitute senior indebtedness (however denominated) in respect of such Subordinated Indebtedness and to enable the Administrative Agent and the Lenders to have and exercise any payment blockage or other remedies available or potentially available to holders of senior indebtedness under the terms of such Subordinated Indebtedness. Without limiting the foregoing, the Secured Obligations are hereby designated as senior indebtedness and as designated senior indebtedness and words of similar import under and in respect of any indenture or other agreement or instrument under which such Subordinated Indebtedness is outstanding and are further given all such other designations as shall be required under the terms of any such Subordinated Indebtedness in order that the Administrative Agent and the Lenders may have and exercise any payment blockage or other remedies available or potentially available to holders of senior indebtedness under the terms of such Subordinated Indebtedness.
ARTICLE II
The Credits
SECTION 2.01. Commitments; Original Term Loans; Additional Term Loans . Subject to the terms and conditions set forth herein, (a) each Revolving Lender agrees to make Revolving Loans to the Borrowers in Agreed Currencies from time to time during the Availability Period in an aggregate principal amount that will not result in, subject to Sections 2.04 and 2.11(c) , (i) the Dollar Amount of such Lenders Revolving Credit Exposure exceeding such Lenders Revolving Commitment, (ii) the Dollar Amount of the total Revolving Credit Exposures of all Lenders exceeding the Aggregate Revolving Commitment, or (iii) the Dollar Amount of the total Revolving Credit Exposures of all Lenders denominated in Foreign Currencies exceeding the Multicurrency Sublimit, and (b) each Additional Term Lender agrees to make Additional Term Loans to the Dutch Borrower in Euro on the Effective Date in an aggregate amount not to exceed such Lenders Additional Term Loan Commitment. On the Effective Date, (x) the Original Term Loans outstanding on such date shall automatically, and without any action on the part of any Person, continue as term loans hereunder and (y) the Revolving Loans (as defined in the Existing Credit Agreement) outstanding on such date shall automatically, and without any action on the part of any Person, continue as Revolving Loans hereunder, and, in each case, from and after the Effective Date shall be subject to and governed by the terms and conditions hereof. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers may borrow, prepay and reborrow Revolving Loans. Amounts repaid or prepaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans and Borrowings . (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Revolving Lenders ratably in accordance with their respective Revolving Commitments. Each Additional Term Loan shall be made as part of a Borrowing on the Effective Date consisting of Additional Term Loans made by the Additional Term Lenders ratably in accordance with their respective Additional Term Loan Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lenders failure to make Loans as required. Any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.05 . The Term Loans shall amortize as set forth in Section 2.10 .
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(b) Subject to Section 2.14 , each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrowers may request in accordance herewith; provided , that each ABR Loan shall only be made in U.S. Dollars. Each Swingline Loan shall be an ABR Loan. Each Additional Term Loan shall be a Eurodollar Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided , that any exercise of such option shall not affect the obligation of the applicable Borrowers to repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is (i) an integral multiple of (A) in the case of a Borrowing denominated in U.S. Dollars, $500,000, and (B) in the case of a Borrowing denominated in any Foreign Currency, the smallest amount of such Foreign Currency that has an Equivalent Amount at least equal to $500,000, and (ii) not less than (A) in the case of a Borrowing denominated in U.S. Dollars, $1,000,000, and (B) in the case of a Borrowing denominated in any Foreign Currency, the smallest amount of such Foreign Currency that has an Equivalent Amount at least equal to $1,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $1,000,000; provided , that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the Aggregate Revolving Commitment or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e) . Each Swingline Loan shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided , that there shall not at any time be more than a total of eight (8) Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrowers shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.
SECTION 2.03. Requests for Borrowings . To request an Additional Term Loan Borrowing or a Revolving Borrowing, the Company shall notify the Administrative Agent of such request by telecopy (or electronic transmission if arrangements for doing so have been approved by the Administrative Agent) of a written Borrowing Request signed by the Company (or, in the case of a Revolving Borrowing denominated in U.S. Dollars, by telephone confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request signed by the Company) (a) in the case of a Eurodollar Borrowing denominated in U.S. Dollars, not later than 11:00 a.m., New York City time, three (3) Business Days before the date of the proposed Borrowing, (b) in the case of a Eurodollar Borrowing denominated in a Foreign Currency, not later than 11:00 a.m., Local Time, four (4) Business Days before the date of the proposed Borrowing, or (c) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one (1) Business Day before the date of the proposed Borrowing; provided , that any such notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e) may be given not later than 10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall specify the following information in compliance with Section 2.02 :
the Borrower requesting such Borrowing, which shall be the Dutch Borrower in the case of an Additional Term Loan Borrowing;
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the Class and Type of such Borrowing;
the aggregate amount of such Borrowing;
the date of such Borrowing, which shall be a Business Day;
in the case of a Eurodollar Borrowing, the Agreed Currency and initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term Interest Period; and
the location and number of the applicable Borrowers account to which funds are to be disbursed, which shall comply with the requirements of Section 2.07 .
If no denomination is specified with respect to any requested Eurodollar Revolving Borrowing, then the requested Borrowing shall be denominated in U.S. Dollars. If no election as to the Type of Revolving Borrowing is specified, then, in the case of a Revolving Borrowing denominated in U.S. Dollars, the requested Revolving Borrowing shall be an ABR Borrowing, and in the case of a Revolving Borrowing denominated in a Foreign Currency, the requested Revolving Borrowing shall be a Eurodollar Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Company shall be deemed to have selected an Interest Period of one (1) months duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each applicable Lender of the details thereof and of the amount of such Lenders Loan to be made as part of the requested Borrowing.
SECTION 2.04. Determination of Dollar Amounts . The Administrative Agent will determine the Dollar Amount of:
(a) each Eurodollar Borrowing as of the date two (2) Business Days prior to the date of such Borrowing or, if applicable, the date of conversion or continuation of any Borrowing as a Eurodollar Borrowing;
(b) the LC Exposure as of the date of each request for the issuance, amendment, renewal or extension of any Letter of Credit; and
(c) all outstanding Revolving Loans and the LC Exposure on and as of the last Business Day of each calendar quarter and, during the continuation of an Event of Default, on any other Business Day elected by the Administrative Agent in its discretion or upon instruction by the Required Lenders.
Each day upon or as of which the Administrative Agent determines Dollar Amounts as described in the preceding clauses (a) , (b) and (c) is herein described as a Computation Date with respect to each Borrowing, Letter of Credit or LC Exposure for which a Dollar Amount is determined on or as of such day.
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SECTION 2.05. Swingline Loans . (a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans in U.S. Dollars to the Borrowers from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $15,000,000 or (ii) the Dollar Amount of the total Revolving Credit Exposures of all Lenders exceeding the Aggregate Revolving Commitment; provided , that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Company shall notify the Administrative Agent of such request by telephone (confirmed by telecopy), or by electronic transmission if arrangements for doing so have been approved by the Administrative Agent and the Swingline Lender, not later than 12:00 noon, New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Company. The Swingline Lender shall make each Swingline Loan available to the applicable Borrower by means of a credit to the general deposit account of such Borrower with the Swingline Lender (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) , by remittance to the Issuing Bank) by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the Administrative Agent not later than 10:00 a.m., New York City time, on any Business Day require the Revolving Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Revolving Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Revolving Lender, specifying in such notice such Revolving Lenders Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Revolving Lenders Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis , to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Revolving Lenders. The Administrative Agent shall notify the Company of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter
34
payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrowers (or other party on behalf of the Borrowers) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear; provided , that any such payment so remitted shall be repaid to the Swingline Lender or to the Administrative Agent, as applicable, if and to the extent such payment is required to be refunded to the Borrowers for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrowers of any default in the payment thereof.
SECTION 2.06. Letters of Credit . (a) General . Subject to the terms and conditions set forth herein, the Borrowers may request the issuance of Letters of Credit denominated in Agreed Currencies as the applicant thereof for the support of its or the Subsidiaries obligations, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrowers to, or entered into by the Borrowers with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions . To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Company shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension, but in any event no less than three (3) Business Days) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the Agreed Currency applicable thereto, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the Company also shall submit a letter of credit application on the Issuing Banks standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrowers shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, subject to Sections 2.04 and 2.11(c) , (i) the Dollar Amount of the LC Exposure shall not exceed $50,000,000, (ii) the Dollar Amount of the total Revolving Credit Exposures of all Lenders shall not exceed the Aggregate Revolving Commitment, and (iii) the Dollar Amount of the total Revolving Credit Exposures of all Lenders denominated in Foreign Currencies shall not exceed the Multicurrency Sublimit.
(c) Expiration Date . Each Letter of Credit shall expire (or be subject to termination by notice from the Issuing Bank to the beneficiary thereof) at or prior to the close of business on
35
the earlier of (i) the date one (1) year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one (1) year after such renewal or extension) and (ii) the date that is five (5) Business Days prior to the Maturity Date; provided , that any Letter of Credit may contain customary automatic renewal provisions agreed upon by the Company and the Issuing Bank pursuant to which the expiration date of such Letter of Credit shall be automatically extended for a period of up to twelve (12) months (but not to a date later than the date set forth in clause (ii) above).
(d) Participations . By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Revolving Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Revolving Lenders Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Revolving Lenders Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrowers on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrowers for any reason. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement . If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrowers shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement, in original currency, not later than 12:00 noon, Local Time, on the date that such LC Disbursement is made, if the Company shall have received notice of such LC Disbursement prior to 10:00 a.m., Local Time, on such date, or, if such notice has not been received by the Company prior to such time on such date, then not later than 12:00 noon, Local Time, on the Business Day immediately following the day that the Company receives such notice; provided , that if such LC Disbursement is not less than the Equivalent Amount of $100,000, the Company may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.05 that such payment be financed with a Revolving Borrowing denominated in the original currency of such LC Disbursement (or with either a Revolving Borrowing denominated in U.S. Dollars or a Swingline Loan, if such LC Disbursement is denominated in U.S. Dollars) in the amount of such LC Disbursement. To the extent so financed, the Borrowers obligation to make such payment shall be discharged and replaced by the resulting Revolving Borrowing or Swingline Loan. If the Borrowers fail to make such payment when due, the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from the Borrowers in respect thereof and such Revolving Lenders Applicable Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrowers, in the same manner as provided in Section 2.07 with respect to Loans made by such Revolving Lender (and Section 2.07 shall apply, mutatis
36
mutandis , to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrowers pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Revolving Lenders and the Issuing Bank as their interests may appear. Any payment made by a Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrowers of their obligation to reimburse such LC Disbursement. If the Borrowers reimbursement of, or obligation to reimburse, any amounts in any Foreign Currency would subject a Credit Party to any stamp duty, ad valorem charge or similar tax that would not be payable if such reimbursement were made or required to be made in U.S. Dollars, the Borrowers shall, at their option, either (x) pay the amount of any such tax requested by such Credit Party or (y) reimburse each LC Disbursement made in such Foreign Currency in U.S. Dollars, in an amount equal to the Dollar Amount, calculated using the applicable exchange rates, on the date such LC Disbursement is made, of such LC Disbursement.
(f) Obligations Absolute . The Borrowers obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrowers obligations hereunder. Neither the Credit Parties nor any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided , that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrowers to the extent of any direct damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by the Borrowers to the extent permitted by applicable law) suffered by the Borrowers that are caused by the Issuing Banks failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in
37
substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures . The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Company by telecopy, or by telephone confirmed by telecopy, of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided , that any failure to give or delay in giving such notice shall not relieve the Borrowers of their obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement.
(h) Interim Interest . If the Issuing Bank shall make any LC Disbursement, then, unless the Borrowers shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrowers reimburse such LC Disbursement or the date that such LC Disbursement is financed by a Revolving Borrowing or a Swingline Loan, as the case may be, at the rate per annum then applicable to ABR Revolving Loans (or, if such LC Disbursement is denominated in a Foreign Currency, at the Overnight Foreign Currency Rate for such Foreign Currency plus the then effective Applicable Rate with respect to Eurodollar Revolving Loans); provided , that if the Borrowers fail to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank . The Issuing Bank may be replaced at any time by written agreement among the Company, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Revolving Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrowers shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b) . From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term Issuing Bank shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit then outstanding and issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization . If any Event of Default shall occur and be continuing, on the Business Day that the Company receives notice from the Administrative Agent or the
38
Required Lenders (or, if the maturity of the Loans has been accelerated, the Required Revolving Lenders) demanding the deposit of cash collateral pursuant to this paragraph, the Borrowers shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Secured Parties, an amount in cash, in original currency, equal to one hundred three percent (103%) of the amount of the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided , that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to any Borrower described in clause (h) or (i) of Article VII . Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Secured Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account, and the Borrowers hereby grant to the Administrative Agent, for the benefit of the Secured Parties, a security interest in such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrowers risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrowers for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of the Required Revolving Lenders), be applied to satisfy other Secured Obligations. If the Borrowers are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrowers within three (3) Business Days after all Events of Default have been cured or waived.
(k) Existing Letters of Credit . On the Effective Date, the Existing Letters of Credit shall automatically, and without any action on the part of any Person, be deemed to be Letters of Credit issued hereunder, and from and after the Effective Date shall be subject to and governed by the terms and conditions hereof. In connection therewith, each Revolving Lender shall automatically, and without any action on the part of any Person, be deemed to have acquired from the Issuing Bank a participation in each such Existing Letter of Credit in accordance with Section 2.06(d) .
SECTION 2.07. Funding of Borrowings . (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds (i) in the case of Loans denominated in U.S. Dollars, by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders, and (ii) in the case of Loans denominated in a Foreign Currency, by 12:00 noon, Local Time, in the city of the Administrative Agents Eurocurrency Payment Office for such Foreign Currency and at such Eurocurrency Payment Office; provided , that Swingline Loans shall be made as provided in Section 2.05 . The Administrative Agent will make such Loans available to the applicable Borrower by promptly crediting the amounts so received, in like funds, to (x) in the case of Loans denominated in U.S. Dollars, an account of such Borrower maintained with the Administrative Agent in New York City and designated by the Company in the applicable Borrowing Request or otherwise, and (y) in the case of Loans denominated in a Foreign Currency, an account of such Borrower in the relevant jurisdiction and designated by the
39
Company in the applicable Borrowing Request or otherwise; provided , that Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lenders share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the applicable Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the applicable Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation (including the Overnight Foreign Currency Rate in the case of Loans denominated in a Foreign Currency) or (ii) in the case of such Borrower, the interest rate applicable to the subject Loan. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lenders Loan included in such Borrowing.
SECTION 2.08. Interest Elections . (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Each Additional Term Loan Borrowing shall be comprised of Eurodollar Loans and shall have an initial Interest Period as specified in the applicable Borrowing Request. Each Original Term Loan Borrowing shall be comprised of ABR Loans or Eurodollar Loans and, in the case of a Eurodollar Original Term Loan Borrowing, shall have an initial Interest Period as specified in the applicable Borrowing Request. Thereafter, the Company may, subject to Section 2.08(b) , elect to convert any such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Company may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Company shall notify the Administrative Agent of such election by telecopy (or electronic transmission, if arrangements for doing so have been approved by the Administrative Agent) of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Company (or, in the case of a Borrowing denominated in U.S. Dollars, by telephone confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Company) by the time that a Borrowing Request would be required under Section 2.03 if the Company were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election.
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Notwithstanding any other provision of this Section, the Company shall not be permitted to (i) change the currency of any Borrowing, (ii) elect an Interest Period for Eurodollar Loans that does not comply with Section 2.02(d) or (iii) convert any Borrowing to a Borrowing of a Type not available to the applicable Borrower for such Borrowing when it was made ( e.g. , convert any Eurodollar Borrowing denominated in a Foreign Currency to an ABR Borrowing).
(c) Each telephonic and written Interest Election Request shall be irrevocable and shall specify the following information in compliance with Section 2.02 :
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period and Agreed Currency to be applicable thereto after giving effect to such election, which Interest Period shall be a period contemplated by the definition of the term Interest Period .
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Company shall be deemed to have selected an Interest Period of one (1) months duration.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lenders portion of each resulting Borrowing.
(e) If the Company fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period (i) in the case of a Borrowing denominated in U.S. Dollars, such Borrowing shall be converted to an ABR Borrowing, and (ii) in the case of a Borrowing denominated in a Foreign Currency, such Borrowing shall automatically continue as a Eurodollar Borrowing in the same Agreed Currency with an Interest Period of one (1) month. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Company, then, so long as an Event of Default is continuing (x) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (y) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing (and any such Eurodollar Borrowing denominated in a Foreign Currency shall be redenominated in Dollars at the time of such conversion) at the end of the Interest Period applicable thereto.
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SECTION 2.09. Termination and Reduction of Commitments . (a) Unless previously terminated, (i) the Additional Term Loan Commitments shall terminate on the Effective Date after the funding of the Additional Term Loans, and (ii) all other Commitments shall terminate on the Maturity Date. For the avoidance of doubt, the Term Loan Commitments under (and as defined in) the Existing Credit Agreement terminated automatically on the Effective Date (as defined in the Existing Credit Agreement) after the funding of the Original Term Loans.
(b) The Borrowers may at any time terminate, or from time to time reduce, the Revolving Commitments; provided , that (i) each reduction of the Revolving Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $1,000,000 and (ii) the Borrowers shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.11 , the Dollar Amount of the total Revolving Credit Exposures of all Lenders would exceed the Aggregate Revolving Commitment.
(c) The Company shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three (3) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Company pursuant to this Section shall be irrevocable; provided , that a notice of termination of the Commitments delivered by the Company may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Company (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.
SECTION 2.10. Repayment and Amortization of Loans; Evidence of Debt . (a) Revolving Loans and Swingline Loans . The Borrowers hereby unconditionally promise to pay (i) to the Administrative Agent for the account of each Revolving Lender the then unpaid principal amount of each Revolving Loan made on the Maturity Date in the currency of such Revolving Loan and (ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Maturity Date and the first date after such Swingline Loan is made that is the fifteenth (15 th ) or last day of a calendar month and is at least two (2) Business Days after such Swingline Loan is made; provided , that on each date that a Revolving Borrowing is made, the Borrowers shall repay all Swingline Loans then outstanding.
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(b) Original Term Loans . The Borrowers shall repay Original Term Loans on each date set forth below in the aggregate principal amount set forth opposite such date (as adjusted from time to time pursuant to Section 2.11 ) in U.S. Dollars:
Date |
Amount | |||
March 31, 2014 |
$ | 1,769,531 | ||
June 30, 2014 |
$ | 1,769,531 | ||
September 30, 2014 |
$ | 1,769,531 | ||
December 31, 2014 |
$ | 1,769,531 | ||
March 31, 2015 |
$ | 2,359,375 | ||
June 30, 2015 |
$ | 2,359,375 | ||
September 30, 2015 |
$ | 2,359,375 | ||
December 31, 2015 |
$ | 2,359,375 | ||
March 31, 2016 |
$ | 2,359,375 | ||
June 30, 2016 |
$ | 2,359,375 | ||
September 30, 2016 |
$ | 2,359,375 | ||
December 31, 2016 |
$ | 2,359,375 | ||
March 31, 2017 |
$ | 2,949,219 | ||
June 30, 2017 |
$ | 2,949,219 | ||
September 30, 2017 |
$ | 2,949,219 | ||
December 31, 2017 |
$ | 2,949,219 | ||
March 31, 2018 |
$ | 2,949,219 | ||
June 30, 2018 |
$ | 2,949,219 | ||
September 30, 2018 |
$ | 2,949,219 | ||
Maturity Date |
|
The remaining unpaid
principal balance of the
|
|
To the extent not previously repaid, all unpaid Original Term Loans shall be paid in full by the Borrowers on the Maturity Date.
(c) Additional Term Loans . The Borrowers shall repay Additional Term Loans on each date set forth below in the aggregate principal amount set forth opposite such date (as adjusted from time to time pursuant to Section 2.11 ) in Euro:
Date |
Amount | |||
March 31, 2014 |
| 937,500 | ||
June 30, 2014 |
| 937,500 | ||
September 30, 2014 |
| 937,500 | ||
December 31, 2014 |
| 937,500 | ||
March 31, 2015 |
| 1,250,000 | ||
June 30, 2015 |
| 1,250,000 | ||
September 30, 2015 |
| 1,250,000 | ||
December 31, 2015 |
| 1,250,000 | ||
March 31, 2016 |
| 1,250,000 | ||
June 30, 2016 |
| 1,250,000 | ||
September 30, 2016 |
| 1,250,000 | ||
December 31, 2016 |
| 1,250,000 | ||
March 31, 2017 |
| 1,562,500 | ||
June 30, 2017 |
| 1,562,500 | ||
September 30, 2017 |
| 1,562,500 | ||
December 31, 2017 |
| 1,562,500 | ||
March 31, 2018 |
| 1,562,500 | ||
June 30, 2018 |
| 1,562,500 | ||
September 30, 2018 |
| 1,562,500 | ||
Maturity Date |
|
The remaining unpaid
principal balance of the Additional Term Loans |
|
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To the extent not previously repaid, all unpaid Additional Term Loans shall be paid in full by the Borrowers on the Maturity Date.
(d) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan made to such Borrower by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(e) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class, Agreed Currency and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lenders share thereof.
(f) The entries made in the accounts maintained pursuant to paragraph (d) or (e) of this Section shall be prima facie evidence of the existence and amounts of the Obligations recorded therein; provided , that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of each Borrower to repay the Loans in accordance with the terms of this Agreement.
(g) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrowers shall prepare, execute and deliver to such Lender a promissory note payable to such Lender and its registered assigns and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04 ) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.11. Prepayment of Loans . (a) The Borrowers shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section; provided , that each partial prepayment shall be in an aggregate amount that is (i) an integral multiple of (A) in the case of an ABR Borrowing (other than a Swingline Borrowing), $100,000, (B) in the case of a Eurodollar Borrowing denominated in U.S. Dollars, $100,000, and (C) in the case of a Eurodollar Borrowing denominated in any Foreign Currency, the smallest amount of such Foreign Currency that has an Equivalent Amount at least equal to $100,000, and (ii) not less than (A) in the case of a Swingline Borrowing, $100,000, (B) in the case of an ABR Borrowing (other than a Swingline Borrowing), $500,000, (C) in the case of a Eurodollar Borrowing denominated in U.S. Dollars, $500,000, and (D) in the case of a Eurodollar Borrowing denominated in any Foreign Currency, the smallest amount of such Foreign Currency that has an Equivalent Amount at least equal to $500,000.
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(b) The Company, on behalf of the applicable Borrower, shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Company shall notify the Swingline Lender) by telecopy of a written notice signed by the Company (or, in the case of a prepayment of a Borrowing denominated in U.S. Dollars, by telephone confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written notice signed by the Company) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing denominated in U.S. Dollars, not later than 11:00 a.m., New York City time, three (3) Business Days before the date of prepayment, (ii) in the case of prepayment of a Eurodollar Borrowing denominated in a Foreign Currency, not later than 11:00 a.m., Local Time, four (4) Business Days before the date of prepayment, (iii) in the case of prepayment of an ABR Borrowing (other than a Swingline Borrowing), not later than 11:00 a.m., New York City time, one (1) Business Day before the date of prepayment or (iv) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, New York City time, on the date of prepayment. Each such telephonic and written notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided , that if a notice of prepayment is given in connection with a conditional notice of termination of the Revolving Commitments as contemplated by Section 2.09 , then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.09 . Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each prepayment of a Revolving Borrowing shall be applied ratably to the Revolving Loans included in the prepaid Revolving Borrowing. In any calendar year, each voluntary prepayment of an Original Term Loan Borrowing shall be applied ratably to the Original Term Loans included in the prepaid Original Term Loan Borrowing as follows: (x) the first $10,000,000 of such prepayments (in the aggregate for all such prepayments during such calendar year) shall be divided evenly among, and applied against, the remaining amortization installments of the Original Term Loans over the remaining term of the Original Term Loans, and (y) any such prepayments in excess of $10,000,000 (in the aggregate for all such prepayments during such calendar year) shall be applied, in direct order of maturity, against the remaining amortization installments of the Original Term Loans over the remaining term of the Original Term Loans. In any calendar year, each voluntary prepayment of an Additional Term Loan Borrowing shall be applied ratably to the Additional Term Loans included in the prepaid Additional Term Loan Borrowing as follows: (x) the first 5,000,000 of such prepayments (in the aggregate for all such prepayments during such calendar year) shall be divided evenly among, and applied against, the remaining amortization installments of the Additional Term Loans over the remaining term of the Additional Term Loans, and (y) any such prepayments in excess of 5,000,000 (in the aggregate for all such prepayments during such calendar year) shall be applied, in direct order of maturity, against the remaining amortization installments of the Additional Term Loans over the remaining term of the Additional Term Loans. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13 and break funding payments to the extent required by Section 2.16 .
(c) If at any time, (i) other than as a result of fluctuations in currency exchange rates, the Dollar Amount of the total Revolving Credit Exposures of all Lenders (calculated, with respect to Revolving Loans and LC Exposure denominated in Foreign Currencies, as of the most
45
recent Computation Date with respect to each such Revolving Loans and LC Exposure) exceeds (A) the Aggregate Revolving Commitment or (B) with respect to the portion of the total Revolving Credit Exposures of all Lenders (so calculated) denominated in Foreign Currencies, the Multicurrency Sublimit, or (ii) solely as a result of fluctuations in currency exchange rates, the Dollar Amount of the total Revolving Credit Exposures of all Lenders (so calculated), as of the most recent Computation Date, exceeds one hundred five percent (105%) of (A) the Aggregate Revolving Commitment or (B) with respect to the portion of the total Revolving Credit Exposures of all Lenders (so calculated) denominated in Foreign Currencies, the Multicurrency Sublimit, then the Borrowers shall, in each case, immediately repay Revolving Borrowings or cash collateralize LC Exposure in accordance with the procedures set forth in Section 2.06(j) , as applicable, in an aggregate principal amount sufficient to cause the Dollar Amount of the total Revolving Credit Exposures of all Lenders (so calculated) to be less than or equal to (x) the Aggregate Revolving Commitment and (y) with respect to the portion of the total Revolving Credit Exposures of all Lenders (so calculated) denominated in Foreign Currencies, the Multicurrency Sublimit.
SECTION 2.12. Fees . (a) The Borrowers agree to pay to the Administrative Agent for the account of each Revolving Lender a commitment fee, which shall accrue at the Applicable Rate (subject to adjustment as set forth in Section 2.13(f) ) on the average daily unused amount of the Revolving Commitment of such Revolving Lender during the period from and including the Effective Date to but excluding the date on which such Revolving Commitment terminates; provided , that if such Revolving Lender continues to have any Swingline Exposure after its Revolving Commitment terminates, then such commitment fee shall continue to accrue on the daily amount of such Lenders Swingline Exposure from and including the date on which its Revolving Commitment terminates to but excluding the date on which such Revolving Lender ceases to have any Swingline Exposure. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the date hereof; provided , that any commitment fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. All commitment fees shall be computed on the basis of a year of three hundred sixty (360) days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). All commitment fees shall be payable in U.S. Dollars. For purposes of this Section 2.12(a) , the unused amount of the Revolving Commitment of any Lender shall be deemed to be the excess of (i) the Revolving Commitment of such Lender over (ii) the Revolving Credit Exposure of such Lender (exclusive of Swingline Exposure).
(b) The Borrowers agree to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Rate used to determine the interest rate applicable to Eurodollar Revolving Loans on the average daily amount of such Revolving Lenders LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Revolving Lenders Revolving Commitment terminates and the date on which such Revolving Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate or rates per annum separately agreed upon between the Company and the Issuing Bank on the average daily amount of the LC Exposure (excluding any portion
46
thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Banks standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third (3 rd ) Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided , that all such fees shall be payable on the date on which the Revolving Commitments terminate and any such fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within ten (10) days after demand. All participation fees and fronting fees shall be computed on the basis of a year of three hundred sixty (360) days (or three hundred sixty-five (365) days with respect to any portion of the LC Exposure denominated in Pounds Sterling) and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). All participation fees and fronting fees shall be payable in the original currency of the LC Exposure.
(c) The Borrowers agree to pay to the Administrative Agent and the Arrangers, for their own respective accounts, fees payable in the amounts, in the currencies and at the times separately agreed upon between the Borrowers, on the one hand, and the Administrative Agent or the Arrangers, on the other.
(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Revolving Lenders. Fees paid shall not be refundable under any circumstances.
SECTION 2.13. Interest . (a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrowers hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, two percent (2%) plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, two percent (2%) plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Revolving Commitments; provided , that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability
47
Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. All interest shall be payable in the currency in which the applicable Loan is denominated.
(e) All interest hereunder shall be computed on the basis of a year of three hundred sixty (360) days, except that (i) interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of three hundred sixty-five (365) days (or three hundred sixty-six (366) days in a leap year) and (ii) interest for Borrowings denominated in Pounds Sterling shall be computed on the basis of a year of three hundred sixty-five (365) days, and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
(f) If, as a result of any restatement of or other adjustment to the financial statements of the Company or for any other reason, the Company or the Administrative Agent determines that (i) the Consolidated Total Net Leverage Ratio as calculated by the Company as of any applicable date was inaccurate and (ii) a proper calculation of the Consolidated Total Net Leverage Ratio would have resulted in higher pricing for such period, the Borrowers shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to any Borrower under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent or any Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period; provided , that if any such restatement or adjustment would have resulted in a lower pricing for any other period (each, a Lower Priced Period ), there shall be deducted from such additional interest and fees an amount equal to (but in no event greater than the amount of such additional interest and fees) the excess of interest and fees actually paid for such Lower Priced Period over the amount of interest and fees that should have been paid during such Lower Priced Period.
SECTION 2.14. Alternate Rate of Interest . If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period;
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then the Administrative Agent shall give notice thereof to the Company and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Company and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, (ii) if any Borrowing Request requests a Eurodollar Borrowing denominated in U.S. Dollars, such Borrowing shall be made as an ABR Borrowing, and (iii) if any Borrowing Request requests a Eurodollar Borrowing denominated in a Foreign Currency, such Borrowing Request shall be ineffective; provided , that if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted.
SECTION 2.15. Increased Costs . (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank;
(ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition, cost or expense (other than Taxes) affecting any Loan Document or Loans made by such Lender or any Letter of Credit or participation therein; or
(iii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making or maintaining any Eurodollar Loan or of maintaining its obligation to make any such Loan (including pursuant to any conversion of any Borrowing denominated in an Agreed Currency to a Borrowing denominated in any other Agreed Currency) or to increase the cost to such Lender, the Issuing Bank or such other Recipient of participating in, issuing or maintaining any Letter of Credit (including pursuant to any conversion of any Borrowing denominated in an Agreed Currency to a Borrowing denominated in any other Agreed Currency) or to reduce the amount of any sum received or receivable by such Lender, the Issuing Bank or such other Recipient hereunder, whether of principal, interest or otherwise (including pursuant to any conversion of any Borrowing denominated in an Agreed Currency to a Borrowing denominated in any other Agreed Currency), then the Company will pay (or cause the applicable Designated Borrower to pay) to such Lender, the Issuing Bank or such other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, the Issuing Bank or such other Recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lenders or the Issuing Banks capital or on the capital of such Lenders or the Issuing
49
Banks holding company, if any, as a consequence of any Loan Document or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lenders or the Issuing Banks holding company could have achieved but for such Change in Law (taking into consideration such Lenders or the Issuing Banks policies and the policies of such Lenders or the Issuing Banks holding company with respect to capital adequacy and liquidity), then from time to time the Company will pay (or cause the applicable Designated Borrower to pay) to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lenders or the Issuing Banks holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay (or cause the applicable Designated Borrower to pay) such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lenders or the Issuing Banks right to demand such compensation; provided , that no Borrower shall be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than two hundred seventy (270) days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Company of the Change in Law giving rise to such increased costs or reductions and of such Lenders or the Issuing Banks intention to claim compensation therefor; provided further , that if the Change in Law giving rise to such increased costs or reductions is retroactive, then the two hundred seventy (270) day period referred to above shall be extended to include the period of retroactive effect thereof.
SECTION 2.16. Break Funding Payments . In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default or as a result of any prepayment pursuant to Section 2.11 ), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(b) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Company pursuant to Section 2.19 , then, in any such event, the Company shall compensate (or cause the applicable Designated Borrower to compensate) each Lender for the loss, cost and expense attributable to such event. Such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid
50
were it to bid, on the date of such event, for deposits in the applicable currency of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay (or cause the applicable Designated Borrower to pay) such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.
SECTION 2.17. Payments Free of Taxes . (a) Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable withholding agent) requires the deduction or withholding of any Tax from any such payment by a withholding agent, then the applicable withholding agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Loan Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 2.17 ) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(b) Payment of Other Taxes by the Loan Parties . The Loan Parties shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for, Other Taxes.
(c) Evidence of Payments . As soon as practicable after any payment of Taxes by any Loan Party to a Governmental Authority pursuant to this Section 2.17 , such Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(d) Indemnification by the Loan Parties . The Loan Parties shall indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Company by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(e) Indemnification by the Lenders . Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (ii) any Taxes attributable to such Lenders failure to comply with the provisions of Section 9.04(c) relating to the maintenance of a Participant
51
Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e) .
(f) Status of Lenders . (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Company and the Administrative Agent, at the time or times reasonably requested by the Company or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Company or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Company or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Company or the Administrative Agent as will enable the Company or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.17(f)(ii)(A) , (ii)(B) and (ii)(D) below) shall not be required if in the Lenders reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing, in the event that any Borrower is a U.S. Person:
(A) any Lender that is a U.S. Person shall deliver to the Company and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Company or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. Federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Company and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Company or the Administrative Agent), whichever of the following is applicable:
(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to the interest article of such tax treaty and (y) with respect to any
52
other applicable payments under any Loan Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to the business profits or other income article of such tax treaty;
(2) executed originals of IRS Form W-8ECI;
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit C-1 to the effect that such Foreign Lender is not a bank within the meaning of Section 881(c)(3)(A) of the Code, a 10 percent shareholder of such Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a controlled foreign corporation described in Section 881(c)(3)(C) of the Code (a U.S. Tax Compliance Certificate ) and (y) executed originals of IRS Form W-8BEN; or
(4) to the extent a Foreign Lender is not the Beneficial Owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit C-2 or Exhibit C-3 , IRS Form W-9, and/or other certification documents from each Beneficial Owner, as applicable; provided , that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit C-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Company and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Company or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. Federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Company or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to U.S. Federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Company and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Company or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Company or the Administrative Agent as may be necessary for the Company and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lenders obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D) , FATCA shall include any amendments made to FATCA after the date of this Agreement.
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Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Company and the Administrative Agent in writing of its legal inability to do so.
(g) Treatment of Certain Refunds . If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.17 (including by the payment of additional amounts pursuant to this Section 2.17 ), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.17 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g) , in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(h) Survival . Each partys obligations under this Section 2.17 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
(i) Defined Terms . For purposes of this Section 2.17 , the term Lender includes any Issuing Bank and the phrase applicable law includes FATCA.
SECTION 2.18. Payments Generally; Allocations of Proceeds; Pro Rata Treatment; Sharing of Set-offs . (a) Each Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements (except to the extent otherwise required under Section 2.06(e) with respect to reimbursement deadlines for LC Disbursements), or of amounts payable under Section 2.15 , 2.16 or 2.17 , or otherwise) prior to 12:00 noon, Local Time, on the date when due, in immediately available funds, without set off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at (x) in the case of payments denominated in U.S. Dollars, its offices at 270 Park Avenue,
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New York, New York, and (y) in the case of payments denominated in a Foreign Currency, its offices at Floor 6, 25 Bank Street, Canary Wharf, London E14 5JP, United Kingdom (Attention of Manager: Loan Agency) or, if applicable, such other Eurocurrency Payment Office for such Foreign Currency, in each case except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15 , 2.16 , 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder of principal or interest or Letter of Credit participation fees or fronting fees in respect of any Loan or LC Disbursement or the LC Exposure shall, except as otherwise expressly provided herein, be made in the currency of such Loan or LC Disbursement or the LC Exposure, as applicable. All other payments hereunder and under each other Loan Document shall be made in U.S. Dollars. Notwithstanding the foregoing provisions of this Section, if, after the making of any Borrowing or LC Disbursement in any Foreign Currency, currency control or exchange regulations are imposed in the country which issues such Foreign Currency with the result that such Foreign Currency no longer exists or the applicable Borrower is not able to make payment to the Administrative Agent for the account of the Lenders in such Foreign Currency, then all payments to be made by such Borrower hereunder in such Foreign Currency shall instead be made when due in U.S. Dollars in an amount equal to the Dollar Amount (as of the date of repayment) of such payment due, it being the intention of the parties hereto that such Borrower takes all risks of the imposition of any such currency control or exchange regulations.
(b) Any proceeds of Collateral received by the Administrative Agent (i) not constituting a specific payment of principal, interest, fees or other sum payable under the Loan Documents shall be applied as specified by the Company or (ii) after an Event of Default has occurred and is continuing and the Administrative Agent so elects or the Required Lenders so direct, shall be applied ratably first , to pay that portion of the Obligations constituting fees, indemnities, expense reimbursements and other amounts payable to the Administrative Agent; second , to pay that portion of the Obligations constituting fees, indemnities, expense reimbursements and other amounts (other than principal, interest, commitment fees, Letter of Credit participation fees and Letter of Credit fronting fees) payable to the Lenders and the Issuing Bank; third , to pay that portion of the Obligations constituting accrued and unpaid commitment fees, Letter of Credit participation fees and Letter of Credit fronting fees and interest then due and payable on the Loans and other Obligations, ratably among the Lenders and the Issuing Bank in proportion to the respective amounts described in this clause third payable to them; fourth , to pay that portion of the Secured Obligations constituting unpaid principal on the Loans and unreimbursed LC Disbursements and any Secured Banking Services Obligations and, subject to the last sentence of this Section 2.18(b) , Secured Swap Obligations then owing, ratably among the Lenders, the Issuing Bank, the Swap Providers and the Banking Services Providers in proportion to the respective amounts described in this clause fourth held by them; fifth , to the Administrative Agent for the benefit of the Issuing Bank and the Revolving Lenders, to cash collateralize that portion of the LC Exposure comprised of the aggregate undrawn amount of Letters of Credit in accordance with Section 2.06(j) ; and sixth , to pay any other Secured Obligation then owing, ratably among the Secured Parties in proportion to the respective
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amounts described in this clause sixth payable to them. Notwithstanding the foregoing, Secured Banking Services Obligations and Secured Swap Obligations shall be excluded from the application described above if the Administrative Agent has not received written notice thereof, together with such supporting documentation as the Administrative Agent may request, from the applicable Banking Services Provider or Swap Provider. Each Banking Services Provider or Swap Provider not a party to this Agreement that has given the notice contemplated by the preceding sentence shall, by such notice, be deemed to have acknowledged and accepted the appointment of the Administrative Agent pursuant to the terms of Article VIII hereof for itself and its Affiliates as if a Lender party hereto. No Banking Services Provider or Swap Provider that obtains the benefits of this Section 2.18(b) , the Guarantee Agreement or any Collateral by virtue of the provisions hereof or of the Guarantee Agreement or any Collateral Document shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of the Collateral (including the release or impairment of any Collateral) other than in its capacity as a Lender and, in such case, only to the extent expressly provided in the Loan Documents. Notwithstanding any other provision of this Agreement to the contrary, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Secured Banking Services Obligations or Secured Swap Obligations unless the Administrative Agent has received written notice of such Secured Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Banking Services Provider or Swap Provider. Secured Swap Obligations that constitute Excluded Swap Obligations with respect to any Subsidiary Guarantor shall not be paid with amounts received from such Subsidiary Guarantor or its assets, but appropriate adjustments shall be made with respect to amounts received from other Loan Parties or their assets to preserve the allocation to Secured Swap Obligations otherwise set forth in this Section 2.18(b) .
(c) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.
(d) If any Lender shall, by exercising any right of set off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements and Swingline Loans; provided , that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase
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price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by any Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender) or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements and Swingline Loans to any assignee or participant, other than to any Borrower or any subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation.
(e) Unless the Administrative Agent shall have received notice from any Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the applicable Lenders or the Issuing Bank hereunder that such Borrower will not make such payment, the Administrative Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the applicable Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if such Borrower has not in fact made such payment, then each of the applicable Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation (including the Overnight Foreign Currency Rate in the case of Loans denominated in a Foreign Currency).
(f) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(c) , 2.06(d) or (e) , 2.07(b) , 2.18(e) or 9.03(c) , then the Administrative Agent may, in its discretion and notwithstanding any contrary provision hereof, (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lenders obligations under such Sections until all such unsatisfied obligations are fully paid, and/or (ii) hold such amounts in a segregated account over which the Administrative Agent shall have exclusive control as cash collateral for, and application to, any future funding obligations of such Lender under any such Section, in the case of each of clause (i) and (ii) above, in any order as determined by the Administrative Agent in its discretion.
SECTION 2.19. Mitigation Obligations; Replacement of Lenders . (a) If any Lender requests compensation under Section 2.15 , or if any Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17 , then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Sections 2.15 or 2.17 , as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such
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Lender. The Company hereby agrees to pay (or cause the applicable Designated Borrower to pay) all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15 , or if any Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17 , or if any Lender becomes a Defaulting Lender or a Non-Consenting Lender, then the Company may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04 ), all its interests, rights (other than its existing rights to payments pursuant to Sections 2.15 or 2.17 ) and obligations under the Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided , that (i) the Company shall have received the prior written consent of the Administrative Agent (and if a Revolving Commitment is being assigned, the Issuing Bank), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder (including amounts due under Section 2.16 ), from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts), (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17 , such assignment will result in a reduction in such compensation or payments, and (iv) in the case of any assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply.
SECTION 2.20. Defaulting Lenders .
Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) commitment fees shall cease to accrue on the unfunded portion of the Revolving Commitment, if any, of such Defaulting Lender pursuant to Section 2.12(a) ;
(b) the Commitment and Credit Exposure of such Defaulting Lender shall not be included in determining whether all Lenders, the Required Lenders, the Required Revolving Lenders, the Required Original Term Lenders or the Required Additional Term Lenders, as applicable, have taken or may take any action hereunder (including any consent to any amendment, waiver or other modification pursuant to Section 9.02 ); provided , that any waiver, amendment or other modification requiring the consent of all Lenders or each affected Lender which affects such Defaulting Lender disproportionately when compared to the other affected Lenders, or increases or extends the Commitment of such Defaulting Lender, shall require the consent of such Defaulting Lender;
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(c) if any Swingline Exposure or LC Exposure exists at the time such Lender becomes a Defaulting Lender, and such Lender is a Revolving Lender, then:
(i) all or any part of the Swingline Exposure and LC Exposure of such Defaulting Lender shall be reallocated among the non-Defaulting Lenders that are Revolving Lenders in accordance with their respective Applicable Percentages but only to the extent that (A) the sum of all such non-Defaulting Lenders Revolving Credit Exposures plus such Defaulting Lenders Swingline Exposure and LC Exposure does not exceed the total of all non-Defaulting Lenders Revolving Commitments, (B) such reallocation does not cause the Revolving Credit Exposure of any such non-Defaulting Lender to exceed such non-Defaulting Lenders Revolving Commitment, and (C) the conditions set forth in Section 4.02 are satisfied at such time;
(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrowers shall within one (1) Business Day following notice by the Administrative Agent (A) first, prepay such Swingline Exposure and (B) second, cash collateralize for the benefit of the Issuing Bank only the Borrowers obligations corresponding to such Defaulting Lenders LC Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.06(j) for so long as such LC Exposure is outstanding;
(iii) if the Borrowers cash collateralize any portion of such Defaulting Lenders LC Exposure pursuant to clause (ii) above, the Borrowers shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.12(b) with respect to such Defaulting Lenders LC Exposure during the period such Defaulting Lenders LC Exposure is cash collateralized;
(iv) if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the fees payable to the Revolving Lenders pursuant to Section 2.12(a) and Section 2.12(b) shall be adjusted in accordance with such non-Defaulting Lenders Applicable Percentages; and
(v) if all or any portion of such Defaulting Lenders LC Exposure is neither reallocated nor cash collateralized pursuant to clause (i) or (ii) above, then, without prejudice to any rights or remedies of the Issuing Bank or any other Revolving Lender hereunder, all letter of credit fees payable under Section 2.12(b) with respect to such Defaulting Lenders LC Exposure shall be payable to the Issuing Bank until and to the extent that such LC Exposure is reallocated and/or cash collateralized; and
(d) so long as such Lender is a Defaulting Lender and a Revolving Lender, (i) the Swingline Lender shall not be required to fund any Swingline Loan and the Issuing Bank shall not be required to issue, amend, renew or extend any Letter of Credit, unless it is satisfied that the related exposure and such Defaulting Lenders then outstanding LC Exposure will be one hundred percent (100%) covered by the Revolving Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrowers in accordance with clause (c) above, and (ii) participating interests in any newly made Swingline Loan or any newly issued, amended, renewed or extended Letter of Credit shall be allocated among non-Defaulting Lenders that are Revolving Lenders in a manner consistent with clause (c)(i) above (and such Defaulting Lender shall not participate therein).
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In the event that the Administrative Agent, the Company, the Swingline Lender and the Issuing Bank each agrees that a Defaulting Lender that is a Revolving Lender has adequately remedied all matters that caused such Revolving Lender to be a Defaulting Lender, then the Swingline Exposure and LC Exposure of the Revolving Lenders shall be readjusted to reflect the inclusion of such Revolving Lenders Revolving Commitment and on such date such Revolving Lender shall purchase at par such of the Revolving Loans of the other Lenders (other than Swingline Loans) as the Administrative Agent shall determine may be necessary in order for such Revolving Lender to hold such Revolving Loans in accordance with its Applicable Percentage.
SECTION 2.21. Expansion Option . (a) The Company may from time to time, but not more than five (5) times during the term of this Agreement, elect to increase the Revolving Commitments or enter into one or more additional tranches of term loans (each, an Incremental Term Loan ), in each case in a minimum amount of $10,000,000 and an integral multiple of $5,000,000 in excess thereof so long as, after giving effect thereto, the aggregate amount of such Revolving Commitment increases and all such Incremental Term Loans does not exceed $150,000,000. For the avoidance of doubt, the parties acknowledge that the term Incremental Term Loans does not include the Original Term Loans or the Additional Term Loans. The Company may arrange for any such Revolving Commitment increase or Incremental Term Loan to be provided by one or more Lenders (each Lender so agreeing to an increase in its Revolving Commitment, or to participate in such Incremental Term Loans, an Increasing Lender ), or by one or more new banks, financial institutions or other entities (each such new bank, financial institution or other entity, an Augmenting Lender ), to increase their existing Revolving Commitments, or to participate in such Incremental Term Loans, or extend Revolving Commitments, as the case may be; provided , that (i) each Augmenting Lender shall be subject to the approval of the Company and the Administrative Agent and, except in the case of an Incremental Term Loan, the Swingline Lender and the Issuing Bank, which approvals shall not be unreasonably withheld or delayed and (ii) (A) in the case of an Increasing Lender, the Company and such Increasing Lender execute an agreement substantially in the form of Exhibit D , and (B) in the case of an Augmenting Lender, the Company and such Augmenting Lender execute an agreement substantially in the form of Exhibit E hereto. No consent of any Lender (other than the Lenders participating in such Revolving Commitment increase or Incremental Term Loan) shall be required for any such increase or Incremental Term Loan pursuant to this Section 2.21 .
(b) Revolving Commitment increases, new Revolving Commitments and Incremental Term Loans created pursuant to this Section 2.21 shall become effective on the date agreed by the Company, the Administrative Agent and the relevant Increasing Lenders or Augmenting Lenders, and the Administrative Agent shall notify each Lender thereof. Notwithstanding the foregoing, no increase in the Revolving Commitments (or in the Revolving Commitment of any Lender) or Incremental Term Loan shall become effective under this paragraph unless (i) on the proposed date of the effectiveness of such Revolving Commitment increase or Incremental Term Loan, (A) the conditions set forth in paragraphs (a) and (b) of Section 4.02 shall be satisfied both before and immediately after giving effect to such Revolving Commitment increase or
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Incremental Term Loan or waived by the Required Lenders, and the Administrative Agent shall have received a certificate to that effect dated such date and executed by a Financial Officer of the Company and (B) the Company shall be in pro forma compliance with each financial covenant set forth in Section 6.09 , recomputed (1) as if such Revolving Commitment increase or Incremental Term Loan (and the application of proceeds thereof to the repayment of any other Indebtedness) had occurred on the first day of the most recent Reference Period preceding the date thereof for which the Company has delivered Financial Statements, (2) with Consolidated Senior Funded Debt, Consolidated Total Funded Debt, consolidated cash and consolidated Cash Equivalent Investments measured as of the date of and immediately after giving effect to any funding in connection with such Revolving Commitment increase or Incremental Term Loan (and the application of proceeds thereof to the repayment of any other Indebtedness) and (3) with Consolidated EBITDA and Consolidated Interest Expense measured for the Reference Period then most recently ended for which the Company has delivered Financial Statements, and (ii) the Administrative Agent shall have received documents (including legal opinions) consistent with those delivered on the Effective Date as to the corporate power and authority of the Borrowers to borrow hereunder immediately after giving effect to such Revolving Commitment increase or Incremental Term Loan.
(c) On the effective date of any increase in the Revolving Commitments, (i) each relevant Increasing Lender and Augmenting Lender shall make available to the Administrative Agent such amounts in immediately available funds as the Administrative Agent shall determine, for the benefit of the other Lenders, as being required in order to cause, after giving effect to such Revolving Commitment increase and the use of such amounts to make payments to such other Lenders, each Lenders portion of the outstanding Revolving Loans of all the Lenders to equal its Applicable Percentage of such outstanding Revolving Loans, and (ii) the Borrowers shall be deemed to have repaid and reborrowed all outstanding Revolving Loans as of the date of any increase in the Revolving Commitments (with such reborrowing to consist of the Types of Revolving Loans, with related Interest Periods if applicable, specified in a notice delivered by the Company, in accordance with the requirements of Section 2.03 ). The deemed payments made pursuant to clause (ii) of the immediately preceding sentence shall be accompanied by payment of all accrued interest on the amount prepaid and, in respect of each Eurodollar Loan, shall be subject to indemnification by the Borrowers pursuant to the provisions of Section 2.16 if the deemed payment occurs other than on the last day of the related Interest Periods.
(d) The Incremental Term Loans (i) shall rank pari passu in right of payment with the Revolving Loans, the Original Term Loans and the Additional Term Loans, (ii) shall not mature earlier than the Maturity Date (but may have amortization prior to such date) and (iii) shall be treated substantially the same as (and in any event no more favorably than) the Revolving Loans; provided , that (x) the terms and conditions applicable to any Incremental Term Loan maturing after the Maturity Date may provide for material additional or different financial or other covenants or prepayment requirements applicable only during periods after the Maturity Date and (y) the Incremental Term Loans may be priced differently than the Revolving Loans, the Original Term Loans and the Additional Term Loans.
(e) Incremental Term Loans may be made hereunder pursuant to an amendment or restatement (an Incremental Term Loan Amendment ) of this Agreement and, as appropriate, the other Loan Documents, executed by the Company, each Increasing Lender participating in
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such Incremental Term Loan, if any, each Augmenting Lender participating in such Incremental Term Loan, if any, and the Administrative Agent. Each Incremental Term Loan Amendment may, without the consent of any other Lenders (except to the extent required pursuant to the provisos in Section 9.02(b) ), effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent, to effect the provisions of this Section 2.21 . Nothing contained in this Section 2.21 shall constitute, or otherwise be deemed to be, a commitment on the part of any Lender to increase its Revolving Commitment hereunder, or provide Incremental Term Loans, at any time.
SECTION 2.22. Judgment Currency . If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due from any Borrower hereunder in the currency expressed to be payable herein (the specified currency ) into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the specified currency with such other currency at the Administrative Agents main New York City office on the Business Day preceding that on which final, non-appealable judgment is given. The obligations of any Borrower in respect of any sum due to any Credit Party hereunder shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Credit Party of any sum adjudged to be so due in such other currency such Credit Party may in accordance with normal, reasonable banking procedures purchase the specified currency with such other currency. If the amount of the specified currency so purchased is less than the sum originally due to such Credit Party in the specified currency, the applicable Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Credit Party against such loss, and if the amount of the specified currency so purchased exceeds (a) the sum originally due to any Credit Party in the specified currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender under Section 2.18 , such Credit Party agrees to remit such excess to such Borrower.
SECTION 2.23. Designated Borrowers . (a) Effective as of the date hereof, each Subsidiary identified on Schedule 2.23 shall be a Designated Borrower hereunder and may receive Loans for its account on the terms and conditions set forth in this Agreement.
(b) The Company may at any time, upon not less than fifteen (15) Business Days notice from the Company to the Administrative Agent (or such shorter period as may be agreed by the Administrative Agent in its sole discretion), designate any additional direct or indirect wholly-owned Subsidiary organized under the law of any jurisdiction reasonably acceptable to the Administrative Agent and all of the Revolving Lenders (an Applicant Borrower ) as a Designated Borrower to receive Revolving Loans hereunder by delivering to the Administrative Agent (which shall promptly deliver counterparts thereof to each Lender) a duly executed notice and agreement in substantially the form of Exhibit G (a Designated Borrower Request and Assumption Agreement ). For purposes of the foregoing, a Subsidiary organized under the laws of the United States of America, the United Kingdom, the Netherlands, Canada or Germany will be deemed to be organized in an acceptable jurisdiction. For avoidance of doubt, no Lender shall be obligated to approve or make loans or other extensions of credit to any Applicant Borrower to the extent that it would be unlawful for such Lender to do so. The parties hereto acknowledge
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and agree that prior to any Applicant Borrower becoming entitled to utilize the credit facilities provided for herein the Administrative Agent and the Lenders shall have received such supporting resolutions, incumbency certificates, opinions of counsel and other documents or information, in form, content and scope reasonably satisfactory to the Administrative Agent, as may be required by the Administrative Agent in its reasonable discretion, and promissory notes signed by such new Borrowers to the extent any Lenders so require. Promptly following receipt of all such requested resolutions, incumbency certificates, opinions of counsel and other documents or information, in form, content and scope reasonably satisfactory to it, the Administrative Agent shall send a notice in substantially the form of Exhibit H (a Designated Borrower Notice ) to the Company and the Lenders specifying the effective date upon which the Applicant Borrower shall constitute a Designated Borrower for purposes hereof, whereupon each of the Lenders agrees to permit such Designated Borrower to receive Revolving Loans hereunder, on the terms and conditions set forth herein, and each of the parties agrees that such Designated Borrower otherwise shall be a Borrower for all purposes of this Agreement; provided , that no Borrowing Request may be submitted on behalf of such Designated Borrower until the date that is five (5) Business Days after such effective date.
(c) The Obligations of the Domestic Borrowers shall be joint and several in nature regardless of which Domestic Borrower actually borrows Loans hereunder or the amount of such Loans borrowed or the manner in which the Administrative Agent or any Lender accounts for such Loans on its books and records. The Obligations of the Foreign Borrowers shall be joint and several in nature regardless of which Foreign Borrower actually borrows Loans hereunder or the amount of such Loans borrowed or the manner in which the Administrative Agent or any Lender accounts for such Loans on its books and records; provided , for the avoidance of doubt, that the Foreign Borrowers shall not be liable for the Obligations of the Domestic Borrowers.
(d) Each Designated Borrower hereby irrevocably appoints the Company as its agent for all purposes relevant to the Loan Documents, including (i) the giving and receipt of notices, (ii) the execution and delivery of all documents, instruments and certificates contemplated herein and all modifications hereto, and (iii) the receipt of the proceeds of any Loans made by the Lenders to such Designated Borrower hereunder. Any acknowledgment, consent, direction, certification or other action which might otherwise be valid or effective only if given or taken by all Borrowers, or by each Borrower acting singly, shall be valid and effective if given or taken only by the Company, whether or not any such other Borrower joins therein. Any notice, demand, consent, acknowledgement, direction, certification or other communication delivered to the Company in accordance with the terms of this Agreement shall be deemed to have been delivered to each Designated Borrower.
(e) The Company may from time to time, upon not less than fifteen (15) Business Days notice from the Company to the Administrative Agent (or such shorter period as may be agreed by the Administrative Agent in its sole discretion), terminate a Designated Borrowers status as such, provided that there are no outstanding Revolving Loans payable by such Designated Borrower, or other amounts payable by such Designated Borrower on account of any Revolving Loans made to it, as of the effective date of such termination. The Administrative Agent will promptly notify the Lenders of any such termination of a Designated Borrowers status.
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ARTICLE III
Representations and Warranties
Each Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers . Each of the Company and each Subsidiary is duly organized, validly existing and in good standing (or its jurisdictional equivalent) under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing (or its jurisdictional equivalent) in, every jurisdiction where such qualification is required.
SECTION 3.02. Authorization; Enforceability . The Transactions are within each Loan Partys corporate or other applicable organizational powers and have been duly authorized by all necessary corporate or other applicable organizational actions and, if required, actions by stockholders or other equity holders. Each Loan Document has been duly executed and delivered by each Loan Party that is a party thereto and constitutes a legal, valid and binding obligation of each such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts . The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, and except for filings necessary to perfect Liens created pursuant to the Loan Documents, (b) will not violate any applicable law or regulation in any material respect (except, with respect to Subsidiaries that are not Loan Parties, for such violations that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect), (c) will not violate the charter, by-laws or other organizational documents of the Company or any Subsidiary or any order of any Governmental Authority, (d) will not violate or result in a default under any indenture, agreement or other instrument binding upon and material to the Company or any Subsidiary or its assets, or give rise to a right thereunder to require any payment to be made by the Company or any Subsidiary (except for such violations, defaults and payment requirements that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect), and (e) will not result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary, except Liens created pursuant to the Loan Documents.
SECTION 3.04. Financial Condition; No Material Adverse Change . (a) The Company has made available to the Lenders, through the SECs EDGAR filing system, the Companys consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 2012, reported on by Deloitte & Touche LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 28, 2013, certified by a Financial Officer of the Company. Such financial statements present fairly, in all material respects, the financial position and results of
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operations and cash flows of the Company and its consolidated subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above.
(b) Since December 31, 2012, there has been no event, development or circumstance that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
SECTION 3.05. Properties . (a) Each of the Company and each Subsidiary has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, and except for defects in title and invalid leasehold interests that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
(b) Each of the Company and each Subsidiary owns, or is licensed to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by the Company and the Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.06. Litigation, Environmental and Labor Matters . (a) There are no actions, suits, proceedings or investigations by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrowers, threatened against or affecting the Company or any Subsidiary (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect (other than the Disclosed Matters) or (ii) that specifically reference or directly relate to the Loan Documents or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, neither the Company nor any Subsidiary (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) has actual knowledge of any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.
(d) There are no pending or, to the knowledge of the Borrowers, threatened strikes, lockouts, slowdowns or work stoppages against the Company or any Subsidiary, or unfair labor practice complaint or grievance or arbitration proceeding arising out of or under any collective bargaining agreement under which the Company or any Subsidiary is bound, that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. The hours worked and payments made to employees of the Company and the Subsidiaries have not been in
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violation in any material respect of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law relating to such matters, and all material payments due from the Company or any Subsidiary, or for which any claim may be made against the Company or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as liabilities on the books of the Company or such Subsidiary, except for such violations and payment failures that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement under which the Company or any Subsidiary is bound.
SECTION 3.07. Compliance with Laws and Contractual Obligations . Each of the Company and each Subsidiary is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all of its Contractual Obligations, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.08. Investment Company Status . Neither the Company nor any Subsidiary is an investment company as defined in, or subject to regulation under, the Investment Company Act of 1940.
SECTION 3.09. Taxes . Each of the Company and each Subsidiary has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Company or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. ERISA . No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. No claim, action, suit, audit or investigation with respect to any Plan exists or has been commenced or, to the knowledge of the Borrowers, threatened, other than routine claims for benefits and except for such claims, actions, suits, audits and investigations that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87, as amended, or any successor thereto) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $20,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87, as amended, or any successor thereto) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $20,000,000 the fair market value of the assets of all such underfunded Plans.
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SECTION 3.11. Disclosure . The Company has disclosed to the Lenders or made available through the SECs EDGAR filing system all material agreements, instruments and corporate or other restrictions to which it or any Subsidiary is subject, and all other matters actually known to it, that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither the Information Memorandum nor any of the other reports, financial statements, certificates or other information furnished by or on behalf of the Borrowers to the Administrative Agent or any Lender pursuant to or in connection with the Loan Documents (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, in the light of the circumstances under which they were made, not materially misleading; provided , that with respect to projected financial information, the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.12. Federal Reserve Regulations . Neither the Company nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of any Loan will be used, directly or indirectly, to buy or carry, or to extend credit to others to buy or carry, any Margin Stock or for any other purpose that entails a violation of any Regulations of the Board, including Regulations T, U and X.
SECTION 3.13. Solvency . The Company and the Subsidiaries on a consolidated basis are Solvent.
SECTION 3.14. Use of Proceeds . The proceeds of the Revolving Loans will be used only for general corporate purposes of the Company and the Subsidiaries in the ordinary course of business (including Acquisitions and Investments permitted hereunder) and to refinance existing Indebtedness. The proceeds of the Additional Term Loans will be used only for general corporate purposes of the Dutch Borrower and its subsidiaries and to finance a portion of the Svendborg Brakes Acquisition (including fees and expenses in connection therewith). No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X.
SECTION 3.15. Subsidiaries . As of the date of this Agreement, Schedule 3.15 is a complete list of each Subsidiary, identifying such Subsidiarys jurisdiction of organization and whether such Subsidiary is a Material Domestic Subsidiary.
SECTION 3.16. No Burdensome Restrictions . Neither the Company nor any Subsidiary is party to any agreement, or subject to any provision of law, compliance with which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
SECTION 3.17. No Default . No Default or Event of Default has occurred and is continuing.
SECTION 3.18. Applicable Anti-Corruption Laws, Applicable Anti-Money Laundering Laws and Sanctions . The Company has implemented and maintains in effect policies and procedures designed to ensure compliance by the Company, its Subsidiaries and their respective
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employees, officers, directors and agents with Applicable Anti-Corruption Laws and applicable Sanctions, and the Company, its Subsidiaries and their respective employees, officers, directors and, to the knowledge of the Borrowers, agents, are in compliance with Applicable Anti-Corruption Laws, Applicable Anti-Money Laundering Laws and applicable Sanctions in all material respects. None of (a) the Company, any Subsidiary or any of their respective officers or directors, or (b) to the knowledge of the Borrowers, any employee or agent of the Company or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. The Transactions will not violate Applicable Anti-Corruption Laws, Applicable Anti-Money Laundering Laws or applicable Sanctions.
SECTION 3.19. Representations as to Foreign Borrowers . (a) Each Foreign Borrower is subject to civil and commercial laws with respect to its obligations under the Loan Documents to which it is a party (collectively as to such Foreign Borrower, the Applicable Foreign Borrower Documents ), and the execution, delivery and performance by such Foreign Borrower of the Applicable Foreign Borrower Documents constitute and will constitute private and commercial acts and not public or governmental acts. Neither such Foreign Borrower nor any of its property has any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) under the laws of the jurisdiction in which such Foreign Borrower is organized and existing in respect of its obligations under the Applicable Foreign Borrower Documents.
(b) The Applicable Foreign Borrower Documents are in proper legal form under the laws of the jurisdiction in which such Foreign Borrower is organized and existing for the enforcement thereof against such Foreign Borrower under the laws of such jurisdiction, and to ensure the legality, validity, enforceability, priority or admissibility in evidence of the Applicable Foreign Borrower Documents. It is not necessary to ensure the legality, validity, enforceability, priority or admissibility in evidence of the Applicable Foreign Borrower Documents that the Applicable Foreign Borrower Documents be filed, registered or recorded with, or executed or notarized before, any court or other authority in the jurisdiction in which such Foreign Borrower is organized and existing or that any registration charge or stamp or similar tax be paid on or in respect of the Applicable Foreign Borrower Documents or any other document, except for (i) any such filing, registration, recording, execution or notarization as has been made or is not required to be made until the Applicable Foreign Borrower Document or any other document is sought to be enforced and (ii) any charge or tax as has been timely paid.
(c) There is no tax, levy, impost, duty, fee, assessment or other governmental charge, or any deduction or withholding, imposed by any Governmental Authority in or of the jurisdiction in which such Foreign Borrower is organized and existing either (i) on or by virtue of the execution or delivery of the Applicable Foreign Borrower Documents or (ii) on any payment to be made by such Foreign Borrower pursuant to the Applicable Foreign Borrower Documents, except as has been disclosed to the Administrative Agent.
(d) The execution, delivery and performance of the Applicable Foreign Borrower Documents executed by such Foreign Borrower are, under applicable foreign exchange control regulations of the jurisdiction in which such Foreign Borrower is organized and existing, not subject to any notification or authorization except (i) such as have been made or obtained or (ii) such as cannot be made or obtained until a later date (provided that any notification or authorization described in this clause (ii) shall be made or obtained as soon as is reasonably practicable).
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ARTICLE IV
Conditions
SECTION 4.01. Effective Date . The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective, and this Agreement shall not be effective to amend and restate the Existing Credit Agreement, until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02 ):
(a) Loan Documents . The Administrative Agent (or its counsel) shall have received from each party to the Loan Documents either (i) a counterpart of each Loan Document (other than the Security Agreement, the Patent Security Agreement and the Trademark Security Agreement) to which such Person is a party, signed on behalf of such Person or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy or any other electronic transmission of a signed signature page of each such Loan Document to which such Person is a party) that such Person has signed a counterpart of each such Loan Document.
(b) [Reserved]
(c) Legal Opinions . The Administrative Agent (or its counsel) shall have received favorable written opinions (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of counsel for the Loan Parties (including Dutch counsel to the Dutch Borrower, but excluding Pennsylvania counsel to TB Woods Incorporated) covering such matters relating to the Loan Parties, the Loan Documents and the Transactions as the Administrative Agent may request and otherwise in form and substance satisfactory to the Administrative Agent.
(d) Organizational Documents and Certificates . The Administrative Agent (or its counsel) shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization (which, for the Dutch Borrower, shall include its deed of incorporation and articles of association), existence and good standing of each Loan Party, the authorization of the Transactions and any other legal matters relating to the Loan Parties, the Loan Documents and the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. Notwithstanding the foregoing, (i) the delivery of certificates of good standing and legal existence (or the jurisdictional equivalent thereof, which, for the Dutch Borrower, shall be a current Commercial Register extract from the Chamber of Commerce) shall be required only for the Company, APT, the Dutch Borrower, TB Woods Incorporated and TB Woods Corporation, in each case from such Loan Partys jurisdiction of organization and each other jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires it to be qualified as a foreign corporation or other entity to do business ( provided , that such foreign qualification certificates may be delivered as soon as reasonably practicable following the Effective Date), and (ii) with respect to each Loan Party that is a party to the Existing Credit Agreement, if such Loan Party has not amended, restated or otherwise modified its certificate of incorporation (or equivalent charter document) since the
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certified copy thereof that was provided in connection with the closing of the Existing Credit Agreement, then such Loan Party may provide a certification to that effect in lieu of obtaining new certified copy from the secretary of state (or equivalent office) of its jurisdiction of organization.
(e) Financial Officers Certificate . The Administrative Agent (or its counsel) shall have received a certificate, dated the Effective Date and signed by a Financial Officer of the Company, certifying the following on and as of the Effective Date, both before and immediately after giving effect to the transactions to occur on the Effective Date (including the Additional Term Loan Borrowing and, if the Svendborg Brakes Acquisition will be consummated on such date, the Svendborg Brakes Acquisition and the incurrence or assumption of all other Indebtedness in connection therewith): (i) the conditions set forth in Sections 4.02(a)(i) and 4.02(b) are and will be satisfied, (ii) the Company and the Subsidiaries, on a consolidated basis, are and will be Solvent, and (iii) the Company is and will be in pro forma compliance with all financial covenants set forth in Section 6.09 (as demonstrated by supporting pro forma calculations accompanying such certificate), calculated (A) in accordance with Section 2.21 as though the Additional Term Loans being made on the Effective Date were Incremental Term Loans and (B) in accordance with the definition of Permitted Acquisition if the Svendborg Brakes Acquisition will be consummated on the Effective Date; provided , that the Consolidated Senior Net Leverage Ratio, as so measured, shall not exceed 2.75:1.00.
(f) Fees and Expenses . The Administrative Agent, the Lenders and the Arrangers shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all reasonable out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder.
(g) KYC, etc. The Administrative Agent and the Lenders shall have received (i) all documentation and other information reasonably requested by them under applicable know your customer and anti-money laundering rules and regulations, including the Patriot Act, and (ii) such other documents and instruments as are customary for transactions of this type or as they may reasonably request.
(h) Financial Statements . The Administrative Agent shall have received (i) satisfactory unaudited consolidating financial statements of the Svendborg Brakes Target for the most recent fiscal year ended prior to the Effective Date as to which such financial statements are available and (ii) satisfactory unaudited interim consolidating financial statements of the Svendborg Brakes Target for the six-month period ended June 30, 2013.
(i) Funding Indemnity Letter . The Administrative Agent (or its counsel) shall have received, at least four (4) Business Days prior to the Effective Date, a funding indemnity letter with respect to the Additional Term Loan Borrowing, in form and substance reasonably satisfactory to the Administrative Agent.
The Administrative Agent shall notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to
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Section 9.02 ) at or prior to 3:00 p.m., New York City time, on December 6, 2013 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event . The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:
(a) (i) In the case of any such credit event on the Effective Date, the representations and warranties of the Loan Parties set forth in the Loan Documents shall be true and correct in all respects on and as of the Effective Date (or, to the extent any such representation or warranty is expressly stated to have been made as of a specific earlier date, on and as of such earlier date), and (ii) in the case of any such credit event after the Effective Date, the representations and warranties of the Loan Parties set forth in the Loan Documents shall be true and correct in all material respects (or, with respect to representations and warranties already qualified by concepts of materiality, in all respects) on and as of the date of such credit event (or, to the extent any such representation or warranty is expressly stated to have been made as of a specific earlier date, on and as of such earlier date).
(b) At the time of and immediately after giving effect to such credit event, no Default or Event of Default shall have occurred and be continuing.
Each such credit event shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
SECTION 4.03. Initial Credit Event for each Additional Borrower . The obligation of each Lender to make Loans to any Designated Borrower that becomes a Designated Borrower after the Effective Date is subject to the satisfaction of the following conditions:
(a) The Administrative Agent (or its counsel) shall have received such Designated Borrowers Designated Borrower Request and Assumption Agreement duly executed by all parties thereto.
(b) The Administrative Agent shall have received such documents (including such legal opinions) as the Administrative Agent or its counsel may reasonably request relating to the formation, existence and good standing of such Designated Borrower, the authorization of the Transactions insofar as they relate to such Designated Borrower and any other legal matters relating to such Designated Borrower, its Designated Borrower Request and Assumption Agreement or such Transactions, including, with respect to any Designated Borrower organized under the laws of any jurisdiction, whether inside or outside of the United States of America, a legal opinion from such Designated Borrowers counsel in such jurisdiction, all in form and substance satisfactory to the Administrative Agent and its counsel.
(c) The Administrative Agent and the Lenders shall have received all documentation and other information reasonably requested by the Lenders or the Administrative Agent under applicable know your customer and anti-money laundering rules and regulations, including the Patriot Act.
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ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated, in each case, without any pending draw, and all LC Disbursements shall have been reimbursed, each of the Company (with respect to the covenants set forth in Sections 5.01 and 5.02 ) and each Borrower (with respect to all other covenants set forth in this Article V ) covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information . The Company will make available as provided below or otherwise furnish to the Administrative Agent and each Lender:
(a) within ninety (90) days after the end of each fiscal year of the Company, its audited consolidated balance sheet and related statements of operations, stockholders equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a going concern or like qualification or exception) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Company and its consolidated subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(b) within forty-five (45) days after the end of each of the first three (3) fiscal quarters of each fiscal year of the Company, its consolidated balance sheet and related statements of operations, stockholders equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year;
(c) concurrently with making available or delivering, as the case may be, the financial statements under clause (a) or (b) above (beginning with the financial statements for the fiscal year ending December 31, 2013), a duly completed Compliance Certificate signed by a Financial Officer of the Company;
(d) if permitted by applicable law and provided such disclosure does not result in loss of any disclosure privilege, promptly after receipt thereof by the Company or any Subsidiary, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable foreign jurisdiction) concerning any investigation or possible investigation by such agency regarding financial or other operational results of the Company or any Subsidiary; provided , that for purposes of clarification, the foregoing does not require delivery of comment letters from the SEC;
(e) promptly after a Financial Officer of the Company obtains knowledge that Moodys or S&P shall have announced a change in the rating established or deemed to have been established for the Index Debt, written notice of such rating change; and
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(f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Company or any Subsidiary with the SEC or any national securities exchange, or distributed by the Company to its shareholders generally, as the case may be;
(g) promptly following any request therefor, unless such disclosure is prohibited by applicable law or would result in loss of any disclosure privilege, such other information regarding the operations, business affairs and financial condition of the Company or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may reasonably request.
Information required to be delivered pursuant to this Section 5.01 or Section 5.02 may be delivered electronically and, if so delivered, shall be deemed to have been delivered on (i) the date on which the Company posts such information, or provides a link thereto, on the Companys website on the Internet; (ii) the date on which such documents are posted on the Companys behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access without charge (whether a commercial, third-party website or whether sponsored by the Administrative Agent); or (iii) in the case of any information referred to in Section 5.01(a) or (b) or (f) , the first date on which such information can be accessed through the SECs EDGAR filing system; provided , that the Company shall notify the Administrative Agent (by telecopy or electronic mail) of the posting, in the case of delivery pursuant to the foregoing clauses (i) and (ii) , of any such documents and provide to the Administrative Agent by electronic mail electronic versions ( i.e. , soft copies) of such information. The Administrative Agent shall have no obligation to request the delivery or to maintain copies of the information referred to above, and in any event shall have no responsibility to monitor compliance by the Company with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such information.
SECTION 5.02. Notices of Material Events . Upon its obtaining knowledge thereof, the Company will furnish to the Administrative Agent prompt written notice of the following:
(a) the occurrence of any Default or Event of Default;
(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Company or any Subsidiary that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event (or the maintenance, commencement or, to the knowledge of the Borrowers, threat of any claim, action, suit, audit or investigation with respect to any Plan other than routine claims for benefits) that, alone or together with any other ERISA Events that have occurred (and any such claims, actions, suits, audits or investigations with respect to any Plan that are being maintained or have commenced or, to the knowledge of the Borrowers, have been threatened), could reasonably be expected to result in liability of the Company and the Subsidiaries in an aggregate amount exceeding $20,000,000;
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(d) any material change in material accounting policies or material financial reporting practices by the Company or any Subsidiary not otherwise reported in the Companys SEC filings; and
(e) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; and (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary, including pursuant to any applicable Environmental Laws, which in each instance referred to in the foregoing clauses (i) , (ii) and (iii) results in, or could reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Company setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business . Each Borrower will, and will cause each other Loan Party to, do or cause to be done all things necessary to (a) preserve, renew and keep in full force and effect its legal existence and good standing (or its jurisdictional equivalent) under the laws of the jurisdiction of its organization, (b) maintain all requisite power and authority to carry on its business as now conducted, (c) except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, preserve, renew and keep in full force and effect its qualification to do business in, and its good standing (or its jurisdictional equivalent) in, every jurisdiction where such qualification is required, and (d) except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, preserve, renew and keep in full force and effect all other rights, qualifications, licenses, permits, privileges and franchises material to the conduct of its business; provided , that the foregoing shall not prohibit any merger, consolidation, amalgamation, liquidation or dissolution permitted under Section 6.03 or any other transaction permitted hereunder or under the other Loan Documents.
SECTION 5.04. Payment of Obligations . Each Borrower will, and will cause each Subsidiary to, pay its obligations, including Tax liabilities, that, if not paid, could reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) such Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance . Each Borrower will, and will cause each Subsidiary to, (a) except for transactions otherwise permitted hereunder or under the other Loan Documents relating to the disposition or transfer of property, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance
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companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. The Borrowers will furnish to the Administrative Agent, upon its request, information in reasonable detail as to the insurance so maintained. The Borrowers shall deliver to the Administrative Agent endorsements (x) to all property or casualty insurance policies covering Collateral naming the Administrative Agent as lender loss payee, and (y) to all general liability and other liability policies naming the Administrative Agent an additional insured, which endorsements shall be in effect at all times prior to the Collateral Fallaway or following any Collateral Reinstatement, as the case may be. In the event the Company or any Subsidiary at any time hereafter shall fail to obtain or maintain any of the policies or insurance required herein or to pay any premium in whole or in part relating thereto, then the Administrative Agent, without waiving or releasing any obligations or resulting Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Administrative Agent deems advisable. All sums so disbursed by the Administrative Agent shall constitute part of the Obligations, payable as provided in this Agreement. The Company will furnish to the Administrative Agent prompt written notice of any casualty or other insured damage to any material portion of the Collateral or the commencement of any action or proceeding for the taking of any material portion of the Collateral or interest therein under power of eminent domain or by condemnation or similar proceeding.
SECTION 5.06. Books and Records; Inspection Rights . Each Borrower will, and will cause each Subsidiary to, (a) keep proper books of record and account in which full, true and correct entries are made of all material financial dealings and transactions in relation to its business and activities, and (b) permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested, but such Borrower or such Subsidiary will not have an obligation to provide such information to the extent disclosure would violate applicable law or would result in the loss of a disclosure privilege.
SECTION 5.07. Compliance with Laws and Material Contractual Obligations . Each Borrower will, and will cause each Subsidiary to, (a) comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property (including Environmental Laws) and (b) perform in all material respects its Contractual Obligations, in each case except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Company will maintain in effect and enforce policies and procedures designed to ensure compliance by the Company, its Subsidiaries and their respective employees, officers, directors and agents with Applicable Anti-Corruption Laws and applicable Sanctions.
SECTION 5.08. Use of Proceeds . The proceeds of the Revolving Loans will be used only for general corporate purposes of the Company and the Subsidiaries in the ordinary course of business (including Acquisitions and Investments permitted hereunder) and to refinance existing Indebtedness. The proceeds of the Additional Term Loans will be used only for general corporate purposes of the Dutch Borrower and its subsidiaries and to finance a portion of the
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Svendborg Brakes Acquisition (including fees and expenses in connection therewith). No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X. The Borrowers will not request any Borrowing or Letter of Credit, and the Borrowers shall not use, and shall procure that their Subsidiaries and their respective employees, officers, directors and agents shall not use, the proceeds of any Borrowing or Letter of Credit (a) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Applicable Anti-Corruption Laws or any Applicable Anti-Money Laundering Laws, (b) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or (c) in any manner that would result in the violation of any Sanctions applicable to any party hereto.
SECTION 5.09. Accuracy of Information . Each Borrower will ensure that any information, including financial statements or other documents, prepared by or on behalf of such Borrower and furnished to the Administrative Agent or the Lenders in connection with any Loan Document or any amendment or modification thereof or waiver thereunder contains no material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading, and the furnishing of such information shall be deemed to be a representation and warranty by such Borrower on the date thereof as to the matters specified in this Section 5.09 .
SECTION 5.10. Material Domestic Subsidiaries . In the event the Company acquires or creates any Material Domestic Subsidiary, or any existing Domestic Subsidiary becomes a Material Domestic Subsidiary after the Effective Date, the Company shall forthwith promptly (and in any event within thirty (30) days (or such longer time as the Administrative Agent may agree) after the acquisition or creation of such Material Domestic Subsidiary or knowledge of such existing Domestic Subsidiary becoming a Material Domestic Subsidiary) cause, if the Company has not otherwise designated such entity as a Borrower, such Domestic Subsidiary to become a Subsidiary Guarantor by delivering to the Administrative Agent joinders to the Guarantee Agreement and the Security Agreement (in each case in the form contemplated thereby), duly executed by such Domestic Subsidiary, pursuant to which such Domestic Subsidiary agrees to be bound by the terms and provisions of the Guarantee Agreement and the Security Agreement, such joinder to be accompanied by appropriate corporate resolutions, other corporate documentation and legal opinions in form and substance reasonably satisfactory to the Administrative Agent and its counsel. Notwithstanding anything herein to the contrary (including the five percent (5%) threshold in the definition of Material Domestic Subsidiary), the Company will cause a sufficient number of its Domestic Subsidiaries to be Subsidiary Guarantors in accordance with the requirements of this Section such that, at all times, all Domestic Subsidiaries that are not Subsidiary Guarantors, collectively, do not comprise more than fifteen percent (15%) of the Companys consolidated assets, consolidated total sales or Consolidated Net Income as of the end of or for the most recently ended Reference Period.
SECTION 5.11. Additional Collateral; Further Assurances .
(a) Prior to the Collateral Fallaway or following any Collateral Reinstatement, as the case may be, each Domestic Borrower will, and will cause each other Domestic Loan Party to,
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cause all of its personal property (whether tangible, intangible or mixed, subject to the exceptions expressly contained in the Security Agreement) to be subject at all times to first priority, perfected Liens in favor of the Administrative Agent for the benefit of the Secured Parties to secure the Secured Obligations in accordance with the terms and conditions of the Collateral Documents, subject in any case to Liens permitted by Section 6.02 .
(b) Without limiting the foregoing, prior to the Collateral Fallaway or following any Collateral Reinstatement, as the case may be, each Domestic Borrower will, and will cause each other Domestic Loan Party to, execute and deliver, or cause to be executed and delivered, to the Administrative Agent such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements and other documents and such other actions or deliveries of the type required by Section 4.01 , as applicable), which may be required by law or which the Administrative Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure perfection and priority of the Liens created or required to be created by the Collateral Documents, all at the expense of the Borrower.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated, in each case, without any pending draw, and all LC Disbursements shall have been reimbursed, each Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness . The Borrowers will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except:
(a) the Secured Obligations;
(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01 and extensions, renewals and replacements of any such Indebtedness with Indebtedness that does not increase the outstanding principal amount thereof;
(c) Indebtedness of the Company owed to any Subsidiary and of any Subsidiary owed to the Company or any other Subsidiary; provided , that Indebtedness of any Subsidiary that is not a Subsidiary Guarantor or a Domestic Borrower owed to any Loan Party shall be subject to the limitations and entitled to the exceptions from the covenant set forth in Section 6.04 (and, for the avoidance of doubt, shall be permitted under this Section 6.01(c) if permitted under any clause of Section 6.04 );
(d) Guarantees by the Company of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Company or any other Subsidiary;
(e) Indebtedness of the Company or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets
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or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided , that (i) such Indebtedness is incurred prior to or within ninety (90) days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (e) shall not exceed, at any time outstanding, the greater of (A) $20,000,000 and (B) seven and one-half percent (7.5%) of the Consolidated Tangible Assets of the Company and the Subsidiaries as set forth on the Companys most recent Financial Statements (as the amount of such Consolidated Tangible Assets may be increased to reflect tangible assets acquired since the date of such Financial Statements in connection with any Permitted Acquisitions);
(f) Indebtedness of the Company or any Subsidiary as an account party in respect of trade letters of credit;
(g) Indebtedness under Swap Agreements permitted under Section 6.05 ;
(h) [Reserved];
(i) Indebtedness consisting of reimbursement or indemnification obligations owed to any Person providing workers compensation, health, disability or other employee benefits or property, casualty or liability insurance, in each case incurred in the ordinary course of business;
(j) Indebtedness consisting of reimbursement obligations in respect of performance bonds, bid bonds, appeal bonds, surety bonds and similar obligations, in each case incurred in the ordinary course of business;
(k) Indebtedness arising in connection with endorsement of instruments for deposit in the ordinary course of business consistent with past practices;
(l) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness does not remain outstanding for more than five (5) Business Days; and
(m) other Indebtedness of the Company or any Subsidiary (which shall include any Subsidiary acquired in connection with a Permitted Acquisition and shall include any extensions, renewals and replacements of any such Indebtedness with Indebtedness that does not increase the outstanding principal amount thereof); provided , that, at the time of the initial incurrence or assumption of any such Indebtedness and immediately after giving effect thereto, (i) no Default or Event of Default has occurred and is continuing or would result therefrom, and (ii) the Company shall be in pro forma compliance with the Consolidated Total Net Leverage Ratio covenant set forth in Section 6.09(b) (with Consolidated Total Funded Debt, consolidated cash and consolidated Cash Equivalent Investments measured as of such time and Consolidated EBITDA measured for the Reference Period then most recently ended for which the Company has delivered Financial Statements); provided further , that (x) the aggregate principal amount of Indebtedness of any Subsidiary (which shall include any Subsidiary acquired in connection with a Permitted Acquisition and shall include any extensions, renewals and replacements of any such Indebtedness with Indebtedness that does not increase the outstanding principal amount thereof) that is not a Domestic Borrower or a Subsidiary Guarantor incurred or assumed in reliance upon
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this clause (m) shall not, at any time, exceed $25,000,000 and (y) such Indebtedness incurred or assumed in reliance upon this clause (m) shall be unsecured unless otherwise permitted by Section 6.02(i) . For the avoidance of doubt, for purposes of the foregoing subclause (x) , the calculation shall not include Indebtedness otherwise permitted under clauses (a) through (l) above.
For purposes of determining compliance with this Section 6.01 , in the event that an item of Indebtedness meets the criteria of more than one of the categories of permitted Indebtedness set forth in clauses (a) through (m) above, then the Company will be permitted to classify such item of Indebtedness on the date of its incurrence or assumption, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 6.01 .
SECTION 6.02. Liens . The Borrowers will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, except:
(a) Liens securing the Secured Obligations;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of the Company or any Subsidiary existing on the date hereof and set forth in Schedule 6.02 ; provided , that (i) such Lien shall not apply to any other property or asset of the Company or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof permitted by Section 6.01(b) ;
(d) any Lien existing on any property or asset prior to the acquisition thereof by the Company or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided , that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Company or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;
(e) Liens on fixed or capital assets acquired, constructed or improved by the Company or any Subsidiary; provided , that (i) such security interests secure Indebtedness permitted by Section 6.01(e) , (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within ninety (90) days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Company or any Subsidiary;
(f) Liens of a collecting bank arising in the ordinary course of business under Section 4-208 of the Uniform Commercial Code in effect in the relevant jurisdiction covering only the items being collected upon;
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(g) Liens on specific items of inventory or other goods and proceeds of such Borrower or such Subsidiary securing its obligations in respect of bankers acceptances issued or created in the ordinary course of business for the account of such Borrower or such Subsidiary to facilitate the purchase, shipment or storage of such inventory or other goods;
(h) Liens securing Indebtedness owed by (i) the Company or any Subsidiary to any Domestic Loan Party, (ii) any Subsidiary that is not a Loan Party to any other Subsidiary that is not a Loan Party, or (iii) any Foreign Subsidiary to any Foreign Borrower; and
(i) additional Liens on any property or assets of the Company or any Subsidiary not otherwise permitted by this Section 6.02 that do not secure obligations in excess of $25,000,000 in the aggregate for all such Liens at any time outstanding.
SECTION 6.03. Fundamental Changes and Asset Sales . (a) The Borrowers will not, and will not permit any Subsidiary to, merge into or consolidate or amalgamate with any other Person, or permit any other Person to merge into or consolidate or amalgamate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) any of its assets (including the Equity Interests of any of its subsidiaries) (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing:
(i) the Company or any Subsidiary may merge into or consolidate or amalgamate with the Company or any Subsidiary; provided , that if the merging, consolidating or amalgamating entity is a Loan Party, then the surviving entity of such merger, consolidation or amalgamation shall be or simultaneously become (A) a Domestic Borrower, if the merging, consolidating or amalgamating entity is a Domestic Borrower, (B) a Borrower, if the merging, consolidating or amalgamating entity is a Foreign Borrower, or (C) a Domestic Loan Party, if the merging, consolidating or amalgamating entity is a Subsidiary Guarantor;
(ii) the Company or any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Company or any Subsidiary; provided , that if the disposing entity is a Loan Party, then the acquiring entity shall be or simultaneously become (A) a Domestic Loan Party, if the disposing entity is a Domestic Loan Party, or (B) a Loan Party, if the disposing entity is a Foreign Borrower.
(iii) the Company and the Subsidiaries may (A) sell inventory in the ordinary course of business, (B) sell worn-out or obsolete assets in the ordinary course of business, (C) grant licenses or sublicenses of intellectual property in the ordinary course of business which do not interfere in any material respect with the ordinary conduct of business of the Company or such Subsidiary, (D) sell, transfer or otherwise dispose of accounts receivable in connection with the compromise, settlement or collection thereof, (E) sell, transfer or otherwise dispose of Cash Equivalent Investments for fair market value, (F) suffer dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Company or such Subsidiary, (G) sell, transfer or otherwise
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dispose of its assets to the extent such disposition constitutes an Investment permitted by Section 6.04 , (H) sell, transfer or otherwise dispose of the following assets to any Subsidiary: (i) Equity Interests in a Foreign Subsidiary, or (ii) loan receivables from a Foreign Subsidiary, and (I) make any other sales, transfers, leases or other dispositions; provided , that, in the case of this clause (I) , (1) such dispositions are for fair market value and on an arms-length basis, (2) the aggregate book value of assets of the Company and the Subsidiaries disposed of in any fiscal year of the Company shall not exceed ten percent (10%) of the Consolidated Tangible Assets of the Company and the Subsidiaries as set forth on the Companys most recent Financial Statements (as the amount of such Consolidated Tangible Assets may be increased to reflect tangible assets acquired since the date of such Financial Statements in connection with any Permitted Acquisitions), and (3) the aggregate book value of assets of the Company and the Subsidiaries disposed of during the term of this Agreement in reliance upon this clause (iii) shall not exceed $100,000,000;
(iv) any Subsidiary may liquidate or dissolve if the Company determines in good faith that such liquidation or dissolution is in the best interests of the Company and is not materially disadvantageous to the Lenders; provided , that if such liquidating or dissolving Subsidiary is (A) a Domestic Guarantor, then its assets shall be transferred to another Domestic Loan Party prior to such liquidation or dissolution, (B) a Domestic Borrower, then its assets shall be transferred to another Domestic Loan Party, and its Obligations shall be assigned to and assumed by another Domestic Borrower pursuant to documentation reasonably satisfactory to the Administrative Agent, prior to such liquidation or dissolution, or (C) a Foreign Borrower, then its assets shall be transferred to another Loan Party, and its Obligations shall be assigned to and assumed by another Borrower pursuant to documentation reasonably satisfactory to the Administrative Agent, prior to such liquidation or dissolution; and
(v) any Person may merge into or consolidated or amalgamate with the Company or any Subsidiary in connection with an Acquisition in which the Company or such Subsidiary is the surviving entity or the other Person simultaneously becomes a Domestic Borrower, Foreign Borrower or Subsidiary Guarantor, if and as applicable.
(b) The Borrowers will not, and will not permit any Subsidiary to, engage to any material extent in any business other than businesses of the type conducted by the Company and the Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto.
(c) The Borrowers will not, and will not permit any Subsidiary to, change its fiscal year from the basis in effect on the date of execution of this Agreement.
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions . The Borrowers will not, and will not permit any Subsidiary to, (x) purchase, hold or acquire any Equity Interests, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances or capital contributions to, Guarantee any obligations of, or make or permit to exist any other investment or any other interest in, any other Person, or (y) consummate any Acquisition (each, an Investment ), except:
(a) Investments existing on the date hereof and set forth in Schedule 6.04 ;
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(b) Cash Equivalent Investments;
(c) Investments other than loans and advances (i) by the Loan Parties in the Equity Interests of their respective Subsidiaries that are Domestic Borrowers or Subsidiary Guarantors, (ii) by Subsidiaries that are not Loan Parties in the Equity Interests of their respective Subsidiaries, and (iii) to the extent existing on the date hereof, by the Loan Parties in the Equity Interests of their respective Subsidiaries that are not Domestic Borrowers or Subsidiary Guarantors;
(d) Investments consisting of loans or advances made by (i) any Loan Party to any Domestic Borrower or any Subsidiary Guarantor or (ii) any Subsidiary that is not a Loan Party to the Company or any other Subsidiary;
(e) Guarantees constituting Indebtedness permitted by Section 6.01 ;
(f) Guarantees under the Guarantee Agreement;
(g) Guarantees (i) by any Loan Party of obligations (other than Indebtedness, which Guarantees are addressed by clause (e) above) of any Domestic Borrower or any Subsidiary Guarantor, or (ii) by any Subsidiary that is not a Loan Party of obligations (other than Indebtedness, which Guarantees are addressed by clause (e) above) of the Company or any other Subsidiary;
(h) Investments in and obligations under Swap Agreements permitted by Section 6.05 ;
(i) Investments consisting of endorsements of negotiable instruments for collection in the ordinary course of business;
(j) Investments consisting of loans or advances to directors, officers or employees in the ordinary course of business, in an aggregate amount for all such loans and advances not to exceed $2,000,000 at any time outstanding;
(k) Acquisition of any Subsidiary by the Company or any Subsidiary permitted under Section 6.03 , and any Permitted Acquisitions (other than the Svendborg Brakes Acquisition);
(l) the Svendborg Brakes Acquisition; provided , that (i) such Acquisition satisfies all of the conditions set forth in the definition of Permitted Acquisition and (ii) if such Acquisition is consummated after the Effective Date, the Administrative Agent shall have received a certificate, dated as of the closing date of such Acquisition and signed by a Financial Officer of the Company, certifying the following on and as of such closing date, both before and immediately after giving effect to such Acquisition and the incurrence or assumption of all Indebtedness in connection therewith: (A) the conditions set forth in Sections 4.02(a)(ii) and
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4.02(b) are and will be satisfied, (B) the Company and the Subsidiaries, on a consolidated basis, are and will be Solvent, and (C) the Company is and will be in pro forma compliance with all financial covenants set forth in Section 6.09 (as demonstrated by supporting pro forma calculations accompanying such certificate), calculated in accordance with the definition of Permitted Acquisition; provided , that the Consolidated Senior Net Leverage Ratio, as so measured, shall not exceed 2.75:1.00;
(m) subject to Section 4.4 of the Security Agreement, notes payable, or stock or other securities, issued by account debtors to such Borrower or such Subsidiary pursuant to negotiated agreements with respect to settlement of such account debtors accounts receivable in the ordinary course of business, consistent with past practices;
(n) Investments constituting deposits described in clauses (c) and (d) of the definition of the term Permitted Encumbrances;
(o) Investments constituting advances and guarantees to suppliers and customers in the ordinary course of business, consistent with past practices;
(p) Investments in securities of any trade creditor or customer received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditor or customer in exchange for a claim against such trade creditor or customer;
(q) Investments of any Person existing at the time such Person becomes a Subsidiary or merges, consolidates or amalgamates with the Company or any Subsidiary, in each case in connection with a Permitted Acquisition, so long as such Investments were not made in contemplation of such Person becoming a Subsidiary or of such merger, consolidation or amalgamation; and
(r) other Investments without limit, so long as no Default or Event of Default has occurred and is continuing or would result therefrom; provided , that if at the time such Investment is to be made pursuant to this clause (r) , the Consolidated Senior Net Leverage Ratio, measured on a pro forma basis (with Consolidated Senior Funded Debt, consolidated cash and consolidated Cash Equivalent Investments measured as of such date and Consolidated EBITDA measured for the Reference Period then most recently ended for which the Company has delivered Financial Statements), exceeds 2.75:1.00, then after giving effect to the making of such Investment, the aggregate initial amount of all Investments made pursuant to this clause (r) in such fiscal year of the Company shall not exceed $20,000,000. For the avoidance of doubt, any Investment made in reliance on this clause (r) shall not constitute usage of the basket for Restricted Payments in Section 6.06(f) .
For purposes of compliance with this Section 6.04 , the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases, write-downs or write-offs in the value of such Investment; provided , that (x) Investments that are acquisitions of Equity Interests or other securities or capital contributions shall be valued at the amount actually contributed or paid to acquire such Equity Interests or other securities as of the date of such contribution or payment less all cash distributions and returns of capital from the date such Investment is made through and including the date of calculation and (y) Investments that are
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loans or advances, or Guarantees of loans or advances, shall be valued at the outstanding principal amount of such loan or advance as of the date of determination, or the outstanding principal amount of the loan or advance as of the date of determination actually Guaranteed, as applicable.
For purposes of determining compliance with this Section 6.04 , in the event that any given Investment meets the criteria of more than one of the categories of permitted Investments set forth in clauses (a) through (r) above, then the Company will be permitted to classify such Investment on the date it is made, or later reclassify all or a portion of such Investment, in any manner that complies with this Section 6.04 .
SECTION 6.05. Swap Agreements . The Borrowers will not, and will not permit any Subsidiary to, enter into any Swap Agreement, except (a) Swap Agreements entered into to hedge or mitigate risks to which the Company or any Subsidiary has actual exposure (other than those in respect of Equity Interests of the Company or any Subsidiary), and (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the Company or any Subsidiary.
SECTION 6.06. Restricted Payments . The Borrowers will not, and will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) the Company may declare and pay dividends with respect to its Equity Interests payable solely in additional shares of its common or preferred stock, (b) Subsidiaries may declare and pay dividends or make other distributions ratably with respect to their Equity Interests, (c) the Company may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans of the Company and its Subsidiaries for participants in such plans, (d) the Company may make withholdings, redemptions or repurchases of shares that are awarded pursuant to the Companys equity incentive plans, stock award plans, or other benefit plans, in such amounts as may be sufficient to pay any withholding or other taxes owed by the Company or the plan participant relating to such shares, (e) the Company may make cashless repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants, and (f) the Company and the Subsidiaries may make other Restricted Payments without limit, so long as no Default or Event of Default has occurred and is continuing or would result therefrom; provided , that if at the time such Restricted Payment is to be made pursuant to this clause (f) , the Consolidated Senior Net Leverage Ratio, measured on a pro forma basis (with Consolidated Senior Funded Debt, consolidated cash and consolidated Cash Equivalent Investments measured as of such date and Consolidated EBITDA measured for the Reference Period then most recently ended for which the Company has delivered Financial Statements), exceeds 2.75:1.00, then after giving effect to the making of such Restricted Payment, the aggregate amount of all Restricted Payments made pursuant to this clause (f) shall not exceed $20,000,000 in such fiscal year. For the avoidance of doubt, any Restricted Payment made in reliance on the foregoing clause (f) shall not constitute usage of the basket for Investments in Section 6.04(r) .
SECTION 6.07. Transactions with Affiliates . The Borrowers will not, and will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase,
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lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to such Borrower or such Subsidiary than could be obtained on an arms-length basis from unrelated third parties, (b) transactions between or among the Company and its direct or indirect wholly-owned Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.06 .
SECTION 6.08. Restrictive Agreements . The Borrowers will not, and will not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Company or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or other Equity Interests or to make or repay loans or advances to the Company or any other Subsidiary or to Guarantee Indebtedness of the Company or any other Subsidiary; provided , that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.08 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to Indebtedness permitted by this Agreement if such restrictions or conditions are customary for such Indebtedness and, with respect to such Indebtedness of any Loan Party, no more restrictive than the comparable restrictions and conditions set forth in the Loan Documents, and (v) clause (a) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof.
SECTION 6.09. Financial Covenants .
(a) Consolidated Senior Net Leverage . The Company will not permit the Consolidated Senior Net Leverage Ratio as of the last day of any Reference Period to be greater than 3.00:1.00.
(b) Consolidated Total Net Leverage . The Company will not permit the Consolidated Total Net Leverage Ratio as of the last day of any Reference Period to be greater than 4.00:1.00.
(c) Consolidated Interest Coverage . The Company will not permit the Consolidated Interest Coverage Ratio as of the last day of any Reference Period to be less than 3:50:1.00.
SECTION 6.10. Capital Expenditures . The Borrowers will not, and will not permit any Subsidiary to, make or commit to make any Capital Expenditure, except Capital Expenditures of the Company and the Subsidiaries in the ordinary course of business not exceeding in any fiscal year of the Company, in the aggregate, the greater of (a) $40,000,000 and (b) five percent (5%) of the Companys consolidated total sales for the prior fiscal year (as the amount thereof may be increased on a pro forma basis to reflect the sales for such prior fiscal year of any entity, business unit, division, product line or line of business acquired in connection with any Permitted
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Acquisitions consummated during or since such prior fiscal year, without duplication of sales actually included in the Companys consolidated total sales for such prior fiscal year); provided , that (a) up to 50% of such amount, if not so expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next succeeding fiscal year and (b) Capital Expenditures made during any fiscal year shall be deemed made, first , in respect of any amount carried over from the prior fiscal year pursuant to clause (a) above and, second , in respect of the amount originally permitted for such fiscal year as provided above.
ARTICLE VII
Events of Default
If any of the following events ( Events of Default ) shall occur:
(a) any Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) any Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under any Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five (5) Business Days;
(c) any representation or warranty made or deemed made by or on behalf of the Company or any Subsidiary in or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect (or in any respect if such representation or warranty is already qualified by concepts of materiality) when made or deemed made;
(d) (i) any Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.01(a) , (b) , (c) or (e) , 5.02 , 5.03(a) (solely with respect to legal existence), 5.06(b) , 5.08 or 5.10 or in Article VI or in Article X ;
(e) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in clause (a) , (b) or (d) of this Article), and such failure shall continue unremedied for a period of thirty (30) days after such Loan Party has knowledge of or has received notice of such default;
(f) any Loan Party shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable, subject to any applicable grace periods;
(g) any event or condition occurs (after giving effect to any applicable grace periods) (i) that results in any Material Indebtedness becoming due prior to its scheduled maturity or (ii) that enables or permits the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the
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prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided , that this clause (g) shall not apply to (A) secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness or (B) the Companys convertible notes now or hereafter existing to the extent that such event or condition triggers the conversion feature thereof or an obligation to repurchase such notes;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company or any Subsidiary (other than an Immaterial Subsidiary) or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary (other than an Immaterial Subsidiary) or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;
(i) the Company or any Subsidiary (other than an Immaterial Subsidiary) shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary (other than an Immaterial Subsidiary) or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;
(j) (i) the Company or any Subsidiary (other than an Immaterial Subsidiary) shall become unable, admit in writing its inability or fail generally to pay its debts as they become due, or (ii) the Dutch Borrower shall file a notice under Section 36 of the Tax Collection Act of the Netherlands ( Invorderingswet 1990 );
(k) one or more judgments for the payment of money in an aggregate amount in excess of $20,000,000 shall be rendered against the Company, any Subsidiary (other than an Immaterial Subsidiary) or any combination thereof and the same shall remain undischarged for a period of thirty (30) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Company or any Subsidiary (other than an Immaterial Subsidiary) to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Company and its Subsidiaries in an aggregate amount exceeding $20,000,000 from and after the Effective Date;
(m) a Change in Control shall occur;
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(n) any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or satisfaction in full of all the Obligations, shall cease to be in full force and effect; or any Borrower or any other Person shall contest in any manner the validity or enforceability of any Loan Document; or any Borrower shall deny that it has any or further liability or obligation under any Loan Document, or shall purport to revoke, terminate or rescind any Loan Document; or
(o) any Collateral Document shall for any reason fail to create a valid and perfected first priority security interest in any material portion of the Collateral purported to be covered thereby, except as permitted by the terms of any Loan Document (including during any Collateral Fallaway period);
then, and in every such event (other than an event with respect to the Company or any Subsidiary (other than an Immaterial Subsidiary) described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and (x) with respect to clause (i) below, at the request of the Required Revolving Lenders, shall, and (y) with respect to clause (ii) below, at the request of the Required Lenders, shall, by notice to the Company, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations of the Borrowers accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; and in case of any event with respect to the Company or any Subsidiary described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other Obligations of the Borrowers accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers. Upon the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and at the request of the Required Lenders shall, exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC.
ARTICLE VIII
The Administrative Agent
Each of the Lenders and the Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.
Any Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it
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were not the Administrative Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02 ), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Company or any Subsidiary that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02 ) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Company, any Subsidiary or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered under any Loan Document or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the
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Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
The Administrative Agent may at any time give notice of its resignation to the Lenders, the Issuing Bank and the Company. Upon receipt of any such notice of resignation, the Required Lenders shall have the right to appoint a successor, which shall be a bank with an office in New York, New York, or an Affiliate of any such bank, and which successor shall (unless an Event of Default shall have occurred and be continuing) be subject to approval by the Company (which approval shall not be unreasonably withheld or delayed). If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the Resignation Effective Date ), then the retiring Administrative Agent may (but shall not be obligated to), on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent meeting the qualifications set forth above. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date. If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable law, by notice in writing to the Company and such Person remove such Person as Administrative Agent and appoint a successor, which successor shall (unless an Event of Default shall have occurred and be continuing) be subject to approval by the Company (which approval shall not be unreasonably withheld or delayed). If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days (or such earlier day as shall be agreed by the Required Lenders) (the Removal Effective Date ), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date. With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (1) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the Issuing Bank under any of the Loan Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (2) except for any indemnity payments owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the Issuing Bank directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successors appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Administrative Agent (other than any rights to indemnity payments owed to the retiring or removed Administrative Agent), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents. The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrowers and such successor. After the retiring or removed Administrative Agents resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
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Each Lender acknowledges and agrees that the extensions of credit made hereunder are commercial loans and letters of credit and not investments in a business enterprise or securities. Each Lender further represents that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder. Each Lender shall, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning the Company and its Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon the Loan Documents, any related agreement or any document furnished thereunder and in deciding whether or to the extent to which it will continue as a lender or assign or otherwise transfer its rights, interests and obligations hereunder.
Anything herein to the contrary notwithstanding, no Arranger or Syndication Agent listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or the Issuing Bank hereunder.
In its capacity, the Administrative Agent is a representative of the Secured Parties within the meaning of the term secured party as defined in the UCC. Each Lender authorizes the Administrative Agent to enter into each of the Collateral Documents to which it is a party and to take all action contemplated by such documents. Each Lender agrees that no Secured Party (other than the Administrative Agent) shall have the right individually to seek to realize upon the security granted by any Collateral Document, it being understood and agreed that such rights and remedies may be exercised solely by the Administrative Agent for the benefit of the Secured Parties upon the terms of the Collateral Documents. In the event that any Collateral is hereafter pledged by any Person as collateral security for the Secured Obligations, the Administrative Agent is hereby authorized, and hereby granted a power of attorney, to execute and deliver on behalf of the Secured Parties any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favor of the Administrative Agent on behalf of the Secured Parties. The Lenders hereby irrevocably authorize the Administrative Agent, at its option and in its sole discretion, to release any Lien granted to or held by the Administrative Agent upon any Collateral in accordance with Section 9.02(d) . Upon any sale or transfer of assets constituting Collateral that is permitted pursuant to the terms of any Loan Document, or consented to in writing by the Required Lenders or all of the Lenders, as applicable, and upon at least five (5) Business Days prior written request by the Company to the Administrative Agent, the Administrative Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Administrative Agent for the benefit of the Secured Parties herein or pursuant hereto upon the Collateral that was sold or transferred; provided , that (a) the Administrative Agent shall not be required to execute any such document on terms which, in the Administrative Agents opinion, would expose the Administrative Agent to liability or create any obligation or entail any
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consequence other than the release of such Liens without recourse or warranty, and (b) such release shall not in any manner discharge, affect or impair the Secured Obligations or any Liens upon (or obligations of the Borrower or any Subsidiary in respect of) all interests retained by the Company or any Subsidiary, including the proceeds of the sale, all of which shall continue to constitute part of the Collateral.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices . (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(i) if to any Borrower, to the Company at 300 Granite Street, Suite 201, Braintree, Massachusetts 02184, Attention of Glenn E. Deegan, Esq. (Telecopy No. 815-389-7782), with a copy to Holland & Knight LLP, 701 Brickell Avenue, Suite 3000, Miami, Florida 33131, Attention of Rodney Bell, Esq. (Telecopy No. 305-789-7799);
(ii) if to the Administrative Agent, (A) in the case of Borrowings denominated in U.S. Dollars, to JPMorgan Chase Bank, N.A., Loan and Agency Services Group, 10 S Dearborn St Flr 7, Chicago, IL 60603, Attention of Sabana Johnson (Telecopy No. 312-385-7097), and (B) in the case of Borrowings denominated in Foreign Currencies, to J.P. Morgan Europe Limited, Floor 6, 25 Bank Street, Canary Wharf, London E14 5JP, United Kingdom, Attention of Manager: Loan Agency (Telecopy No. 44 207 777 2360), with a copy to JPMorgan Chase Bank, N.A., 10 S Dearborn St Flr 7, Chicago, IL 60603, Attention of Sabana Johnson (Telecopy No. 312-385-7097);
(iii) if to JPMorgan Chase Bank, N.A., as Issuing Bank, to it at JPMorgan Chase Bank, N.A., Treasury and Securities Services, 10 S Dearborn St Flr 7, Chicago, IL 60603, Attention of Phyllis Huggins (Telecopy No. 312-385-7107), with a copy to JPMorgan Chase Bank, N.A., 10 S Dearborn St Flr 7, Chicago, IL 60603, Attention of Sabana Johnson (Telecopy No. 312-385-7097);
(iv) if to the Swingline Lender, to it at JPMorgan Chase Bank, N.A., Loan and Agency Services Group, 10 S Dearborn St Flr 7, Chicago, IL 60603, Attention of Sabana Johnson (Telecopy No. 312-385-7097); and
(v) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.
(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided , that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Company may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided , that approval of such procedures may be limited to particular notices or communications.
(c) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.
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SECTION 9.02. Waivers; Amendments . (a) No failure or delay by any Credit Party in exercising any right or power under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Credit Parties under the Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether any Credit Party may have had notice or knowledge of such Default at the time.
(b) Except as provided in Section 2.21 with respect to an Incremental Term Loan Amendment or pursuant to any fee letter entered into by the Borrowers in connection with this Agreement, neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders or by the Borrowers and the Administrative Agent with the consent of the Required Lenders; provided , that no such agreement (including any Incremental Term Loan Amendment) shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby, provided , however , that only the consent of the Required Lenders shall be necessary to amend the provisions with respect to the application or amount of the default rate described in Section 2.13(c) or waive any obligation of any Borrower to pay interest or fees at such default rate, (iii) postpone the scheduled date of payment or amortization of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment (in each case excluding, for the avoidance of doubt, mandatory prepayments under Section 2.11(c) ), or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly affected thereby, (iv) change Section 2.18(b) , (c) or (d) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) release any Borrower from its Obligations without the written consent of each Lender, (vi) change any of the provisions of this Section or the definition of Required Lenders or, except as provided in the following clause (vii) , any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender (it being understood that, solely with the
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consent of the parties to an Incremental Term Loan Amendment, Incremental Term Loans may be included in the determination of Required Lenders on substantially the same basis as the Commitments and the Revolving Loans are included on the Effective Date), (vii) change the definition of Required Revolving Lenders, Required Original Term Lenders or Required Additional Term Lenders, without the written consent of each Revolving Lender, each Original Term Lender or each Additional Term Lender, respectively, (viii) change any provisions of any Loan Document in a manner that by its terms adversely affects the rights in respect of payments due to Lenders holding Loans of any Class differently than Lenders holding Loans of any other Class, without the written consent of each of the Required Revolving Lenders, the Required Original Term Lenders and the Required Additional Term Lenders, (ix) release all or substantially all of the Subsidiary Guarantors from their obligations under the Guarantee Agreement, except in accordance with Section 6.03 or as otherwise provided herein or in any other Loan Documents, or release the Domestic Borrowers from their obligations under Article X , without the written consent of each Lender, (x) except as provided in paragraph (d) of this Section, release all or substantially all of the Collateral, or change any of the provisions of Section 9.18 in a manner that makes the conditions to effectiveness of the Collateral Fallaway or the Collateral Reinstatement more favorable to the Company or that eliminates the Collateral Reinstatement, in any such case without the written consent of each Lender, or (xi) change the definition of Agreed Currency without the written consent of each Lender; provided further , that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Issuing Bank or the Swingline Lender hereunder without the prior written consent of the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be.
(c) Notwithstanding anything to the contrary herein (i) the Administrative Agent may, with the consent of the Company only, amend, modify or supplement any Loan Document to cure any ambiguity, omission, mistake, defect or inconsistency, and (ii) the Administrative Agent may, in its sole discretion, waive any of the conditions set forth in Section 4.01 with respect to immaterial matters or items noted in any post-closing letter made available to the Lenders with respect to which the Borrowers have given assurances satisfactory to the Administrative Agent that such items shall be delivered promptly following the Effective Date.
(d) The Lenders hereby irrevocably authorize the Administrative Agent, at its option and in its sole discretion, to release any Liens granted to or held by the Administrative Agent upon any Collateral (i) upon the termination of all the Commitments, payment and satisfaction in full in cash of all Secured Obligations (other than (A) contingent obligations and (B) Secured Swap Obligations and Secured Banking Services Obligations as to which arrangements satisfactory to the applicable Swap Provider or Banking Services Provider have been made), and the expiration or termination of all Letters of Credit (other than Letters of Credit as to which other arrangements satisfactory to the Administrative Agent and the Issuing Bank have been made), (ii) constituting property being sold or disposed of if the Company certifies to the Administrative Agent that the sale or disposition is made in compliance with the terms of this Agreement (and the Administrative Agent may rely conclusively on any such certificate, without further inquiry), (iii) constituting property leased to the Company or any Subsidiary under a lease which has expired or been terminated in a transaction permitted under this Agreement, (iv) as required to effect any sale or other disposition of such Collateral in connection with any exercise of remedies of the Administrative Agent and the Lenders pursuant to Article VII , (v) in
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connection with the Collateral Fallaway pursuant to Section 9.18 , (vi) as otherwise permitted by, but only in accordance with, the terms of any Loan Document, or (vii) if approved, authorized or ratified in writing by the Required Lenders, unless such release is required to be approved by all of the Lenders hereunder; provided , that the written consent of each Lender shall be required for the release all or substantially all of the Collateral or any change to the provisions of Section 9.18 in a manner that makes the conditions to effectiveness of the Collateral Fallaway or the Collateral Reinstatement more favorable to the Company or that eliminates the Collateral Reinstatement. Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agents authority to release particular types or items of Collateral pursuant hereto. Any such release shall not in any manner discharge, affect, or impair the Secured Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Domestic Loan Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral.
SECTION 9.03. Expenses; Indemnity; Damage Waiver . (a) The Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Arrangers and their respective Affiliates (including the reasonable fees, charges and disbursements of counsel to the Administrative Agent and J.P. Morgan Securities LLC in its capacity as an Arranger) in connection with the syndication of the credit facilities provided for herein, the preparation, execution, delivery and administration of the Loan Documents and any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out-of-pocket expenses incurred by the Credit Parties (including the reasonable fees, charges and disbursements of one primary counsel, one local and/or special counsel for each other relevant jurisdiction or specialization, and additional counsel in light of actual or potential conflicts of interest) in connection with the enforcement or protection of its rights in connection with any Loan Document, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such reasonable out-of pocket expenses incurred during the continuation of any Event of Default and during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) The Borrowers shall indemnify each Credit Party and its Related Parties (each such Person being called an Indemnitee ) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Company or any Subsidiary, or any Environmental Liability related in any way to the Company or any Subsidiary, or (iv) any actual or prospective claim, litigation, investigation or proceeding
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relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided , that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. This Section 9.03(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims or damages arising from any non-Tax claim.
(c) To the extent that the Borrowers fail to pay any amount required to be paid by them to the Administrative Agent, the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lenders Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided , that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity as such.
(d) To the extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, any Loan Document or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof; provided , that nothing in this clause (d) shall relieve any Borrower of any obligation it may have to indemnify an Indemnitee against special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.
(e) All amounts due under this Section shall be payable promptly after written demand therefor.
SECTION 9.04. Successors and Assigns . (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that (i) no Loan Party may assign or otherwise transfer any of its rights or obligations hereunder or under any other Loan Document (other than in connection with a transaction permitted by Section 6.03(a) ) without the prior written consent of each Lender (and any attempted assignment or transfer by any Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Credit Parties) any legal or equitable right, remedy or claim under or by reason of this Agreement.
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(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees all or a portion of its rights and obligations under the Loan Documents (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:
(A) the Company; provided , that the Company shall be deemed to have consented to an assignment unless it shall have objected thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof; provided further , that no consent of the Company shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if a Default or Event of Default has occurred and is continuing, any other assignee;
(B) the Administrative Agent; provided , that no consent of the Administrative Agent shall be required for an assignment of (x) any Revolving Loans or Revolving Commitment to an assignee that is a Revolving Lender immediately prior to giving effect to such assignment, an Affiliate of such a Revolving Lender or an Approved Fund with respect to such a Revolving Lender and (y) all or any portion of a Term Loan to a Lender, an Affiliate of a Lender or an Approved Fund; and
(C) the Swingline Lender and the Issuing Bank; provided , that no consent of the Swingline Lender or the Issuing Bank shall be required for an assignment of all or any portion of a Term Loan.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lenders Commitment or Loans of any Class, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 (or $1,000,000 (or the Equivalent Amount thereof in the applicable Foreign Currency) in the case of any assignment of Term Loans) unless each of the Company and the Administrative Agent otherwise consent; provided , that no such consent of the Company shall be required if a Default or Event of Default has occurred and is continuing;
(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement; provided , that this clause shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lenders rights and obligations in respect of one Class of Commitments or Loans;
(C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500;
(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrowers and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the assignees compliance procedures and applicable laws, including Federal and state securities laws;
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(E) the assignee shall not be (1) the Company or any Subsidiary or any Affiliate of the Company or any Subsidiary, (2) a Defaulting Lender or (3) a natural person; and
(F) in the case of an assignment of any Commitment under which the Dutch Borrower may make a Borrowing, or any Loans comprising a Borrowing made by the Dutch Borrower, the aggregate amount of such assignment shall not be less than 100,000 (or its equivalent in another currency) or such other amount as a result of which the assignee qualifies as a professional market party within the meaning of the Dutch Financial Supervision Act ( Wet op het financieel toezicht ).
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15 , 2.16 , 2.17 and 9.03 ). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv) The Administrative Agent, acting solely for this purpose as an agent of the Borrowers, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount (and stated interest) of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the Register ). The entries in the Register shall be conclusive, and the Borrowers and the Credit Parties shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Company, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignees completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided , that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it
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pursuant to Section 2.05(c) , 2.06(d) or (e) , 2.07(b) , 2.18(e) or 9.03(c) , the Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(c) Any Lender may, without the consent of any Borrower, the Administrative Agent, the Issuing Bank or the Swingline Lender, sell participations to one or more banks or other entities (a Participant ), in all or a portion of such Lenders rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided , that (A) such Lenders obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrowers, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; provided , that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. The Borrowers agree that each Participant shall be entitled to the benefits of Sections 2.15 , 2.16 and 2.17 (subject to the requirements and limitations therein, including the requirements under Section 2.17(f) (it being understood that the documentation required under Section 2.17(f) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided , that such Participant (A) agrees to be subject to the provisions of Section 2.19 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Section 2.15 or 2.17 , with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Companys request and expense, to use reasonable efforts to cooperate with the Company to effectuate the provisions of Section 2.19(b) with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender; provided , that such Participant agrees to be subject to Section 2.18(d) as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrowers, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participants interest in the Loans or other obligations under this Agreement (the Participant Register ); provided , that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participants interest in any Commitments, Loans, Letters of Credit or its other obligations under this Agreement) to any Person except to the extent that such disclosure is necessary to establish that such interest is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such
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participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided , that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival . All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to any Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that any Credit Party may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under any Loan Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13(f) , 2.15 , 2.16 , 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of any Loan Document or any provision thereof, and shall survive and remain in full force and effect until the date that is three (3) years after the termination of all the Commitments, payment and satisfaction in full in cash of all Secured Obligations (other than (a) contingent obligations and (b) Secured Swap Obligations and Secured Banking Services Obligations as to which arrangements satisfactory to the applicable Swap Provider or Banking Services Provider have been made), and the expiration or termination of all Letters of Credit (other than Letters of Credit as to which other arrangements satisfactory to the Administrative Agent and the Issuing Bank have been made).
SECTION 9.06. Counterparts; Integration; Effectiveness . This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent or the Arrangers constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01 , this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement.
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SECTION 9.07. Severability . Any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 9.08. Right of Setoff . If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final and in whatever currency denominated) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Borrower against any of and all the Obligations of such Borrower now or hereafter existing held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured; provided , that in the event that any Defaulting Lender shall exercise any such right of setoff, (a) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.20 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Issuing Bank and the Lenders, and (b) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process . (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York.
(b) Each Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County, Borough of Manhattan, and of the United States District Court for the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in any Loan Document shall affect any right that any Credit Party may otherwise have to bring any action or proceeding relating to any Loan Document against any Loan Party or its properties in the courts of any jurisdiction.
(c) Each Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to
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the laying of venue of any suit, action or proceeding arising out of or relating to any Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01 . Nothing in any Loan Document will affect the right of any party to any Loan Document to serve process in any other manner permitted by law.
(e) Without limiting the foregoing, each Designated Borrower hereby irrevocably designates the Company, at its address set forth in Section 10.01 , as the designee, appointee and agent of such Designated Borrower to receive, for and on behalf of such Designated Borrower, service of process in such respective jurisdictions in any legal action or proceeding with respect to any Loan Document.
SECTION 9.10. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality . Each Credit Party agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to any Loan Document or the enforcement of rights thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to any Borrower and its Obligations, (g) with the consent of the Company or (h) to the extent such
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Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to any Credit Party on a non-confidential basis from a source other than any Borrower. For the purposes of this Section, Information means all information received from any Borrower relating to such Borrower or its business, other than any such information that is available to any Credit Party on a non-confidential basis prior to disclosure by such Borrower. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
SECTION 9.13. Material Non-Public Information .
(a) EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION 9.12(a) FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWERS AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
(b) ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWERS OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE BORROWERS AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWERS AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.
SECTION 9.14. Authorization to Distribute Certain Materials to Public-Siders .
(a) If the Company does not file this Agreement with the SEC, then the Borrowers hereby authorize the Administrative Agent to distribute the execution version of this Agreement and the other Loan Documents to all Lenders, including their Public-Siders. The Borrowers acknowledge their understanding that Public-Siders and their firms may be trading in any of the Borrowers respective securities while in possession of the Loan Documents.
(b) Each Borrower represents and warrants that none of the information in the Loan Documents constitutes or contains material non-public information within the meaning of the federal and state securities laws. To the extent that any of the executed Loan Documents constitutes at any time a material non-public information within the meaning of the federal and state securities laws after the date hereof, the Company agrees that it will promptly make such information publicly available by press release or public filing with the SEC.
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SECTION 9.15. Interest Rate Limitation . Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the Charges ), shall exceed the maximum lawful rate (the Maximum Rate ) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
SECTION 9.16. USA PATRIOT Act . Each Lender that is subject to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Patriot Act ) hereby notifies each Loan Party that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies such Loan Party, which information includes the name and address of such Loan Party and other information that will allow such Lender to identify such Loan Party in accordance with the Patriot Act.
SECTION 9.17. Appointment for Perfection . Each Lender hereby appoints each other Lender as its agent for the purpose of perfecting Liens, for the benefit of the Administrative Agent and the Secured Parties, in assets which, in accordance with Article 9 of the UCC or any other applicable law can be perfected only by possession or control. Should any Lender (other than the Administrative Agent) obtain possession or control of any such Collateral, such Lender shall notify the Administrative Agent thereof, and, promptly upon the Administrative Agents request therefor shall deliver such Collateral to the Administrative Agent (if applicable) or otherwise deal with such Collateral in accordance with the Administrative Agents instructions.
SECTION 9.18. Collateral Fallaway . In the event that the Company delivers evidence satisfactory to the Administrative Agent that it has obtained a corporate credit rating and/or a corporate family rating (a Corporate Rating ) from both S&P and Moodys (or, if the Company is only rated by one such agency, from such agency) of at least BBB-/Baa3 (with a stable outlook or better), the Company may elect to have the Liens of the Administrative Agent for the benefit of the Secured Parties under the Collateral Documents terminated by the Administrative Agent (the Collateral Fallaway ). To the extent that the Collateral Fallaway has been exercised and, thereafter, (a) the Companys Corporate Rating is reduced to BB+/Ba1 or below by both S&P and Moodys (or, if the Company is only rated by one such agency, by such agency), or (b) the Companys Corporate Rating is reduced to BB/Ba2 or below by either S&P or Moodys, the security interests of the Administrative Agent for the benefit of the Secured Parties under the Collateral Documents shall be automatically reinstated (the Collateral Reinstatement ). Each Borrower hereby agrees to take, and to cause each other Domestic Loan Party to take, all actions, and execute all documentation, necessary to effect any reinstatement of the Liens of the
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Administrative Agent for the benefit of the Secured Parties under the Collateral Documents in accordance with the preceding sentence. The Lenders hereby authorize the Administrative Agent to take all actions, and execute all documents, necessary to effect the termination of the Liens of the Administrative Agent for the benefit of the Secured Parties under the Collateral Documents upon the satisfaction of the conditions to the Collateral Fallaway set forth in this Section 9.18 .
SECTION 9.19. Existing Credit Agreement Amended and Restated . On the Effective Date, (a) this Agreement shall amend and restate the Existing Credit Agreement in its entirety but, for the avoidance of doubt, shall not constitute a novation of the parties rights and obligations thereunder, (b) the Commitments thereunder (and as defined therein) shall automatically continue as Commitments herein, (c) the rights and obligations of the parties hereto evidenced by the Existing Credit Agreement shall be evidenced by this Agreement and the other Loan Documents, (d) the Revolving Loans and Term Loans under (and as defined in) the Existing Credit Agreement shall remain outstanding and be continued as Revolving Loans and Original Term Loans, respectively, hereunder, and shall bear interest and be subject to such other fees as set forth in this Agreement, and (e) the security interests granted under the Collateral Documents shall continue to secure the Secured Obligations. All interest and fees and expenses, if any, owing or accruing under or in respect of the Existing Credit Agreement to the Effective Date shall be calculated as of the Effective Date (pro-rated in the case of any fractional periods), and shall be paid on the Effective Date.
ARTICLE X
Domestic Borrower Guaranty
In order to induce the Lenders to extend credit to the Foreign Borrowers hereunder, each Domestic Borrower hereby irrevocably and unconditionally guarantees, as a primary obligor and not merely as a surety, the payment when and as due of the Secured Obligations of each other Loan Party. Each Domestic Borrower further agrees that the due and punctual payment of such Secured Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee hereunder notwithstanding any such extension or renewal of any such Secured Obligations. Each Domestic Borrower waives presentment to, demand of payment from and protest to any Loan Party of any of the Secured Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of the Domestic Borrowers under this Article X shall not be affected by (a) the failure of the Administrative Agent, the Issuing Bank or any Lender to assert any claim or demand or to enforce any right or remedy against any Loan Party under the provisions of this Agreement, any other Loan Document or otherwise; (b) any extension or renewal of any of the Secured Obligations; (c) any rescission, waiver, amendment or modification of, or release from, any of the terms or provisions of this Agreement, or any other Loan Document or agreement; (d) any default, failure or delay, willful or otherwise, in the performance of any of the Secured Obligations; (e) the enforceability or validity of the Secured Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or any other invalidity or unenforceability relating to or against any Loan Party or any other guarantor of any of the Secured Obligations, for any reason related to this Agreement, any other Loan Document, or any provision of applicable law, decree, order or
105
regulation of any jurisdiction purporting to prohibit the payment by such Loan Party or any other guarantor of the Secured Obligations, of any of the Secured Obligations or otherwise affecting any term of any of the Secured Obligations; or (f) any other act, omission or delay to do any other act which may or might in any manner or to any extent vary the risk of any Domestic Borrower or otherwise operate as a discharge of a guarantor as a matter of law or equity or which would impair or eliminate any right of any Domestic Borrower to subrogation. Each Domestic Borrower further agrees that its agreement under this Article X constitutes a guarantee of payment when due (whether or not any bankruptcy or similar proceeding shall have stayed the accrual or collection of any of the Secured Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by the Administrative Agent, the Issuing Bank or any Lender to any balance of any deposit account or credit on the books of the Administrative Agent, the Issuing Bank or any Lender in favor of any Loan Party or any other Person. The obligations of the Domestic Borrowers under this Article X shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of any of the Secured Obligations, any impossibility in the performance of any of the Secured Obligations or otherwise. Each Domestic Borrower further agrees that its obligations under this Article X shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Secured Obligation is rescinded or must otherwise be restored by the Administrative Agent, the Issuing Bank or any Lender upon the bankruptcy or reorganization of any Loan Party or otherwise. In furtherance of the foregoing and not in limitation of any other right which the Administrative Agent, the Issuing Bank or any Lender may have at law or in equity against any Domestic Borrower by virtue hereof, upon the failure of any Loan Party to pay any Secured Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Domestic Borrower hereby promises to and will, upon receipt of written demand by the Administrative Agent forthwith pay, or cause to be paid, to the Administrative Agent in cash an amount equal to the unpaid principal amount of such Secured Obligations then due, together with accrued and unpaid interest thereon. Each Domestic Borrower further agrees that if payment in respect of any Secured Obligation shall be due in a currency other than U.S. Dollars and/or at a place of payment other than New York, Chicago or any other Eurocurrency Payment Office and if, by reason of any Change in Law, disruption of currency or foreign exchange markets, war or civil disturbance or other event, payment of such Secured Obligation in such currency or at such place of payment shall be impossible or, in the reasonable judgment of the Administrative Agent, the Issuing Bank or any Lender, disadvantageous to the Administrative Agent, the Issuing Bank or such Lender in any material respect, then, at the election of the Administrative Agent, such Domestic Borrower shall make payment of such Secured Obligation in U.S. Dollars (based upon the applicable Exchange Rate in effect on the date of payment) and/or in New York, Chicago or such other Eurocurrency Payment Office as is designated by the Administrative Agent and, as a separate and independent obligation, shall indemnify the Administrative Agent, the Issuing Bank and each Lender against any losses or reasonable out-of-pocket expenses that it shall sustain as a result of such alternative payment. Upon payment by any Domestic Borrower of any sums as provided above, all rights of such Domestic Borrower against any other Loan Party arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinated and junior in right of payment to the prior indefeasible payment in full in cash of all the Secured Obligations. Nothing shall discharge or satisfy the liability of the Domestic Borrowers under this Article X except the full performance and payment in cash of the Secured Obligations.
[Signature Pages Follow]
106
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
ALTRA INDUSTRIAL MOTION CORP. | ||
ALTRA POWER TRANSMISSION, INC. | ||
By: |
/s/ Todd Patriacca |
|
Name: | Todd Patriacca | |
Title: | Vice President Finance, Corporate | |
Controller and Treasurer | ||
ALTRA INDUSTRIAL MOTION | ||
NETHERLANDS B.V. | ||
By: |
/s/ Carl Richard Christenson |
|
Name: | Carl Richard Christenson | |
Title: | Director B |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
JPMORGAN CHASE BANK, N.A., as a Lender, the Swingline Lender, the Issuing Bank and the Administrative Agent | ||
By: |
/s/ Peter M. Killea |
|
Name: | Peter M. Killea | |
Title: | Sr. Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
Wells Fargo Bank, N.A., as a Lender | ||
By: |
/s/ Robert T.P. Storer |
|
Name: | Robert T. P. Storer | |
Title: | Senior Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
KEYBANK NATIONAL ASSOCIATION, as a Lender | ||
By: |
/s/ Brian P. Fox |
|
Name: | Brian P. Fox | |
Title: | Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
Fifth Third Bank, as a Lender | ||
By: |
/s/ Valerie Schanzer |
|
Name: | Valerie Schanzer | |
Title: | Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
RBS CITIZENS, N.A., as a Lender | ||
By: |
/s/ Patrick A. Keffer |
|
Name: | Patrick A. Keffer | |
Title: | Senior Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
TD Bank, N.A., as a Lender | ||
By: |
/s/ Alan Garson |
|
Name: | Alan Garson | |
Title: | Senior Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
CITIBANK, N.A., as a Lender | ||
By: |
/s/ Marina E. Grossi |
|
Name: | Marina E. Grossi | |
Title: | Senior Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
HSBC Bank USA, National Association, as a Lender | ||
By: |
/s/ Manuel Burgeuno |
|
Name: | Manuel Burgeuno | |
Title: | Senior Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
Santander Bank, N.A., as a Lender | ||
By: |
/s/ A. Neil Sweeny |
|
Name: | A. Neil Sweeny | |
Title: | Senior Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
PEOPLES UNITED BANK, as a Lender | ||
By: |
/s/ Robert D. Hazard |
|
Name: | Robert D. Hazard | |
Title: | Senior Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
U.S. BANK NATIONAL ASSOCIATION, as a Lender | ||
By: |
/s/ Mark E. Irey |
|
Name: | Mark E. Irey | |
Title: | Assistant Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
WEBSTER BANK, N.A., as a Lender | ||
By: |
/s/ Raymond C. Hoefling |
|
Name: | Raymond C. Hoefling | |
Title: | Senior Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
First Niagara Bank, N.A., as a Lender | ||
By: |
/s/ Ken Jamison |
|
Name: | Ken Jamison | |
Title: | Managing Director |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
Eastern Bank, as a Lender | ||
By: |
/s/ Daniel C. Field |
|
Name: | Daniel C. Field | |
Title: | Senior Vice President |
[SIGNATURE PAGE TO A&R CREDIT AGREEMENT (JPM/ALTRA 2013)]
Schedule 1.01
Existing Letters of Credit
Issuer |
LC Number |
Beneficiary |
Amount | Expiry | ||||||
JPMorgan Chase Bank, N.A. |
CTCS-768675 | The Travelers Indemnity Company | $ | 1,515,000.00 | November 30, 2014 | |||||
JPMorgan Chase Bank, N.A. |
CTCS-891369 | Sentry Insurance A Mutual Company | $ | 1,145,000.00 | December 1, 2014 |
Schedule 1.01
Schedule 2.01
Commitments
Lender |
Revolving
Commitment |
Initial Applicable
Percentage (Revolving Commitment) |
Original Term
Loans (as of Effective Date) |
Initial Applicable
Percentage (Original Term Loans) |
Additional
Term Loan Commitment |
Initial Applicable
Percentage (Additional Term Loan Commitment) |
||||||||||||||||||
JPMorgan Chase Bank, N.A. |
$ | 35,250,000.00 | 17.625000000 | % | $ | 14,392,187.50 | 15.250000000 | % | | 8,794,817.18 | 17.589634360 | % | ||||||||||||
Wells Fargo Bank, National Association |
$ | 35,250,000.00 | 17.625000000 | % | $ | 14,392,187.50 | 15.250000000 | % | | 8,794,817.18 | 17.589634360 | % | ||||||||||||
KeyBank National Association |
$ | 35,250,000.00 | 17.625000000 | % | $ | 14,392,187.50 | 15.250000000 | % | | 8,794,817.18 | 17.589634360 | % | ||||||||||||
Fifth Third Bank |
$ | 17,500,000.00 | 8.750000000 | % | $ | 7,078,125.00 | 7.500000000 | % | | 4,357,472.49 | 8.714944980 | % | ||||||||||||
RBS Citizens, N.A. |
$ | 17,500,000.00 | 8.750000000 | % | $ | 7,078,125.00 | 7.500000000 | % | | 4,357,472.49 | 8.714944980 | % | ||||||||||||
TD Bank, N.A. |
$ | 17,500,000.00 | 8.750000000 | % | $ | 7,078,125.00 | 7.500000000 | % | | 4,357,472.49 | 8.714944980 | % | ||||||||||||
Citibank, N.A. |
$ | 6,958,333.34 | 3.479166670 | % | $ | 2,870,572.91 | 3.041666660 | % | | 1,757,188.50 | 3.514377000 | % | ||||||||||||
HSBC Bank USA, N.A. |
$ | 6,958,333.34 | 3.479166670 | % | $ | 2,870,572.91 | 3.041666660 | % | | 1,757,188.50 | 3.514377000 | % | ||||||||||||
Santander Bank, N.A. |
$ | 6,958,333.33 | 3.479166665 | % | $ | 2,870,572.92 | 3.041666670 | % | | 1,757,188.50 | 3.514377000 | % | ||||||||||||
Peoples United Bank |
$ | 6,958,333.33 | 3.479166665 | % | $ | 2,870,572.92 | 3.041666670 | % | | 1,757,188.50 | 3.514377000 | % | ||||||||||||
US Bank National Association |
$ | 6,958,333.33 | 3.479166665 | % | $ | 2,870,572.92 | 3.041666670 | % | | 1,757,188.50 | 3.514377000 | % | ||||||||||||
Webster Bank, N.A. |
$ | 6,958,333.33 | 3.479166665 | % | $ | 2,870,572.92 | 3.041666670 | % | | 1,757,188.50 | 3.514377000 | % | ||||||||||||
First Niagara Bank, N.A. |
$ | 0.00 | 0 | % | $ | 8,021,875.00 | 8.500000000 | % | | 0 | 0 | % | ||||||||||||
Eastern Bank |
$ | 0.00 | 0 | % | $ | 4,718,750.00 | 5.000000000 | % | | 0 | 0 | % | ||||||||||||
Total |
$ | 200,000,000 | 100 | % | $ | 94,375,000.00 | 100 | % | | 50,000,000 | 100 | % |
Schedule 2.01
EXHIBIT A
FORM OF ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the Assignment and Assumption ) is dated as of the Effective Date set forth below and is entered into by and between the Assignor identified in item 1 below (the Assignor ) and the assignee identified in item 2 below (the Assignee ). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement ), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignors rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the Assigned Interest ). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.
1. | Assignor: |
|
||||
2. | Assignee: |
|
||||
[and is an [Affiliate][Approved Fund] of [ identify Lender ] 1 ] | ||||||
3. | Borrowers: | ALTRA INDUSTRIAL MOTION CORP, a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation), and certain of its Subsidiaries | ||||
4. | Administrative Agent: | JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement | ||||
5. | Credit Agreement: | The Amended and Restated Credit Agreement dated as of December 6, 2013, among the Borrowers, the Lenders from time to time party thereto and the Administrative Agent |
1 | Select as applicable. |
EXHIBIT A PAGE 1
6. | Assigned Interest: |
Facility Assigned 2 |
Aggregate Amount of
Commitment/Loans for all Lenders |
Amount of
Commitment/Loans Assigned 3 |
Percentage Assigned of
Commitment/Loans 4 |
|||||||||
$ | $ | % | ||||||||||
$ | $ | % | ||||||||||
$ | $ | % |
[7. | Trade Date: , 20 ] 5 |
Effective Date: , 20 [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The Assignee agrees to deliver to the Administrative Agent a completed Administrative Questionnaire in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrowers, the other Loan Parties and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the Assignees compliance procedures and applicable laws, including Federal and state securities laws.
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR [ NAME OF ASSIGNOR ] |
||
By: |
|
|
Name: | ||
Title: | ||
ASSIGNEE [ NAME OF ASSIGNEE ] |
||
By: |
|
|
Name: | ||
Title: |
2 | Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g., Revolving Commitment, Original Term Loans, etc.). |
3 | Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date. |
4 | Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder. |
5 | To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date. |
EXHIBIT A PAGE 2
[Consented to and] 6 Accepted: | ||
JPMORGAN CHASE BANK, N.A., as Administrative Agent |
||
By: |
|
|
Name: | ||
Title: | ||
[Consented to:] 7 | ||
JPMORGAN CHASE BANK, N.A., as [Swingline Lender] [Issuing Bank] 8 |
||
By: |
|
|
Name: | ||
Title: | ||
[Consented to:] 9 | ||
ALTRA INDUSTRIAL MOTION CORP. | ||
By: |
|
|
Name: | ||
Title: |
6 | To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement. |
7 | To be added only if the consent of the Swingline Lender and/or Issuing Bank is required by the terms of the Credit Agreement. |
8 | Insert additional signature blocks for any other Issuing Banks. |
9 | To be added only if the consent of the Company is required by the terms of the Credit Agreement. |
EXHIBIT A PAGE 3
ANNEX 1
[ ] 1 0
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties .
1.1 Assignor . The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Company, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Company, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee . The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 5.01(a) and 5.01(b) thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it deems appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest, and (vii) attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
2. Payments . From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.
10 | Describe Credit Agreement at option of Administrative Agent. |
EXHIBIT A PAGE 4
3. General Provisions . This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
EXHIBIT A PAGE 5
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: ,
To: | JPMorgan Chase Bank, N.A., as Administrative Agent |
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent ).
The undersigned Financial Officer hereby certifies as of the date hereof that he/she is the [ ] of the Company, and that, as such, he/she is authorized to execute and deliver this Compliance Certificate to the Administrative Agent on behalf of the Company, and that:
[Use following paragraph 1 for fiscal year-end financial statements]
1. [Attached hereto as Schedule 2 are the][The] year-end audited consolidated financial statements and year-over-year comparisons required by Section 5.01(a) of the Credit Agreement as of the end of and for the fiscal year of the Company ended as of the Financial Statement Date set forth above, together with the report and opinion of independent public accountants of recognized national standing (without a going concern or like qualification or exception) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Company and its consolidated subsidiaries on a consolidated basis in accordance with GAAP consistently applied [, have each been electronically delivered or made available to the Administrative Agent pursuant to the terms of Section 5.01 of the Credit Agreement] .
[Use following paragraph 1 for fiscal quarter-end financial statements]
1. [Attached hereto as Schedule 2 are the][The] unaudited consolidated financial statements and year-over-year comparisons required by Section 5.01(b) of the Credit Agreement as of the end of and for the fiscal quarter and the then-elapsed portion of the fiscal year of the Company ended as of the Financial Statement Date set forth above [have been electronically delivered or made available to the Administrative Agent pursuant to the terms of Section 5.01 of the Credit Agreement] . Such financial statements fairly present in all material respects the financial condition and results of operations of the Company and its consolidated subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes.
EXHIBIT B PAGE 1
2.
[select one:]
[Each Loan Party performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default or Event of Default has occurred and is continuing.]
or
[The following covenants or conditions of the Loan Documents have not been performed or observed, and the following is a list of each Default or Event of Default and its nature and status: [DESCRIBE].]
3. The financial covenant analyses and information set forth on Schedule 1 attached hereto (and in the file furnished herewith, which file contains the financial covenant component information set forth on said Schedule 1 for each fiscal quarter in the Reference Period described on said Schedule 1 , including any pro forma adjustments thereto) are true and accurate on and as of the date hereof.
IN WITNESS WHEREOF , the undersigned has executed this Compliance Certificate as of , 20 .
ALTRA INDUSTRIAL MOTION CORP. | ||
By: |
|
|
Name: | ||
Title: |
EXHIBIT B PAGE 2
For the Quarter/Year ended , 20 ( Statement Date )
SCHEDULE 1
to the Compliance Certificate
($ in 000s)
1. |
Section 6.09(c) Consolidated Interest Coverage Ratio: | |||||||||||
A. | Consolidated EBITDA for four consecutive fiscal quarters ending on Statement Date ( Reference Period ): | |||||||||||
(i) | Consolidated Net Income for such Reference Period: | $ | ||||||||||
|
|
|||||||||||
plus | ||||||||||||
(ii) | without duplication and to the extent deducted (and not added back) in arriving at such Consolidated Net Income, the sum of the following amounts for such Reference Period: | |||||||||||
(a) | Consolidated Interest Expense: | $ | ||||||||||
|
|
|||||||||||
(b) | the provision for federal, state, local and foreign income taxes: | $ | ||||||||||
|
|
|||||||||||
(c) | depreciation expense: | $ | ||||||||||
|
|
|||||||||||
(d) | amortization expense: | $ | ||||||||||
|
|
|||||||||||
(e) | reasonable out-of-pocket transaction expenses incurred during such Reference Period in connection with any Permitted Acquisitions consummated during such Reference Period, in an aggregate amount for all such Permitted Acquisitions not to exceed $5,000,000 for such Reference Period: | $ | ||||||||||
|
|
|||||||||||
(f) | non-cash compensation expense arising from the grant of or the issuance of Equity Interests: | $ | ||||||||||
|
|
|||||||||||
(g) | other non-cash losses or expenses ( provided , that if any cash expenditures are subsequently made in respect of such non-cash losses or expenses added back pursuant to this Line I.A(ii)(g), such expenditures shall be deducted in determining Consolidated EBITDA for the period during which such expenditures are made): | $ | ||||||||||
|
|
|||||||||||
(h) | Sum of Lines I.A(ii)(a) through (g): | $ | ||||||||||
|
|
|||||||||||
Minus | ||||||||||||
(iii) | without duplication and to the extent included in arriving at such Consolidated Net Income, the sum of the following amounts for such Reference Period: | |||||||||||
(a) | federal, state, local and foreign income tax credits and refunds (to the extent not netted from tax expense): | $ | ||||||||||
|
|
|||||||||||
(b) | non-cash income or gains: | $ | ||||||||||
|
|
EXHIBIT B PAGE 3
(c) | extraordinary, unusual or non-recurring income or gains: | $ | ||||||||||
|
|
|||||||||||
(d) | cash expenditures made in respect of non-cash losses or expenses added back in a prior Reference Period (see Line I.A(ii)(g)): | $ | ||||||||||
|
|
|||||||||||
(e) | Sum of Lines I.A(iii)(a) through (d): | $ | ||||||||||
|
|
|||||||||||
(iv) |
Consolidated EBITDA for such Reference Period (Line I.A(i) plus Line I.A(ii)(h) minus Line I.A(iii)(e)) |
$ | ||||||||||
|
|
|||||||||||
B. | Consolidated Interest Expense paid during or payable in cash for such Reference Period, excluding (for avoidance of duplication) any portion of Consolidated Interest Expense paid during such Reference Period that was already included in a prior Reference Period as being payable for such prior Reference Period, or visa-versa: | $ | ||||||||||
|
|
|||||||||||
C. |
Consolidated Interest Coverage Ratio (Line I.A(iv) ÷ Line I.B): |
|||||||||||
Minimum Required: 3.50 to 1.00 | to 1.00 | |||||||||||
2. |
Section 6.09(b) Consolidated Total Net Leverage Ratio: | |||||||||||
A. | Consolidated Total Funded Debt as of Statement Date: | |||||||||||
(i) | Obligations for borrowed money: | $ | ||||||||||
|
|
|||||||||||
(ii) | Obligations evidenced by bonds, debentures, notes or similar instruments: | $ | ||||||||||
|
|
|||||||||||
(iii) | Obligations upon which interest charges are customarily paid: | $ | ||||||||||
|
|
|||||||||||
(iv) | Obligations under conditional sale or other title retention agreements relating to property acquired: | $ | ||||||||||
|
|
|||||||||||
(v) | Obligations in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business): | $ | ||||||||||
|
|
|||||||||||
(vi) | Indebtedness of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired, whether or not the Indebtedness secured thereby has been assumed: | $ | ||||||||||
|
|
|||||||||||
(vii) |
Guarantees of Indebtedness of another Person: |
$ | ||||||||||
|
|
|||||||||||
(viii) |
Capital Lease Obligations: |
$ | ||||||||||
|
|
|||||||||||
(ix) | Obligations, contingent or otherwise, as an account party in respect of letters of credit and letters of guaranty: | $ | ||||||||||
|
|
|||||||||||
(x) |
Obligations, contingent or otherwise, in respect of bankers acceptances: |
$ | ||||||||||
|
|
|||||||||||
(xi) |
Sum of Lines 2.A(i) through (x), without duplication: |
$ | ||||||||||
|
|
EXHIBIT B PAGE 4
EXHIBIT B PAGE 5
11 | To be included in the Compliance Certificate accompanying year-end financial statements only. |
EXHIBIT B PAGE 6
EXHIBIT C-1
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is made to that certain Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp. a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent ).
Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any promissory note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Company within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the Company as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Company with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Company and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Company and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER] | ||
By: |
|
|
Name: | ||
Title: |
Date: , 20
EXHIBIT C-1 PAGE 1
EXHIBIT C-2
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is made to that certain Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent ).
Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Company within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to the Company as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT] | ||
By: |
|
|
Name: | ||
Title: |
Date: , 20
EXHIBIT C-2 PAGE 1
EXHIBIT C-3
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is made to that certain Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent ).
Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Company within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Company as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT] | ||
By: | ||
Name: | ||
Title: |
Date: , 20
EXHIBIT C-3 PAGE 1
EXHIBIT C-4
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is made to that certain Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent ).
Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any promissory note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any promissory note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Company within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Company as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Company with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Company and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Company and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER] | ||
By: | ||
Name: | ||
Title: |
Date: , 20
EXHIBIT C-4 PAGE 1
EXHIBIT D
FORM OF INCREASING LENDER SUPPLEMENT EXISTING LENDER
INCREASING LENDER SUPPLEMENT, dated , 20 (this Supplement ), by and among each of the signatories hereto, to the Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent ). Capitalized terms used herein and not defined herein shall have the meanings defined in the Credit Agreement.
W I T N E S S E T H
WHEREAS, pursuant to Section 2.21 of the Credit Agreement, the Company has the right, subject to the terms and conditions thereof, to effectuate from time to time an increase in the Revolving Commitments and/or one or more additional tranches of Incremental Term Loans under the Credit Agreement by requesting one or more Lenders to increase the amount of its Revolving Commitment and/or to participate in such a tranche;
WHEREAS, the Company has given notice to the Administrative Agent of its intention to [increase the Revolving Commitments] [and] [enter into a tranche of Incremental Term Loans] pursuant to such Section 2.21 ; and
WHEREAS, pursuant to such Section 2.21 , the undersigned Increasing Lender now desires to [increase the amount of its Revolving Commitment] [and] [participate in a tranche of Incremental Term Loans] under the Credit Agreement by executing and delivering to the Company and the Administrative Agent this Supplement;
NOW, THEREFORE, each of the parties hereto hereby agrees as follows:
1. | The undersigned Increasing Lender agrees, subject to the terms and conditions of the Credit Agreement, that on the date of this Supplement it shall [have its Revolving Commitment increased by $ , thereby making the aggregate amount of its Revolving Commitment equal to $ ] [and] [participate in an Incremental Term Loan with a commitment amount equal to $ with respect thereto]. |
2. | The Company hereby represents and warrants that on the proposed date of the effectiveness of the increase in the Revolving Commitments and/or tranche of Incremental Term Loans contemplated hereby, (A) the conditions set forth in paragraphs (a) and (b) of Section 4.02 of the Credit Agreement are and shall be satisfied both before and immediately after giving effect to such increase in the Revolving Commitments and/or tranche of Incremental Term Loans and (B) the Company is and shall be in pro forma compliance with each financial covenant set forth in Section 6.09 of the Credit Agreement as determined in the manner required by Section 2.21 of the Credit Agreement. |
3. | This Supplement shall be governed by, and construed in accordance with, the laws of the State of New York. |
4. | This Supplement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same document. |
EXHIBIT D PAGE 1
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement to be executed and delivered by a duly authorized officer on the date first above written.
[INSERT NAME OF INCREASING LENDER] | ||
By: |
|
|
Name: | ||
Title: |
Accepted and agreed to as of the date first written above:
ALTRA INDUSTRIAL MOTION CORP. | ||
By: |
|
|
Name: | ||
Title: | ||
JPMORGAN CHASE BANK, N.A., as Administrative Agent |
||
By: |
|
|
Name: | ||
Title: |
EXHIBIT D PAGE 2
EXHIBIT E
FORM OF AUGMENTING LENDER SUPPLEMENT NEW LENDER
AUGMENTING LENDER SUPPLEMENT, dated , 20 (this Supplement ), to the Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent ). Capitalized terms used herein and not defined herein shall have the meanings defined in the Credit Agreement.
W I T N E S S E T H
WHEREAS, the Credit Agreement provides in Section 2.21 thereof that any bank, financial institution or other entity may [extend Revolving Commitments] [and] [participate in tranches of Incremental Term Loans] under the Credit Agreement subject to the approval of the Company and the Administrative Agent [and the Swingline Lender and the Issuing Bank], by executing and delivering to the Company and the Administrative Agent a supplement to the Credit Agreement in substantially the form of this Supplement; and
WHEREAS, the undersigned Augmenting Lender was not an original party to the Credit Agreement but now desires to become a party thereto;
NOW, THEREFORE, each of the parties hereto hereby agrees as follows:
1. | The undersigned Augmenting Lender agrees to be bound by the provisions of the Credit Agreement and agrees that it shall, on the date of this Supplement, become a Lender for all purposes of the Credit Agreement to the same extent as if originally a party thereto, with a [Revolving Commitment of $ ] [and] [a commitment with respect to Incremental Term Loans of $ ]. |
2. | The undersigned Augmenting Lender (a) represents and warrants that it is legally authorized to enter into this Supplement, (b) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.01(a) and 5.01(b) thereof, as applicable, and has reviewed such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Supplement, (c) agrees that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto, (d) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto, and (e) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender. |
EXHIBIT E PAGE 1
3. | The undersigneds address for notices for the purposes of the Credit Agreement is as follows: |
.
4. | The Company hereby represents and warrants that on the proposed date of the effectiveness of the increase in the Revolving Commitments and/or tranche of Incremental Term Loans contemplated hereby, (A) the conditions set forth in paragraphs (a) and (b) of Section 4.02 of the Credit Agreement are and shall be satisfied both before and immediately after giving effect to such increase in the Revolving Commitments and/or tranche of Incremental Term Loans and (B) the Company is and shall be in pro forma compliance with each financial covenant set forth in Section 6.09 of the Credit Agreement as determined in the manner required by Section 2.21 of the Credit Agreement. |
5. | This Supplement shall be governed by, and construed in accordance with, the laws of the State of New York. |
6. | This Supplement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same document. |
[remainder of this page intentionally left blank]
EXHIBIT E PAGE 2
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement to be executed and delivered by a duly authorized officer on the date first above written.
[INSERT NAME OF AUGMENTING LENDER] | ||
By: |
|
|
Name: | ||
Title: |
Accepted and agreed to as of the date first written above:
ALTRA INDUSTRIAL MOTION CORP. | ||
By: |
|
|
Name: | ||
Title: | ||
JPMORGAN CHASE BANK, N.A., as Administrative Agent |
||
By: |
|
|
Name: | ||
Title: | ||
[JPMORGAN CHASE BANK, N.A., as Swingline Lender and Issuing Bank] 12 |
||
By: |
|
|
Name: | ||
Title: |
12 | Insert additional signature blocks for any other Issuing Banks. |
EXHIBIT E PAGE 3
EXHIBIT F
FORM OF BORROWING REQUEST
[ADDRESS FOR BORROWINGS DENOMINATED IN U.S. DOLLARS:]
JPMorgan Chase Bank, N.A.
Loan and Agency Services Group
10 S Dearborn St Flr 7
Chicago, IL 60603
Attention: Sabana Johnson
Fax: 312-385-7097
[ADDRESS FOR BORROWINGS DENOMINATED IN FOREIGN CURRENCIES:]
J.P. Morgan Europe Limited
Floor 6
25 Bank Street
Canary Wharf
London E14 5JP
United Kingdom
Attention of Manager: Loan Agency
Fax: 44 207 777 2360
[COPY FOR BORROWINGS DENOMINATED IN FOREIGN CURRENCIES:]
Copy to:
JPMorgan Chase Bank, N.A.
Loan and Agency Services Group
10 S Dearborn St Flr 7
Chicago, IL 60603
Attention: Sabana Johnson
Fax: 312-385-7097
, 20
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent ). Capitalized terms used herein and not defined herein shall have the meanings defined in the Credit Agreement.
EXHIBIT F PAGE 1
This notice constitutes a Borrowing Request, and the Company hereby gives you notice, pursuant to Section 2.03 of the Credit Agreement, that it requests a Borrowing under the Credit Agreement, and in connection therewith specifies the following information with respect to such Borrowing:
(i) | The Borrower requesting such Borrowing is . |
(ii) | The Loans comprising such Borrowing are [ABR Revolving Loans][Eurodollar Revolving Loans][Eurodollar Additional Term Loans]. 13 |
(iii) | The aggregate amount of such Borrowing is . 14 |
(iv) | The date of such Borrowing (which is a Business Day) is . |
(v) | [The initial Interest Period applicable to such Borrowing is months.] 15 |
(vi) | [The Agreed Currency applicable to such Borrowing is .] 16 |
(vii) | The location and number of the applicable Borrowers account to which funds are to be disbursed: 17 |
Bank Name:.
Bank Address:
ABA number:
Account number:
Account Name:
SWIFT CODE: (if needed)
The Company hereby certifies that the conditions specified in paragraphs (a) and (b) of Section 4.02 of the Credit Agreement have been satisfied.
Very truly yours, | ||
ALTRA INDUSTRIAL MOTION CORP. | ||
By: |
|
|
Name: | ||
Title: |
13 | If no Type of Borrowing is specified, then, in the case of a Borrowing denominated in U.S. Dollars, the requested Borrowing shall be an ABR Borrowing, and in the case of a Borrowing denominated in a Foreign Currency, the requested Borrowing shall be a Eurodollar Borrowing. |
14 | For Revolving Borrowings, please refer to required minimum/multiple borrowing amounts set forth in Section 2.02(c) of the Credit Agreement. |
15 | Applicable to Eurodollar Borrowings only. Subject to the definition of Interest Period and can be a period of one, two, three or six months. If no Interest Period is specified, then the Company shall be deemed to have selected an Interest Period of one months duration. |
16 | Applicable to Eurodollar Revolving Borrowings only. If no denomination is specified, then the requested Borrowing shall be denominated in U.S. Dollars. |
17 | Account must comply with requirements of Section 2.07(a) of the Credit Agreement. |
EXHIBIT F PAGE 2
EXHIBIT G
FORM OF DESIGNATED BORROWER REQUEST AND ASSUMPTION AGREEMENT
Date: ,
To: | JPMorgan Chase Bank, N.A., as Administrative Agent |
Ladies and Gentlemen:
This Designated Borrower Request and Assumption Agreement is made and delivered pursuant to Section 2.23(b) of that certain Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (each a Designated Borrower and together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (the Administrative Agent ). All capitalized terms used in this Designated Borrower Request and Assumption Agreement and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Each of , a (the Additional Designated Borrower ), and the Company hereby confirms, represents and warrants to the Administrative Agent and the Lenders that the Additional Designated Borrower is a wholly owned Subsidiary of the Company.
The documents required to be delivered to the Administrative Agent under Sections 2.23 and 4.03 of the Credit Agreement will be furnished to the Administrative Agent in accordance with the requirements of the Credit Agreement.
The parties hereto hereby confirm that with effect from the date hereof, the Additional Designated Borrower shall have obligations, duties and liabilities toward each of the other parties to the Credit Agreement identical to those which the Additional Designated Borrower would have had if the Additional Designated Borrower had been an original party to the Credit Agreement as a Borrower. The Additional Designated Borrower confirms its acceptance of, and consents to, all representations and warranties, covenants, and other terms and provisions of the Credit Agreement.
The parties hereto hereby request that the Additional Designated Borrower be entitled to receive Loans under the Credit Agreement, and understand, acknowledge and agree that neither the Additional Designated Borrower nor the Company on its behalf shall have any right to request any Loans for its account unless and until the date five (5) Business Days after the effective date designated by the Administrative Agent in a Designated Borrower Notice delivered to the Company and the Lenders pursuant to Section 2.23(b) of the Credit Agreement.
This Designated Borrower Request and Assumption Agreement shall constitute a Loan Document under the Credit Agreement.
THIS DESIGNATED BORROWER REQUEST AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE SATE OF NEW YORK.
EXHIBIT G PAGE 1
IN WITNESS WHEREOF , the parties hereto have caused this Designated Borrower Request and Assumption Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
[ADDITIONAL DESIGNATED BORROWER] | ||
By: |
|
|
Title: |
|
|
ALTRA INDUSTRIAL MOTION CORP. | ||
By: |
|
|
Title: |
|
EXHIBIT G PAGE 2
EXHIBIT H
FORM OF DESIGNATED BORROWER NOTICE
Date: ,
To: | Altra Industrial Motion Corp., and |
[applicable Designated Borrower] |
The Lenders party to the Credit Agreement referred to below
Ladies and Gentlemen:
This Designated Borrower Notice is made and delivered pursuant to Section 2.23(b) of that certain Amended and Restated Credit Agreement, dated as of December 6, 2013 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among Altra Industrial Motion Corp., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), certain of its Subsidiaries from time to time party thereto (each a Designated Borrower and together with the Company, the Borrowers ), the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (the Administrative Agent ). All capitalized terms used in this Designated Borrower Notice and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
The Administrative Agent hereby notifies the Company and the Lenders that effective as of , 20 , , a , shall constitute a Designated Borrower for purposes of the Credit Agreement and may receive Loans for its account on the terms and conditions set forth in the Credit Agreement; provided , that pursuant to Section 2.23(b) of the Credit Agreement, no Borrowing Request may be submitted on behalf of such Designated Borrower until the date that is five (5) Business Days after the effective date set forth in this paragraph.
This Designated Borrower Notice shall constitute a Loan Document under the Credit Agreement.
JPMORGAN CHASE BANK, N.A., as Administrative Agent |
||
By: |
|
|
Title: |
|
EXHIBIT H PAGE 1
G&S Comments 12/4/13
H&K DRAFT dated December 4, 2013
SCHEDULES
TO
AMENDED AND RESTATED
CREDIT AGREEMENT
These Schedules are delivered pursuant to the Amended and Restated Credit Agreement dated as of December 6, 2013 (the Amended and Restated Credit Agreement), among ALTRA INDUSTRIAL MOTION CORP., a Delaware corporation (the Company), and certain of its Subsidiaries, as Borrowers, and the Lenders party thereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent. Unless otherwise defined, capitalized terms have the meanings set forth in the Amended and Restated Credit Agreement.
No reference to or disclosure of any item or other matter in these Schedules shall be construed as an admission or indication that such item or other matter is material or that such item or other matter is required to be referred to or disclosed in these Schedules. No disclosure in these Schedules relating to any possible breach or violation of any agreement, law, or regulation shall be construed as an admission or indication that any such breach or violation exists or has actually occurred.
These Schedules and the information and disclosures contained in these Schedules are intended only to qualify and limit the representations and warranties contained in the Amended and Restated Credit Agreement and shall not be deemed to expand in any way the scope or effect of any such representations and warranties.
Index
Schedule 1.01 Existing Letters of Credit
Schedule 2.01 Commitments
Schedule 2.23 Designated Borrowers
Schedule 3.06 Disclosed Matters
Schedule 3.15 Subsidiaries and Material Domestic Subsidiaries
Schedule 6.01 Existing Indebtedness
Schedule 6.02 Existing Liens
Schedule 6.04 Existing Investments
Schedule 6.08 Existing Restrictive Agreements
Schedule 2.23
(Designated Borrowers)
Altra Power Transmission, Inc.
Altra Industrial Motion Netherlands B.V.
Schedule 3.06
(Disclosed Matters)
Environmental Reports
Findings or conditions disclosed in environmental reports delivered on or prior to the Effective Date to the Administrative Agent which do not result in a Material Adverse Effect.
Other Environmental Matters
| One of the Loan Parties or their affiliates formerly owned a site in Roscoe, Illinois, which is known to have contamination associated with the release of chlorinated solvents. Dana Corporation, which formerly owned the Roscoe facility and sold it to Colfax Corporation, is responsible for remediating the contamination in the area of the former plant. It is the Loan Parties understanding that the remediation is being done pursuant to an order. In 2004, Colfax Corporation sold the power transmission business to the Company and retained ownership of the Roscoe, Illinois property and any losses arising from the ownership of the Roscoe, Illinois property. Note, the contamination did not occur while the Loan Parties or their affiliates owned or operated the site. |
| A Liability Determination Report dated December 15, 1995 was issued by the Michigan Department of Environmental Quality, Environmental Response Division, Saginaw Bay District Headquarters with respect to 801 E. Industrial Drive, Mt. Pleasant, Michigan that indicated that solid and groundwater at the facility was contaminated with hazardous substances. In July 2013, one of the Loan Parties sold the 801 E. Industrial Drive property to a third party. In connection with the sale, the purchaser is expected to conduct a baseline environmental assessment consistent with Michigan law and practice. |
| Ingersoll-Rands environmental consulting division continues to monitor wells at Kilian Manufacturing Corporations Syracuse and Toronto plants. |
| Honeywell International, Inc. has sent correspondence to Kilian Manufacturing Corporation (Kilian) requesting that Kilian enter into a tolling agreement with respect to certain legacy environmental matters allegedly associated with the historical operation of Kilian at its Syracuse, NY facility. Kilian informed Timken U.S. Corporation, the prior owner of Kilian, of the matter. Upon receiving instructions from Timken, Kilian executed a tolling agreement with Honeywell on December 23, 2009. On November 30, 2010 and on November 27, 2011, in both cases after receiving instructions from Timken, Kilian entered into extensions of the December 23, 2009 tolling agreement with Honeywell. No formal proceeding involving Kilian has been commenced. |
| The following disclosure is made solely with respect to Section 3.06(b)(iv) of the Amended and Restated Credit Agreement: As with most manufacturers, the Loan Parties use and generate Hazardous Materials, which are transported off site for treatment or disposal. A party that arranges for the disposal or treatment of Hazardous Materials may be liable for the cost of remediating if the disposal or treatment site becomes contaminated. |
Litigation
| One or more Loan Parties or Subsidiaries are currently parties to product liability suits (the Proceedings) pertaining to products manufactured or sold by the businesses of the Loan Parties or Subsidiaries prior to the acquisition of such businesses by the Company or a Subsidiary. Although in some of the Proceedings third parties have retained responsibility for product liabilities relating to products manufactured or sold prior to the acquisition of the relevant business and in other of the Proceedings the persons from whom the relevant business was acquired may be required to indemnify the Company for certain product liability claims subject to certain caps or limitations on indemnification, there can be no assurance that those third parties will in fact satisfy their obligations with respect to liabilities retained by them or their indemnification obligations. If those third parties become unable to or otherwise do not comply with their respective obligations including indemnity obligations, or if certain product liability claims were not retained by third parties or are not subject to these indemnities, the Company or one or more of its Subsidiaries could become subject in the Proceedings to significant liabilities or other adverse consequences. Moreover, even in the Proceedings where third parties retain responsibility for product liabilities or are required to indemnify the Company, significant claims asserted in the Proceedings arising from acquired products could have a Material Adverse Effect on the Companys ability to realize the benefits from an acquisition, could result in our reducing the value of goodwill that the Company has recorded in connection with an acquisition, or could otherwise have a Material Adverse Effect on the Companys business, financial condition, or operations. |
Schedule 3.15
(Subsidiaries and Material Domestic Subsidiaries)
Entity |
Jurisdiction |
Material Domestic Subsidiary (YES OR NO) |
||
Altra Power Transmission, Inc. | Delaware | YES | ||
Nuttall Gear L L C | Delaware | YES | ||
Ameridrives International, LLC | Delaware | YES | ||
Formsprag LLC | Delaware | YES | ||
Warner Electric LLC | Delaware | YES | ||
Warner Electric Technology LLC | Delaware | NO | ||
Boston Gear LLC | Delaware | YES | ||
Bauer Gear Motor LLC | Delaware | NO | ||
Inertia Dynamics, LLC | Delaware | YES | ||
Kilian Manufacturing Corporation | Delaware | YES | ||
Kilian Canada, ULC | Nova Scotia, Canada | N/A | ||
TB Woods Corporation | Delaware | YES | ||
TB Woods Incorporated | Pennsylvania | YES | ||
TB Woods Canada Ltd. | Canada | N/A | ||
Industrial Blaju, S.A. de C.V. | Mexico | N/A | ||
Warner Electric International Holding, Inc. | Delaware | YES | ||
Warner Electric Group GmbH | Germany | N/A | ||
Steiber GmbH | Germany | N/A | ||
Warner Electric (Netherlands) Holding, B.V. | Netherlands | N/A | ||
Warner Electric (Thailand) Ltd. | Thailand | N/A | ||
Altra Industrial Motion Australia Pty. Ltd. | Australia | N/A | ||
Warner Shui Hing Limited (HK) | Hong Kong | N/A | ||
Altra Industrial Motion (Singapore) Pte. Ltd. | Singapore | N/A | ||
Altra Industrial Motion Taiwan Ltd. | Taiwan | N/A | ||
Altra Industrial Motion (ShenZhen) Co., Ltd. | China | N/A | ||
Warner Electric UK Group Ltd. | United Kingdom | N/A | ||
Warner Electric UK Holding Ltd | United Kingdom | N/A | ||
Wichita Company Ltd. | United Kingdom | N/A | ||
Hay Hall Holdings Limited | United Kingdom | N/A | ||
The Hay Hall Group Limited | United Kingdom | N/A | ||
Matrix International Ltd. | United Kingdom | N/A | ||
Matrix International GmbH | Germany | N/A |
Entity |
Jurisdiction |
Material Domestic Subsidiary (YES OR NO) |
||
Bibby Group Ltd. | United Kingdom | N/A | ||
Bibby Transmissions Ltd. | United Kingdom | N/A | ||
Bibby Turboflex SA | South Africa | N/A | ||
Turboflex Ltd. | United Kingdom | N/A | ||
Torsiflex Ltd. | United Kingdom | N/A | ||
Huco Power Transmission Ltd. | United Kingdom | N/A | ||
Huco Engineering Industries Ltd. | United Kingdom | N/A | ||
Dynatork Air Motors Ltd. | United Kingdom | N/A | ||
Dynatork Ltd. | United Kingdom | N/A | ||
Twiflex Ltd. | United Kingdom | N/A | ||
Saftek Ltd. | United Kingdom | N/A | ||
Bauer Gear Motor Limited | United Kingdom | N/A | ||
Bauer Gear Motor Europe GmbH | Germany | N/A | ||
Bauer Gear Motor Slovakia s.r.o. | Slovakia | N/A | ||
Altra Industrial Motion Netherlands C.V. | Netherlands | N/A | ||
Altra Industrial Motion Netherlands B.V. | Netherlands | N/A | ||
Bauer Gear Motor Finland Oy Ab | Finland | N/A | ||
Bauer Gear Motor GmbH | Germany | N/A | ||
Lamiflex do Brasil Equipamentos Industrials S.A. | Brazil | N/A | ||
Altra Industrial Motion Denmark ApS | Denmark | N/A | ||
Altra Industrial Motion Russia OOO | Russia | N/A | ||
Altra Industrial Motion (Changzhou) Co Ltd. | China | N/A | ||
Altra Industrial Motion Ukraine TOV | Ukraine | N/A | ||
Warner Electric (Holding) SAS | France | N/A | ||
Warner Electric Europe SAS | France | N/A |
Schedule 6.01
(Existing Indebtedness)
Convertible Notes
On March 7, 2011, the Company issued $85.0 million of Convertible Notes due on March 1, 2031. Interest on the Convertible Notes is payable semiannually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%.
Equipment and Working Capital Notes
The Company entered into a $3.9 million loan with a bank to equip its new facility in Changzhou, China during 2012. The loan had a remaining principal balance of $1.1 million at December 31, 2012. The note was refinanced in an amount of approximately $1.1 million during the quarter ended September 28, 2013, with a new bank. The note is due in installments from July through September 2014, when the note expires. Interest is payable monthly at 5.04%.
The Company entered into a $2.5 million loan with a bank to equip its new facility in Changzhou, China during the quarter ended September 28, 2013. The loan has a remaining principal balance of $2.5 million at September 28, 2013. The note is due in installments between June and August of 2016, when the note expires. Interest is payable monthly at 5.54%. The note is callable by the bank at its discretion and as such, has been included in the current portion of long-term debt in the balance sheet at September 28, 2013.
Mortgage
In June 2006, the Company entered into a mortgage on its building in Heidelberg, Germany with a local bank. In 2009, the Company re-financed the mortgage and increased the amount borrowed by an additional 1.0 million. The new mortgage is payable in monthly installments and is due in 2015. As of September 28, 2013 and December 31, 2012, the mortgage had a remaining principal balance of 0.5 million or $0.7 million and 0.7 million or $1.0 million, respectively.
Capital Leases
As of the Effective Date, the Company leases certain equipment under capital lease arrangements, whose obligations are included in both short-term and long-term debt, in the aggregate amount of approximately $71,000.
Intercompany Indebtedness
As of the Effective Date, the Loan Parties are owed approximately $64,884,469 in intercompany indebtedness from certain foreign Subsidiaries of the Loan Parties and, with the exception of Altra Industrial Motion Netherlands B.V., do not owe any intercompany indebtedness to any foreign Subsidiaries of the Loan Parties.
Letters of Credit
As of the Effective Date, the Existing Letters of Credit listed on Schedule 1.01 remain outstanding.
Lamiflex Debt
As of the Effective Date, Lamiflex do Brasil Equipamentos Industrials S.A. has approximately BRL 391,300 (USD $178,510) in unsecured working capital debt.
Schedule 6.02
(Existing Liens)
UCC Financing Statements
Jurisdiction |
Debtor |
Secured Party |
File No. |
Date |
Collateral |
|||||
DE Secretary of State | Warner Electric LLC | |||||||||
NMHG Financial Services Inc. | 60767475 | 03/06/2006 | Certain equipment | |||||||
10146707 (Continuation) | 01/13/2011 | |||||||||
Peoples Capital and Leasing Corp. | 62702389 | 08/04/2006 | Certain equipment | |||||||
Jules and Associates Inc. | 23717412 (Assignment) | 09/26/12 | ||||||||
Peoples Capital and Leasing Corp. | 70409630 | 02/01/2007 | Certain equipment | |||||||
13218024 (Continuation) | 08/18/2011 | |||||||||
Jules and Associates, Inc. | 23717230 (Partial Assignment) | 09/26/2012 | ||||||||
Xerox Corporation | 70423201 | 02/01/2007 | Certain equipment | |||||||
Xerox Corporation | 82073474 | 06/17/2008 | Certain equipment | |||||||
Jules and Associates, Inc. | 84016398 | 12/03/2008 | Certain equipment | |||||||
TCP Equipment Finance | 84198485 (Assignment) | 12/17/2008 | ||||||||
U.S. Bancorp | 90551793 | 02/19/2009 | Certain equipment | |||||||
Office Equipment Leasing Co. | 90566601 | 02/20/2009 | Certain equipment | |||||||
Xerox Corporation | 93045819 | 9/23/2009 | Xerox 4112CPC | |||||||
U.S. Bancorp | 93485759 | 10/29/2009 | Certain equipment | |||||||
U.S. Bancorp | 00702369 | 03/02/2010 |
1KC220 OED013000065BLK; 1KC220O EDO13000665COL |
|||||||
Wichita Falls Economic Development Corporation | 03015769 | 08/27/2010 | 1,500 horse power test stand | |||||||
NMHG Financial Services Inc. | 03860362 | 11/3/2010 | All Equipment leased by lessor to lessee | |||||||
Xerox Corporation | 04130013 | 11/23/2010 |
XEROX X700V; XEROX X70EFI |
|||||||
U.S. Bancorp Business Equipment Finance Group | 11179749 | 03/30/2011 | Certain Equipment | |||||||
U.S. Bancorp Business Equipment Finance Group | 11645525 | 05/03/2011 | Certain Equipment |
Jurisdiction |
Debtor |
Secured Party |
File No. |
Date |
Collateral |
|||||
NMHG Financial Services Inc. | 12116096 | 06/02/11 | All Equipment leased by lessor to lessee | |||||||
U.S. Bancorp Business Equipment Finance, Inc. | 14531219 | 11/28/2011 | Certain Equipment | |||||||
DPOE Image Flex Inc. | 23129832 | 07/27/2012 | Various Sharp Copier, Printer, and Fax Systems | |||||||
DE Secretary of State | Nuttall Gear LLC | |||||||||
United States Steel Corporation | 84061634 | 12/08/2008 | All equipment owner by Secured Party delivered to Debtor for storage or repair pursuant To contracts | |||||||
Mazak Corporation | 02507741 | 07/19/2010 | Certain equipment | |||||||
DE Secretary of State | Formsprag LLC | |||||||||
Ervin Leasing Company | 70465202 | 02/05/2007 | Certain equipment | |||||||
Ervin Leasing Company | 71754208 | 05/07/2007 | Certain equipment | |||||||
Ervin Leasing Company | 83519319 | 10/14/2008 | Certain equipment | |||||||
Ervin Leasing Company | 83520341 | 10/14/2008 | Certain equipment | |||||||
Ervin Leasing Company | 83520358 | 10/14/2008 | Certain equipment | |||||||
Citibank, N.A. | 52264787 | 07/22/2005 | Accounts receivable from United Technologies Corp., and Hamilton Sundstrand Corporation per term of Supplier Agreement among Debtor and SP | |||||||
01014244 (Continuation) | 03/24/2012 | |||||||||
DE Secretary of State | Boston Gear LLC | |||||||||
Dell Financial Services, L.P. | 40541989 | 02/26/2004 | Certain computer equipment | |||||||
83122403 (Continuation) | 09/15/2008 | |||||||||
83122403 (Amendment) | 01/13/2009 |
Jurisdiction |
Debtor |
Secured Party |
File No. |
Date |
Collateral |
|||||
DE Secretary of State | Ameridrives International, LLC | |||||||||
TCF Equipment Finance, Inc. | 63313517 | 09/07/2006 | USED 1995 FS-630-200 Fellows CNC Hydrostroke High Speed Gear Shaping Machine | |||||||
13053843 (Continuation) | 08/08/2011 | |||||||||
TCF Equipment Finance, Inc. | 64516779 | 12/22/2006 | Certain equipment | |||||||
Peoples Leasing and Capital Corp | 73234191 | 08/24/2007 | Mitsubishi machine model 3015HV-20CF2-PRT | |||||||
Jules and Associates, Inc. | 73926937 (Assignment) | 09/21/2007 | ||||||||
Jules and Associates, Inc. | 73943486 (Assignment) | 10/18/2007 | ||||||||
21156142 (Continuation) | 03/27/2012 | |||||||||
Peoples Capital and Leasing Corp. | 23686336 (Assignment) | 09/25/2012 | ||||||||
Jules and Associates, Inc. | 73571352 | 08/27/2007 | One Puma 400B Fanuc 21iTB control and One Puma TL2500L with Fanuc 18iTB Control | |||||||
TCF Equipment Finance, Inc. | 74673926 (Assignment) | 12/06/2007 | ||||||||
23149426 (Continuation) | 08/14/2012 | |||||||||
TCF Equipment Finance, Inc. | 14997774 | 12/28/2011 | Certain Equipment | |||||||
DE Secretary of State | Altra Industrial Motion, Inc., (now known as Altra Power Transmission, Inc.) | |||||||||
Jules and Associates, Inc. | 84016398 | 12/03/08 | Certain Equipment | |||||||
TCF Equipment Finance, Inc. | 84198485 (Assignment) | 12/17/2008 | ||||||||
Western Finance & Lease Inc. | 03903352 | 11/08/2010 | Certain Adobe Products | |||||||
U.S. Bancorp Equipment Finance Group | 04486738 | 12/17/2010 | Certain Equipment | |||||||
Marlin Business Bank | 11649022 | 05/13/2011 | Certain Equipment |
Letters of Credit
See Existing Letters of Credit listed on Schedule 1.01.
Mortgage
In June 2006, the Company entered into a mortgage on its building in Heidelberg, Germany with a local bank. In 2009, the Company re-financed the mortgage and increased the amount borrowed by an additional 1.0 million. The new mortgage is payable in monthly installments and is due in 2015. As of September 28, 2013 and December 31, 2012, the mortgage had a remaining principal balance of 0.5 million or $0.7 million and 0.7 million or $1.0 million, respectively.
Schedule 6.04
(Existing Investments)
Existing Joint Ventures
Warner Electric LLC holds 40% of Elastomeric Actuators Inc.
Bibby Transmissions Ltd. holds 50% of Rathi Turboflex Pty Ltd. (India)
Investments consisting of intercompany Indebtedness owing to the Loan Parties by certain Foreign Subsidiaries, to the extent described on Schedule 6.01.
Schedule 6.08
(Existing Restrictive Agreements)
None.
Exhibit 10.15
EXECUTION VERSION
OMNIBUS REAFFIRMATION AND RATIFICATION
OF COLLATERAL DOCUMENTS
This OMNIBUS REAFFIRMATION AND RATIFICATION OF COLLATERAL DOCUMENTS (this Ratification Agreement ) is made as of December 6, 2013, by and among ALTRA INDUSTRIAL MOTION CORP., a Delaware corporation (f/k/a Altra Holdings, Inc., a Delaware corporation) (the Company ), ALTRA POWER TRANSMISSION, INC., a Delaware corporation (f/k/a Altra Industrial Motion, Inc., a Delaware corporation) ( APT ), and the other undersigned Subsidiaries of the Company (together with the Company and APT, each a Grantor and collectively the Grantors ) in favor of JPMORGAN CHASE BANK, N.A., as administrative agent under the Amended and Restated Credit Agreement referred to below (the Administrative Agent ), for the ratable benefit of the Secured Parties (as defined in such Amended and Restated Credit Agreement).
WHEREAS, the Company and APT, as borrowers, the Administrative Agent and certain other financial institutions are each party to that certain Credit Agreement (the Existing Credit Agreement ), dated as of November 20, 2012;
WHEREAS, the Grantors and the Administrative Agent are each party to that certain Pledge and Security Agreement (the Security Agreement ), dated as of November 20, 2012;
WHEREAS, certain of the Grantors and the Administrative Agent are each party to that certain Patent Security Agreement (the Patent Security Agreement ), dated as of November 20, 2012;
WHEREAS, certain of the Grantors and the Administrative Agent are each party to that certain Trademark Security Agreement (the Trademark Security Agreement and together with the Security Agreement and the Patent Security Agreement, each an Existing Collateral Document and collectively the Existing Collateral Documents ), dated as of November 20, 2012;
WHEREAS, concurrently herewith, the Company, APT and Altra Industrial Motion Netherlands B.V., as borrowers, the Administrative Agent and certain other financial institutions are entering into an Amended and Restated Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time, the Amended and Restated Credit Agreement ) dated as of the date hereof, which will amend and restate the Existing Credit Agreement in its entirety but will not constitute a novation of the parties rights and obligations thereunder;
WHEREAS, the Existing Collateral Documents state that the Grantors are entering into such agreements to induce the Lenders to extend credit to the Borrowers under the Existing Credit Agreement as the same may be amended, restated, supplemented or otherwise modified from time to time; and
WHEREAS, the Grantors and the Administrative Agent desire to effect the amendments to certain definitions in the Existing Collateral Documents set forth herein, and also ratify and reaffirm the Existing Collateral Documents as amended hereby;
NOW, THEREFORE, the parties hereto agree as follows:
1. Loan Document; Amendments to Certain References
1.1 Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Amended and Restated Credit Agreement. This Ratification Agreement shall constitute a Loan Document and a Collateral Document for all purposes of the Amended and Restated Credit Agreement and the other Loan Documents.
1.2 The parties acknowledge and confirm that each reference to the Existing Credit Agreement, however so defined, in any of the Existing Collateral Documents or the other Loan Documents includes the Amended and Restated Credit Agreement, as the same may be further amended, restated, supplemented or otherwise modified from time to time. The parties further acknowledge and confirm that each reference to any Existing Collateral Document, however so defined, in any other Existing Collateral Document or other Loan Document includes such Existing Collateral Document as amended by this Ratification Agreement and as further amended, restated, supplemented or otherwise modified from time to time.
1.3 Notwithstanding the foregoing Section 1.2 , each reference to Swap Obligations and Banking Services Obligations in the Security Agreement shall be deemed to be a reference to Secured Swap Obligations and Secured Banking Services Obligations, respectively.
2. Continuing Security Interest . Each of the Grantors hereby confirms that, pursuant to the Existing Collateral Documents to which such Grantor is a party, such Grantor pledged, assigned and granted to the Administrative Agent, on behalf of and for the ratable benefit of the Secured Parties, a security interest in all of such Grantors right, title and interest in, to and under the Collateral, the Patent Collateral and the Trademark Collateral (as defined in the applicable Existing Collateral Document) to secure the prompt and complete payment and performance of the Secured Obligations. Each of the Grantors hereby expressly ratifies and reaffirms such pledge, assignment, and grant of such security interest to secure the prompt and complete payment and performance of the Secured Obligations.
3. Representations and Warranties; No Default . Each of the Grantors represents and warrants that (a) it has duly and properly performed, complied with and observed each of its covenants, agreements and obligations contained in the Existing Collateral Documents to which it is a party, (b) the representations and warranties of such Grantor contained in each Existing Collateral Document to which it is a party are true and correct in all material respects (or, with respect to representations and warranties already qualified by concepts of materiality, in all respects) on and as of the date hereof (or, to the extent any such representation or warranty is expressly stated to have been made as of a specific earlier date, on and as of such earlier date) both before and after giving effect to the transactions contemplated on the date hereof , (c) no event has occurred or is continuing and no condition exists which constitutes a Default or Event of Default under any Loan Document to which it is a party, and (d) the execution and delivery by such Grantor of this Ratification Agreement have been duly authorized by proper corporate, limited liability company, limited partnership or partnership, as applicable, proceedings, and this Ratification Agreement constitutes a legal, valid and binding obligation of such Grantor,
2
enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
4. Ratification, Etc . Except as expressly amended by this Ratification Agreement, the Existing Collateral Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Existing Collateral Documents (as amended hereby) and the perfected first priority security interests of the Administrative Agent, for the ratable benefit of the Secured Parties, thereunder shall continue in full force and effect, and the collateral security provided for in each of the Existing Collateral Documents and such other documents, instruments and agreements shall not be impaired by this Ratification Agreement.
5. GOVERNING LAW . THIS RATIFICATION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
6. Counterparts . This Ratification Agreement may be executed in any number of counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Ratification Agreement by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Ratification Agreement.
7. Miscellaneous . Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations or Secured Obligations, any other obligation of any Grantor or any rights of the Administrative Agent or any of the Secured Parties consequent thereon. Section headings in this Ratification Agreement are included herein for convenience of reference only and shall not constitute part of this Ratification Agreement for any other purpose.
[Signature Pages Follow]
3
IN WITNESS WHEREOF , the parties hereto have duly executed this Omnibus Reaffirmation and Ratification of Collateral Documents as of the date first above written.
GRANTORS: | ||
ALTRA INDUSTRIAL MOTION CORP. | ||
ALTRA POWER TRANSMISSION, INC. | ||
By: |
/s/ Todd Patriacca |
|
Name: | Todd Patriacca | |
Title: | Vice President Finance, Corporate | |
Controller and Treasurer | ||
WARNER ELECTRIC INTERNATIONAL HOLDING, INC |
||
BOSTON GEAR LLC | ||
BAUER GEAR MOTOR LLC | ||
WARNER ELECTRIC TECHNOLOGY LLC | ||
INERTIA DYNAMICS, LLC | ||
WARNER ELECTRIC LLC | ||
AMERIDRIVES INTERNATIONAL, LLC | ||
KILIAN MANUFACTURING CORPORATION | ||
FORMSPRAG LLC | ||
NUTTALL GEAR L L C | ||
TB WOODS CORPORATION | ||
TB WOODS INCORPORATED | ||
By: |
/s/ Todd Patriacca |
|
Name: | Todd Patriacca | |
Title: | Treasurer |
[SIGNATURE PAGE TO RATIFICATION AGREEMENT (JPM/ALTRA 2013)]
JPMORGAN CHASE BANK, N.A., as the Administrative Agent | ||
By: |
/s/ Peter M. Killea |
|
Name: | Peter M. Killea | |
Title: | Sr. Vice President |
[SIGNATURE PAGE TO RATIFICATION AGREEMENT (JPM/ALTRA 2013)]
Exhibit 21.1
Jurisdiction of Incorporation | ||||
Altra Industrial Motion Corp., |
Delaware | |||
- Altra Power Transmission, Inc., |
Delaware | |||
- Nuttall Gear L L C, |
Delaware | |||
- Ameridrives International, LLC, |
Delaware | |||
- Formsprag LLC, |
Delaware | |||
- Warner Electric LLC, |
Delaware | |||
- Warner Electric Technology LLC, |
Delaware | |||
- Svendborg Brakes USA, LLC |
Delaware | |||
- Boston Gear LLC, |
Delaware | |||
- Bauer Gear Motor LLC, |
Delaware | |||
- Inertia Dynamics, LLC, |
Delaware | |||
- Kilian Manufacturing Corporation, |
Delaware | |||
- Kilian Canada ULC, |
Nova Scotia, Canada | |||
- TB Woods Corporation, |
Delaware | |||
- TB Woods Incorporated, |
Pennsylvania | |||
- T.B. Woods Canada Ltd., |
Canada | |||
- Industrial Blaju, S.A. de C.V., |
Mexico | |||
- Warner Electric International Holding, Inc., |
Delaware | |||
- Warner Electric Group GmbH, |
Germany | |||
- Stieber GmbH, |
Germany | |||
- Warner Electric (Neth) Holding B.V., |
Netherlands | |||
- Altra Industrial Motion Australia Pty. Ltd., |
Australia | |||
- Altra Industrial Motion Hong Kong Limited |
Hong Kong | |||
- Altra Industrial Motion (ShenZhen) Co., Ltd., |
China | |||
- Altra Industrial Motion Singapore Pte. Ltd. |
Singapore | |||
- Altra Industrial Motion Taiwan Ltd. |
Taiwan | |||
- Warner Electric (Thailand) Ltd., |
Thailand | |||
- Altra Industrial Motion Netherlands C.V., |
Netherlands | |||
- Altra Industrial Motion Netherlands B.V., |
Netherlands | |||
- Warner Electric UK Group Ltd., |
United Kingdom | |||
- Warner Electric UK Holding, Ltd., |
United Kingdom | |||
- Wichita Company Ltd., |
United Kingdom | |||
- Hay Hall Holdings Ltd., |
United Kingdom | |||
- The Hay Hall Group Ltd., |
United Kingdom | |||
- Matrix International Ltd., |
United Kingdom | |||
- Matrix International GmbH, |
Germany | |||
- Bibby Group Ltd., |
United Kingdom | |||
- Bibby Transmissions Ltd., |
United Kingdom | |||
- Bibby Turboflex SA, |
South Africa |
- Turboflex Ltd., |
United Kingdom | |||
- Torsiflex Ltd., |
United Kingdom | |||
- Huco Power Transmission Ltd., |
United Kingdom | |||
- Huco Engineering Industries Ltd., |
United Kingdom | |||
- Dynatork Air Motors Ltd., |
United Kingdom | |||
- Dynatork Ltd., |
United Kingdom | |||
- Twiflex Ltd., |
United Kingdom | |||
- Saftek Ltd., |
United Kingdom | |||
- Bauer Gear Motor Limited, |
United Kingdom | |||
- Bauer Gear Motor GmbH, |
Germany | |||
- Bauer Gear Motor Europe GmbH, |
Germany | |||
- Bauer Gear Motor Slovakia s.r.o., |
Germany | |||
- Bauer Gear Motor Finland Oy Ab, |
Finland | |||
- Altra Industrial Motion Russia OOO, |
Russia | |||
- Altra Industrial Motion Ukraine TOV, |
Ukraine | |||
- Altra Industrial Motion (Changzhou) Co., Ltd. |
China | |||
- Warner Electric (Holding) SAS, |
France | |||
- Warner Electric Europe SAS, |
France | |||
- Lamiflex do Brasil Equipamentos Industriais S.A., |
Brazil | |||
- Altra Industrial Motion Denmark ApS, |
Denmark | |||
- S.B. Patent Holding ApS, |
Denmark | |||
- Svendborg Brake ApS, |
Denmark | |||
- Svendborg Brakes Espana S.A., |
Spain | |||
- Svendborg Brakes South Africa, |
South Africa | |||
- Svendborg Brakes Australia Pty. Ltd., |
Australia | |||
- Svendborg Brakes Korea Co. Ltd., |
Korea | |||
- Svendborg Brakes Chile Ltd., |
Chile | |||
- Svendborg Brakes India Ltd., |
India | |||
- Svendborg Brakes Shanghai Co. Ltd., |
China | |||
- Svendborg Brakes Trading (Shanghai) Co. Ltd., |
China |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-185588 on Form S-3 and No. 333-140349 on
Form S-8 of our reports dated February 26, 2014, relating to the financial statements and financial statement schedule of Altra Industrial Motion Corp., formerly Altra Holdings, Inc., and the effectiveness of Altra Industrial Motion Corp.s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Altra Industrial Motion Corp. for the year ended December 31, 2013.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 26, 2014
Exhibit 31.1
Certification of Chief Executive Officer
I, Carl R. Christenson, certify that:
1. I have reviewed this Annual Report on Form 10-K of Altra Industrial Motion Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
By: |
/s/ Carl R. Christenson |
|
Name: Carl R. Christenson | ||
Title: President and Chief Executive Officer |
Date: February 26, 2014
Exhibit 31.2
Certification of Chief Financial Officer
I, Christian Storch, certify that:
1. I have reviewed this Annual Report on Form 10-K of Altra Industrial Motion Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
By: |
/s/ Christian Storch |
|
Name: Christian Storch | ||
Title: Vice President and Chief Financial Officer |
Date: February 26, 2014
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Altra Industrial Motion Corp. (the Company) for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Carl R. Christenson, the President and Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: |
/s/ Carl R. Christenson |
|
Name: Carl R. Christenson | ||
Title: President and Chief Executive Officer |
Date: February 26, 2014
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Altra Industrial Motion Corp. (the Company) for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Christian Storch, the Vice President and Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: |
/s/ Christian Storch |
|
Name: Christian Storch | ||
Title: Vice President and Chief Financial Officer |
Date: February 26, 2014